How concentrated are Emerging Markets funds?

Source: MSCI, 27/02/2026

Why this concentration matters

The tech giants of the emerging world are shaping the direction of the indices going forward. When one company grows to TSMC’s size, the entire benchmark becomes more sensitive to the factors that move that single stock: chip‑cycle swings, market sentiment towards Taiwan, and global tech appetite. Meanwhile, entire regions – Latin America, Brazil, South Africa, and parts of Emerging Europe – barely get a look-in.

This has real consequences for investors. If active managers choose to have less exposure than the benchmark to TSMC or its sidekicks, they can fall behind – even if they pick great stocks elsewhere. Being underweight a successful superhero can be performance kryptonite – investors that have been underweight the ‘Magnificent Seven’ in recent years will understand how this feels.

For passive investors buying the index as a whole, this now means putting a big chunk of money into just a few companies. If you believe diversification helps protect you, this level of concentration should give you pause for thought.

One potential positive for active EM fund managers is that there remains a multitude of opportunities across many industries. The tech sector itself is becoming more dispersed under the surface. Smaller, less well-known players that barely register in the index have been performing well too. Good active managers may be able to find these opportunities to help spread risk, whereas the benchmark won’t do that in meaningful size.

What’s really going on underneath the bonnet?

On a fundamental basis, EMs look healthier than they’ve been in over a decade. Advancements in technology, strong national finances, favourable demographics (in many regions), and wealthier populations are combining to create strong earnings potential for companies. A weaker US dollar stands to help too, lifting capital flows.

But the growing dominance of the ‘Fantastic Four’ means Asian and EM indices have become far more top‑heavy. Understanding this is vital when judging how risky a benchmark or fund is, or how actively-managed strategies are likely to behave relative to it. The message here isn’t to avoid EM funds. It’s simply to know what you own. Where your fund sits on the spectrum could make a significant difference to long-term returns.

In particular, investment trusts can be more concentrated than open-ended  funds such as OEICs and unit trusts because they aren’t restricted by the 10% per stock cap that funds must follow. Templeton Emerging Markets holds an overweight position in TSMC of about 15.4% for example. It holds Samsung Electronics, SK Hynix, and Tencent too, so it’s worth considering for those who wish to back the recent superheroes to fly higher. 

In contrast, if you want EM exposure without too much reliance on the ‘Fantastic Four’, one option is the Lazard Emerging Markets Fund, managed by long‑standing specialist James Donald. His strategy leans towards “quality value”, investing in companies where the combination of profitability and valuation makes sense. Lazard has stated EM indices have become “lop‑sided,” and that now is a good time for stock pickers to find under‑represented opportunities through disciplined research.

Looking for more investment ideas?

Our Preferred List highlights what our Collectives Research Team considers to be good quality investment options across the major investment areas. It includes a range of funds, investment trusts and ETFs.  

The list:  

• Helps provide ideas for retail investors happy to build and manage their own investment portfolios.
• Includes actively managed funds and investment trusts, as well as passive / index tracker funds.
• Shouldn’t be viewed as a personal recommendation to buy. The removal of a fund from the list should not be viewed as a suggestion or recommendation to sell holdings.