Over the past several years, significant ink has been spilled on the issue of concentration risk as it relates to the S&P 500. It hasn’t gone anywhere as tech accounts for nearly 36% of the index and the top five holdings combine for more than 27%.
There was a time when international ETFs were seen as the elixir for domestic concentration issues. Some still are, but advisors and investors seeking diversification need to highly selective when it comes to emerging markets ETFs because some have become nearly as highly concentrated as S&P 500 equivalents.
For example, it used to be the biggest complaint about the MSCI Emerging Markets Index and its well-known counterparts was that those gauges were too heavily allocated to Chinese stocks, often to the tune of 30% or more. Sector-level concerns dissipated over times as developing economies evolved, fostering burgeoning tech industries, thus decreasing ETFs’ heavy tilts to energy and financial services.
Yet here we are discussing the $154.9 billion iShares Core MSCI Emerging Markets ETF (IEMG) having a 36.07% weight to tech stocks. In a scenario reminiscent of Nvidia’s (NVDA) ascent in U.S. indexes, the sudden concentration issue with some emerging markets ETFs is largely because of semiconductor companies.
Let’s Talk Taiwan
Home to Taiwan Semiconductor (TSM), the largest semiconductor foundry in the world, Taiwan has long been prominent in tech circles. It’s also been a prominent part of pure beta emerging markets ETFs, but rarely as prominent as it is today.
“It happened rather quietly, without much fanfare and only held for one trading day, yet on Wednesday, April 15th, 2026, an historic shift in emerging benchmark weights occurred, 19 years in the making,” notes Rareview Capital founder Neil Azous. “Taiwan Semiconductor’s quarterly earnings results announcement created significant inertia, pushing Taiwan’s weight (~23.70%) in the MSCI Emerging Markets benchmark above MSCI China’s ~23.67% weight for the first time since April 2007.”
As of May 5, that stock accounts for 12.65% of IEMG’s roster and Taiwan represents 25.24% of the ETF’s geographic weight, or 438 basis points more than the fund assigns to Chinese stocks. That’s likely not the level of diversity investors are hoping for when tapping into an emerging markets ETF, but believe it or not, Taiwan isn’t the only example of a tech-heavy country gaining prominence in emerging market indexes.
More Chip Considerations
Last month, I profiled the newly minted Roundhill Memory ETF (DRAM). That ETF has burst out of the gates in terms of performance helped in large part by two giant South Korean memory chip names: Samsung and SK Hynix. The former just entered the $1 trillion market value club and the duo combines for more than 9% of the MSIC Emerging Markets Index, meaning just three stocks represent nearly 22% of that gauge.
Again, that’s probably not the level of diversification some investors bargained for, but it’s working this year as IEMG is up almost 19%.
“More broadly, alongside South Korea’s two tech heavyweights – Samsung Electronics and SK Hynix – and China’s national champions – Tencent and Alibaba – the top five stocks total ~30% of the MSCI EM index,” adds Azous. “So much for concentration risk, only isolated to the US…”
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