Emerging markets diversify portfolios from U.S. AI concentration

Investors are reallocating to emerging-market stocks to reduce exposure to a small group of large U.S. companies tied to artificial intelligence. The 10 largest firms in the S&P 500 account for roughly 40% of that index.

The Goldman Sachs ActiveBeta Emerging Markets Equity ETF (GEM) has returned 17.8% year-to-date and 33% over the past 12 months. The fund carries a 35 basis point expense ratio and tracks the Stuttgart Goldman Sachs ActiveBeta EM Equity Index.

The index applies a multifactor methodology that emphasizes value, momentum and quality when selecting holdings. That approach guides the fund’s weighting and stock selection.

GEM holds significant positions in East Asian technology companies, including Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) and SK Hynix (SKHY). The fund also has sizeable allocations to equities in China and India.

Emerging-market stocks provide exposure to parts of the global technology supply chain and to growing domestic markets, offering different country and sector exposures compared with the largest U.S. AI-capable companies.

Global markets have faced pressure from geopolitical tensions, including conflict affecting the Strait of Hormuz, which has prompted some investors to reassess concentration risk in their portfolios.

Across multiple time frames, GEM has outperformed the average return for the Emerging Markets Equities ETF category for the year-to-date, 12-month and three-year periods, based on ETF performance data.

Investors and financial advisers monitoring concentration in U.S. indexes are evaluating emerging-market ETFs, including GEM, as potential components of diversified portfolios for the remainder of the year.