By Lori Ioannou
Seeking an alternative to the Magnificent Seven tech stocks? You might want to look overseas, investment professionals say.
While the Magnificent Seven -- Google parent Alphabet, Amazon.com, Apple, Facebook parent Meta Platforms, Microsoft, Nvidia and Tesla -- have carried investors to major gains since 2023, the stocks haven't been as lucrative this year. The Bloomberg Magnificent 7 Total Return Index that tracks these stocks is down 12.9% for the year to date through March 31, with Microsoft hit hardest.
A number of investment pros, however, see similar return potential for stocks in emerging markets that are profiting from the global artificial-intelligence supply chain. That's because many companies that produce semiconductors, hardware and commodities needed for the AI data centers are based in emerging markets like South Korea, Taiwan and Peru.
"It's a way for U.S. investors to tap in to the AI global supply chain and diversify from the Mag 7 growth stocks that have dominated U.S. equity portfolios," says Aniket Ullal, senior vice president and head of exchange-traded-fund research and analytics at CFRA Research.
Minimize risks
But investing in emerging markets can be tricky. The securities can be more volatile than those in developed countries and are prone to price swings when unexpected events arise -- like a supply-chain disruption or a sharp change in commodity prices, says Jay Jacobs, BlackRock's U.S. head of equity ETFs.
As such, investment pros recommend that individual, or retail, investors looking to get into emerging markets do so through ETFs instead of individual stocks. ETFs provide diversification across many companies, lower transaction costs, tax benefits and reduce risks due to geopolitics, volatility and currency fluctuations.
They also recommend that retail investors allocate only a small percentage of their equity portfolio in emerging-markets ETFs. How much you choose to invest depends on your financial objectives, time horizon and risk tolerance.
According to Jacobs, portfolio managers often use the MSCI All Country Index -- a benchmark tracking large and midcap stocks in 23 developed countries and 24 emerging markets -- when assessing asset allocations. It is currently weighted 62% in U.S. stocks, 31% in developed-country stocks, and 7% in emerging-market stocks.
Pros' picks
Investment pros like a number of sector- and country-focused ETFs in emerging markets that are benefiting from the AI boom.
One popular fund Jacobs points to is the $15.7 billion iShares MSCI South Korea ETF $(EWY)$, which has attracted $5.8 billion in inflows so far this year. The ETF has year-to-date returns of 22.5% through March 31, and one-year returns of 127% thanks to big stakes Samsung Electronics and SK Hynix, two major AI chip makers. The fund's expense ratio is 0.59%.
Another is Matthews Korea Active ETF (MKOR), a $92.1 million active fund that invests at least 80% of its assets in the common and preferred stocks of South Korea companies. Samsung and SK Hynix make up 27% of its portfolio, says CFRA's Ullal. Year to date through March 31, the fund has returned 26.8% and one-year returns are 107.9%. The fund's expense ratio is 0.79 %.
Todd Rosenbluth, head of research at TMX VettaFi, recommends Franklin FTSE Taiwan ETF (FLTW), a $1.46 billion fund that tracks the performance of the FTSE Taiwan Capped Index of large and midcap Taiwanese companies. Its top holding, comprising 21% of the portfolio, is Taiwan Semiconductor Manufacturing, the world's primary maker of advanced AI chips. Year to date, the fund has returned 11.9% and has one-year returns of 61.6%. Its expense ratio is 0.19%.
Emerging-markets ETFs that have holdings in mining companies that produce copper, silver and other metals needed for AI and data centers are also looking attractive, say investment pros.
These include iShares MSCI Peru ETF $(EPU)$, a $518 million fund that invests more than 40% of its holdings in copper, silver and other metal mining companies based in Peru. The fund is up 12.9% year-to-date and has one-year returns of 89.2%. Its expense ratio is 0.59%.
While these ETFs tied to the AI boom have performed well over the past 15 months, they come with risks. Many are single-country funds that are concentrated in few stockholdings, says Dan Sotiroff, associate director of passive-strategies research at Morningstar. That makes them more susceptible to any localized economic downturn or currency fluctuation than a more geographically diverse fund, he says.
Still, some investing pros say emerging markets could have room to run higher. "Despite the risks, investor enthusiasm for these emerging-market equity ETFs should continue in the months ahead as demand for AI chip manufacturing and computer power grows," says Jacobs. "After all, 75% of the world's chip manufacturing is concentrated in East Asia."
Write to reports@wsj.com
(END) Dow Jones Newswires
April 10, 2026 10:00 ET (14:00 GMT)
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