Worries Grow That Hedge Fund Crowding May Amplify Risk in Crisis

Friday’s sudden equities rout after a months-long rally is renewing concerns that the unwinding of crowded trades could exacerbate market losses.

Before the painful selloff, stocks had been racing to all-time highs despite multiple wars and the specter of higher inflation. But with a group of semiconductor stocks driving outsized gains for the AI theme, leveraged ETF assets scaling new heights and volatility dispersion remaining elevated, questions had started to rise around concentration risk and how it could amplify the next bout of market stress.

One issue that’s become central is the very nature of the multi-strategy hedge fund ...