ETFs, Tokenization and Rising Hedge Fund Correlations

Wealthy investors and family offices are increasingly using ETFs to gain liquid, thematic exposure to commodities (including a strong gold rally), cryptocurrencies and AI strategies. Legacy asset managers are pivoting into the fast-growing ETF market—especially active ETFs—as institutional mandate opportunities narrow and ETF inflows reach record levels, with BlackRock’s iShares franchise remaining the dominant provider of low-cost passive building blocks. Tokenization of real-world assets is accelerating, with programmable tokenized funds and tokenized Treasuries beginning to connect capital markets to blockchain rails. Many hedge-fund strategies have shown historically high correlations to the S&P 500, undermining their diversification benefits. That correlation raises the potential for larger simultaneous losses if equity markets reverse, particularly as hedge funds, high-frequency traders and other market participants converge. Together, these trends are reshaping markets as investors chase liquid ETFs, tokenized assets and crypto while concentration in equity-linked strategies increases systemic risk.