Overcrowding and capacity in factor-based investing: Should we be worried?

Many investors combine concerns over overcrowding in factors with capacity fears. We want to help separate these terms and provide some clarity over the current state of factors. The difference between the following definitions is nuanced but critical. Capacity tends to be more rooted in fact, whereas overcrowding is subjective. As such, the general trend is to talk of overcrowding of a market, or factors on the whole, and capacity of a fund or specific strategy