Three chip stocks are reshaping emerging-market fund risk

Three technology stocks now account for 27% of the MSCI Emerging Markets Index, creating a difficult choice for fund managers trying to balance benchmark performance with risk controls. Taiwan Semiconductor Manufacturing Co. made up 13.2% of the index as of June 30, while Samsung Electronics and SK Hynix also held weightings above 6%.

Many funds limit individual holdings to 5% or less, but matching the index would require much larger positions. Managers have responded differently, with some heavily overweighting the three stocks and others reducing or avoiding them, choices that can significantly affect returns when the shares surge or fall.

Alternative emerging-market benchmarks with slightly lower weightings in the three companies could ease the pressure, but the difference remains small.

Read the full story at morningstar.com.