Investors Aren’t Abandoning AI, They’re Diversifying Around It

SPEAKER_1 (0:00)

I do want to bring Sam back into the conversation, though welcome, and our next guest joining us, Kristy Akullian, head of iShares Investment Strategy for the Americas at BlackRock. Kristy, great to have you back with us. Now, we were talking to our last guest about portfolio positioning as well, but we didn't talk about the overall health of the market. So I want to start there with you. I mean, we've got the S&P 500 up about 14% or so year to date, but as we look over the last month, we've got less than a third of S&P 500 stocks that were higher.

How are you looking at the health of the overall market right now?

Kristy Akullian (0:33)

Yeah, absolutely. It's great to be back. As you know, we have seen breadth in the market decline over the course of this summer. But I think we're still encouraged by the breadth of earnings growth. It's not just a story about performance. I think we're really focused on fundamentals and the earnings growth picture has looked much broader than the performance one.

Even though breadth has declined a little bit, I think the fact that the index is still only a little bit off of its all time highs and has held up pretty well is a good sign for going forward. So we still feel constructive on equities, even though I know we've certainly seen a bit of turbulence in US equity markets recently.

Sam (1:15)

Yeah, certainly. And it feels like we've got more to prove with this bounce today. Obviously, like we're seeing in semis, one day doesn't really define a trend because we've come off eight sessions of declines. But it really feels like we're kind of on this like AI or anti-AI type of trade in this market, like an on and off switch right now.

And you certainly see that rapid fire rotation. Is that showing up as far as flows into ETFs as well?

Kristy Akullian (1:43)

Yeah, it actually is. And maybe contrary to what you might expect. So as you mentioned, you know, we've been on a, you know, a pretty remarkable run of negative days in terms of semiconductor performance. But we actually saw the largest week of inflows into levered ETFs last week. So we've got pretty clear evidence that investors are stepping in to buy the dip here. A lot of that was concentrated in semiconductors and some of the places that we saw the market down the most.

But you know, performance is not indicative of how investors are allocating right now. And we're still hearing appetite from the investor community to get access to some of these names that have the highest earnings growth.

So certainly, you know, I know we talked about it last time, semiconductors and the AI trade in general, we expected to be a more volatile component of the portfolio, but it isn't one that investors are willing to abandon. I think instead of abandoning it, they're getting a little bit smarter about how they diversify around it.

SPEAKER_1 (2:41)

And Kristy, you just brought up a great point there. You said the performance is not necessarily an indicator right now of where people are allocating. Certainly, Semi is a good example of that, but where else are you seeing trends where perhaps the performance isn't holding up, but we aren't seeing a movement away from the area?

Kristy Akullian (3:00)

Yeah. And even broader, I think, than just semiconductors, we have seen very large inflows into the technology sector. And if you look at the full fund flow universe, there's actually been a preference for more allocations to sectors and themes, rather than sort of the broad-based indices or broad-based categories like you have seen in years past. So I think investors are getting a little bit more precise about how they're allocating as dispersion rises in the market, as opposed to moving away from the market overall.

So yes, certainly more volatility. But even so, we've seen record inflows into ETFs. In fact, already the count of total flows to ETFs in 2026 already surpassed 2025's full year record. So I think that they're choosing where to allocate in the vehicle that they're choosing how to do so and is certainly through ETFs.

Sam (3:54)

Yeah, I saw your stats. I mean, that really caught my attention actually, that US listed ETFs attracted one and a half trillion through September. That's matching all of the record of just last year in just those nine months. So certainly staggering. What about fixed income right now, Kristy? Because last week really was a story of bond buying. So I'm wondering what kind of flows you're seeing there.