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View all search resultsAI has not killed equity diversification
The AI trade may have room to run, but as it grows more crowded, investors are looking for true diversifiers, and several options are hiding in plain sight.
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People visit the Alibaba booth during the World Artificial Intelligence Conference (WAIC) in Shanghai, China on July 18, 2026. (AFP/Hector Retamal)
T
he artificial intelligence trade may have room to run, but as it grows more crowded, investors are looking for true diversifiers, and several options are hiding in plain sight.
Vast spending on AI over the past year has boosted corporate earnings, and companies associated with this splurge have been carried higher on a wave of enthusiasm, with AI stocks, as represented by an iShares ETF, doubling from June 2025 to June this year before a recent pullback.
The “momentum” factor, where winning stocks keep winning, has outperformed every other factor over the past five years, gaining nearly 200 percent, according to BlackRock. Diversification has not been a rewarding strategy.
But that might change. The AI trade is now the most crowded it has ever been, according to Goldman Sachs, causing many investors to ask which areas of the market are unconnected to this euphoria and could thus potentially offer an offset if the AI boom falters.
Here are three options.
First, health care.
Investing in a global equities index is currently not as diversified a strategy as you might expect. Based on our analysis of the past 12 months of global stock market returns, the MSCI All Country World Index had a correlation of 0.79 with AI stocks and 0.76 with the momentum factor, meaning the returns were closely connected.
