Danger Lurks for Stock Managers Chained to Crowded Trades
- BofA identifies three mantras that may pose danger for funds
- Fund performance worsening as their ignored stocks rebound
Pedestrians stand in front of monitors displaying the U.S. Dollar and Euro exchange rates.
Photographer: Bloomberg/BloombergThis article is for subscribers only.
It’s an old saw of professional money management that nobody gets fired for buying IBM. But in 2019, the perils of groupthink may be creating their own kind of career risk for stock investors.
So says Bank of America, highlighting dangers created when droves of funds flock to the same stocks regardless of cost. In one extreme example tied to the vogue for momentum trading, shares with the fastest price appreciation over the past 12 months are trading at valuations that are almost 25% higher than normal, the bank’s data showed.