“Cash, precious metals, cryptocurrencies” is the new norm for peak stock market risk

With a handful of large-cap technology and AI stocks at the top of the list S&P500 Index dominating the US market in a way unprecedented in history, portfolio concentration risk has taken on a new form, and investors have long been told to follow some version of Warren Buffett’s stock advice to “never bet on America.”

But with nine tech stocks that rank higher than Buffett Berkshire Hathaway weighted in an index representing almost 40% of the market, the imbalance is causing investors to look for new ways to hedge. Buffett may also disagree with their answer, even though he did long doubting voice on the value of precious metals, but many people are moving in this direction cashgold and cryptocurrencies to find uncorrelated returns and volatility protection.

“If you break down ETF flows into categories, it’s cash, precious metals and then crypto,” Todd Sohn, senior ETF specialist and technical strategist at Strategas Securities, said on CNBC “ETF Edge” earlier this week, referring to the trades that have been most popular among investors this year. “They are clearly being embraced by the more mainstream [investors]”

He linked this tendency directly to concentration risk. “Some investors realize they have a lot of exposure to technology and artificial intelligence, so they need to diversify and find uncorrelated assets,” Sohn said.

Although some experts recommend surprise-inducing assignments to gold and cryptocurrencies, and there are more of them we are talking about a 60-20-20 portfolio To replace the classic 60-40 equity bond mix, most allocations are still small but growing.

“Most of the conversations I’m having and the allocation documents I’m reading are talking about one to three percent for cryptocurrencies and three to seven [percent] on gold,” Sohn said.

Gold experienced hard weekwith significant sales but up over 60% on the year as it trades this week, it’s no big surprise to see profits being taken. Gold has struck record high above $4,400 this month, supported by central bank purchases, dollar depreciation and persistent geopolitical risk, the so-called “degrading trade”.

The SPDR Gold Shares (GLD) approximately $6.8 billion flowed in over the last month, in a year in which gold funds achieved nearly $40 billion in net inflows from investors.

Crypto, a newer security that is becoming more attractive to investors, also had a good year, although the price of gold more than tripled bitcoinsreturn of 17% while ether gained 15%. The launch of spot bitcoin ETFs has brought institutional money into the space and transformed digital assets into legitimate wallet tools. The iShares Bitcoin Trust (IBIT) According to VettaFi, it is one of the largest cash bitcoin ETFs, managing nearly $90 billion in assets.

Sohn says using ETFs to access new approaches to the market has been fundamental to its history and evolution. “We started in large-cap stocks in 1993, gold and emerging markets in 2004, and now we’ve moved into call and high-yield products,” Sohn said.

This also means that investors can manage risk in different ways. Instead of relying on high-yield stocks or simple bond funds, they can build portfolios with derivatives-based ETFs or alternative exposures.

Crypto tells a similar story. Thanks to now regulated ETFs, bitcoin and ethereum have moved from speculative trades to recognized components of diversified strategies. “The pace of development and innovation that is driving these ETFs is lightning fast,” Sohn said.

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