Broad market index funds are facing an unprecedented concentration crisis. As of mid-2026, the information technology sector accounts for 38.33% of the MSCI USA Index and 44% of the MSCI Emerging Markets Index.
This surge is primarily fueled by artificial intelligence infrastructure demand. Semiconductor giants NVIDIA, Taiwan Semiconductor Manufacturing Co., and Samsung Electronics have seen market capitalizations expand rapidly, dragging entire national weightings upward with them.
Taiwan’s weighting in the MSCI EM Index recently rose to 23.76%. Combined with South Korea, these two nations now represent approximately 44% of the entire emerging markets benchmark through tech holdings alone.
Analysts at State Street and Schroders warn that IT now drives roughly 40% of recent index performance. Consequently, traditional diversification benefits are eroding. Financial or healthcare gains can no longer offset significant technology drawdowns when one sector commands such dominance.
Emerging markets investors face a specific mismatch. Funds marketed for geographic diversity across China, India, and Brazil are effectively functioning as concentrated semiconductor trades. This creates substantial vulnerability to geopolitical tensions around Taiwan and potential slowdowns in AI capital expenditure cycles.
Investors must scrutinize actual sector exposure rather than relying on fund labels. An emerging markets allocation that is 44% technology carries a fundamentally different risk profile than historical benchmarks suggest. Rebalancing toward equal-weight strategies or sector-capped indices may be necessary to mitigate these elevated concentration risks.