We study the relationship between crowding and performance in the active mutual fund industry. We construct a fund-specific measure of crowding using the equity holdings overlap of 17,364 global funds. Funds in the top decile of crowding underperform passive benchmark funds by 1.4% per year. The impact of crowding on performance cannot be attributed to diseconomies of scale. We explore several mechanisms: a preference for liquid stocks, externalities of peer fund flows, and a coordination problem. We find strongest support for a preference for liquid stocks. Our findings reveal that the tendency of managers to follow correlated strategies is a major concern for fund investors.