The MSCI Emerging Markets index has become distorted, with three technology heavyweights – Taiwan Semiconductor, Samsung Electronics and SK Hynix – now accounting for almost 30% of it. Taiwan and South Korea make up nearly half the index, Asia totals 80% and technology is 44%.
Returns have been strong lately, driven by those tech names, which are up 90%, 238% and 422% respectively over the last year. But as MoneyWeek notes, this is not what investors expect when buying into emerging markets.
Utilico Emerging Markets (LSE: UEM) invests in infrastructure, utilities and related assets, so it has no exposure to the tech giants. Its geographic balance is different: Brazil is 22%, other Latin America 17% and Eastern Europe including Greece 9.5%. It is notably underweight China at just 9%, mostly in Hong Kong, versus 20% in the index. Co-manager Charles Jillings said: "We find China very difficult, as regulations can change overnight."
Mobius Investment Trust (LSE: MMIT) invests in "dynamic small and mid-sized companies" rather than the giants. Its £136 million portfolio holds just 25-30 stocks and has minimal overlap with the MSCI Emerging Markets index. While 38% is invested in Taiwan and Korea and 31% in technology, this has been reduced in favour of industrials and financials. China accounts for less than 3% of the portfolio.