Emerging market stocks have rivaled the S&P 500’s 20%-plus annualized gains over the past three years, but they may offer less diversification than investors expect. About 50% of the S&P 500 is weighted in AI-related companies, while the average emerging markets fund has over 40% in technology—much of it in Taiwan Semiconductor, SK Hynix, and Samsung Electronics. Both markets could therefore face sharp losses if the AI rally falters.
Without AI-related stocks, the broader U.S. market is roughly flat in 2026, while emerging markets’ 21% gain falls to 8%. Investors may therefore underestimate how much their returns depend on one sector.
About 50% of the S&P 500 is weighted in AI-related companies, while the average emerging markets fund has over 40% in technology—much of it in Taiwan Semiconductor, SK Hynix, and Samsung Electronics.
Without AI-related stocks, the broader U.S. market is roughly flat in 2026, while emerging markets’ 21% gain falls to 8%.
We identified four funds ranking highly on the Flextion platform with substantially less AI exposure. Over the next 12 to 24 months, they are expected to match or outperform emerging markets benchmarks while adding valuation and income exposure that may limit downside risk.
Funds worth a closer look:
- Schwab Fundamental Emerging Markets Equity Index Fund (FNDE)
- PIMCO RAE Emerging Markets Fund (PEIFX)
- Dimensional Emerging Markets Value (DFEV)
- WisdomTree Emerging Markets High Dividend Fund (DEM)
Views are the author’s as of September 29, 2026 and are not investment advice.