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“Fire! Fire!  Is Low Volatility a Crowded Trade?” - Benefits and Pensions Monitor Article by Harry Marmer

By: Harry Marmer, CFA and Executive Vice President, Hillsdale

Picture George Costanza screaming ‘FIRE! FIRE!’ and barreling his way out the door knocking over old women and children and you will have a very good visual idea as to what a ‘crowded trade’means to an investment manager. Conceptually, a crowded trade occurs “when a security or strategy has attracted a ‘large’ group of investors” and “a crowded trade becomes bad’ when everyone runs for the exits at the same time.”1 

The rise in popularity of low volatility strategies has been nothing short of breathtaking over the past three years with both the explosion of investment research articles and the launch of new products based on this concept.2 

It is not surprising that with all this recent attention towards low volatility strategies, some investors have asked ‘are these strategies becoming crowded?’ We address this question and play investment detective investigating potential signs of crowding in low volatility based strategies.

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