Emerging Markets Are Growing Fast, but Investors Want More Than Tech
Buying emerging markets for diversification is starting to look like taking a different road to the same destination. Nine of the MSCI Emerging Markets Index’s ten largest holdings are now tech stocks, making the benchmark increasingly tied to the AI trade. That shift is fueling demand for active ETFs that can look beyond the index.
Concentration risk: Passive EM exposure isn’t as diversified as it used to be. The MSCI Emerging Markets Index returned 24% this year, but much of that gain came from just five tech stocks, led by TSMC. Those five names now make up roughly 30% of the benchmark, prompting Pictet Asset Management’s Mark Boulton to note that “up to 40% of what you’re buying is a handful of very big tech stocks.”
- TSMC, Samsung, and SK Hynix now make up ~28% of the MSCI Emerging Markets Index, giving it a concentration profile that increasingly mirrors the US AI trade.
- The iShares MSCI Emerging Markets ETF, once a broad EM bet, now provides semiconductor-heavy exposure tied to the same AI theme driving US markets.
The Diversification Reboot
Every emerging-markets ETF launched in 2026 has been actively managed, reflecting growing skepticism of passive EM investing. Firms like T. Rowe Price and Pictet are pitching funds that look beyond the benchmark, while ~90% of new US ETF inflows went to active strategies through Q1. The opportunity is massive, with emerging markets projected to create ~$12T in new financial wealth by 2030. The strategies vary, but the goal is the same: escape the index.
- T. Rowe’s TEMR ETF targets smaller semiconductor suppliers benefiting from AI demand rather than the mega-cap chip stocks dominating indexes.
- Pictet’s RISE fund focuses on regional banks and commodity firms, while excluding China, South Korea, and Taiwan entirely.
The fee question: Northwestern Mutual’s Garrett Aird cuts through the enthusiasm, “While passive EM may not deliver what many investors assume it does, the solution to that problem is not automatically an active fund with higher fees.” The opportunity is real, but investors still have to decide whether active management is worth the cost or if lower-cost country ETFs offer a better path to diversification.
