Contrarian: The rise of the ever more crowded trade

Crowded trades in transparent markets

Over the last decade, professional investors have become obsessed with measuring, gauging, and avoiding risk.

As a result, whole ecosystems of fund management have been constructed to help retail investors avoid the dangerous embrace of market volatility and turbulence. We have seen the rise of risk parity investing, absolute return investing, and low volatility/minimum variance indexing – all designed to dampen down risk within a portfolio. The logic for this marketing-led push is overwhelming in professional terms. Underperforming in a bullish phase might earn an adviser a slap on the wrist and an annoyed telephone call but screwing up on a big capital loss for a client (or two) is almos...