Cinthia Murphy on Yahoo Finance

The third quarter saw a significant surge in momentum across AI, crypto, and gold ETFs, reversing the defensive positioning seen in the first half of the year. Investors are returning to a "risk-on" approach, flocking to growth names and popular tech stocks, particularly those related to AI. Despite recent tech sell-offs, flows into AI ETFs remain strong, with some funds gathering substantial assets.

Simultaneously, alternative assets like Bitcoin and gold are also attracting significant investment. Bitcoin, viewed as both a risk asset and a diversifier, has seen over $25 billion in ETF inflows year-to-date. Gold ETFs have garnered $25 billion in assets year-to-date as well, indicating sustained interest. The crypto space, in particular, benefits from a more conducive regulatory framework and growing interest from retail, advisory, and institutional investors, with a focus on Ethereum development.

The relationship between price and ETF flows is complex; while price sell-offs can signal overvaluation, they also present buying opportunities. Flows are considered a lagging indicator, reflecting past investor behavior rather than immediate future direction. This suggests that current strong flows, especially into AI and crypto, indicate sustained investor conviction despite market fluctuations.

• The third quarter witnessed a shift from defensive to "risk-on" investment strategies, driven by AI, crypto, and gold.
• AI-related ETFs have seen significant inflows, mirroring a return to growth stocks and popular tech names.
• Bitcoin and gold ETFs have attracted substantial assets, with Bitcoin ETFs receiving over $25 billion and gold ETFs $25 billion year-to-date.
• Favorable regulatory clarity is boosting investor sentiment and interest in crypto assets, particularly Ethereum.
• ETF flows are considered a lagging indicator, suggesting that current inflows reflect ongoing investor confidence despite market volatility.

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Q3 ETF Momentum Shift [0:00]

• The third quarter experienced a strong wave of momentum in AI, crypto, and gold ETFs.
• This contrasts with the defensive positioning and diversification focus observed in the first half of the year.
• There's a notable return to an AI theme, growth names, and a "risk-on" sentiment.
• Popular ETFs, including those focused on big tech and AI, are gathering significant assets.
• Over 20 to 30 AI ETFs are currently available in the market.
• Investors are flocking to equity risk and well-performing large-cap and mega-cap names.
• They are also maintaining diversification strategies implemented earlier in the year.

This period marks a clear shift in market sentiment, moving away from caution towards embracing higher-growth, potentially riskier assets. The strong performance of AI and big tech ETFs highlights renewed investor confidence in these sectors.

"It's been an interesting market because we're seeing folks flock to the equity risk flock to the the names that we've known in the past couple years that have done really well your large cap mega cap names but remain invested in some of the diversification they've been doing since the beginning of the year."

Alternative Asset ETFs: Bitcoin and Gold [1:23]

• Bitcoin, seen as both a risk asset and a diversifier, is gaining traction.
• Gold ETFs are attracting significant assets, with $25 billion year-to-date.
• Gold ETFs continue to pick up assets as the year progresses.

The sustained inflows into both Bitcoin and gold ETFs suggest investors are seeking a blend of growth potential and safety, acknowledging their roles as both risk and diversification plays.

AI Trade and ETF Flows [1:42]

• The relationship between price and flows in the AI trade is being examined, especially following recent tech sell-offs.
• Flows are considered a great lagging indicator, reflecting where investors have been rather than where they are going.
• A tech sell-off could lead to nervous investors exiting ETFs due to perceived overvaluation.
• Alternatively, a sell-off can present a buying opportunity with lower entry points, attracting further investment.
• Momentum in stocks like Nvidia and funds like ARK K (a top 10 asset gatherer in Q3) indicates building interest.
• It remains to be seen whether this represents a "buy the dip" strategy or a rebalancing due to prior price run-ups.

The dynamic between price movements and investor flows highlights the dual nature of market reactions: some investors retreat from perceived risk, while others see dips as opportunities.

Crypto Assets and Market Sentiment [3:09]

• Crypto assets are experiencing considerable positive momentum.
• A more conducive regulatory framework has significantly improved investor sentiment.
• Advisor surveys indicate that a clearer regulatory landscape is making advisors more optimistic about crypto.
• Investment interest in crypto is growing across the advisory channel and booming in the retail channel.
• Institutional players are increasingly entering the crypto space, especially concerning Ethereum.
• There's significant development and conversation around building on the Ethereum blockchain.
• Demand for crypto exposure remains strong, with over $25 billion invested in Bitcoin ETFs and over $10 billion in Ethereum ETFs.
• Funds like BTCI (Bitcoin plus income through options) have also attracted substantial assets, with $500 million this year.

The crypto market is being propelled by a combination of improved regulatory clarity, growing acceptance across different investor segments, and active development within the space, particularly for Ethereum.

"So the crypto assets have have a lot of things going for them right now."