Aapryl’s Portfolio Crowding Module analyzes portfolio data to identify and manage “crowded trades.” Crowded trades, also called portfolio crowding, add risk to portfolios. They can be especially risky when negative shocks hit the markets and force managers to liquidate positions. These “fire sales” may cause losses for all investors following a similar strategy and result in further liquidations, driving stock prices into a downward spiral.
Our research has found that portfolio crowding can occur among factor exposures as well as specific positions. The financial crisis’ “quant meltdown” is a classic example of this where “factor crashing” led to significant portfolio losses. Portfolio Crowding risk also affects so-called “unanchored” strategies, such as Momentum or Growth, that do not rely on a consistent or independent estimate of fundamental value.
We use three different methodologies to measure and predict factor crowding:
Market activity has been increasingly leveraged to certain factors, so determining the degree of factor crowding in a portfolio is essential to making informed factor allocations and managing risk.
Aapryl’s Portfolio Crowding module allows users to determine degrees of factor crowding within portfolios, allowing for allocators to target less crowded factors, increasing the likelihood of outperformance.
With Crowding, you can better understand how the factors within a portfolio are behaving in the market.
Select a product, and provide the underlying holdings, and benchmark.
See a detailed Crowding analysis of each factor, and how they behave individually over time.