Key Takeaways
- Among UK-domiciled active funds, Fidelity Asia was the best performer in the first half 2026.
- Three key stocks have driven Asia funds higher: TSMC, SK Hynix, and Samsung Electronics.
- Quality growth funds and India struggled in the first six months of 2026.
Funds investing across Asia and emerging markets topped the rankings in the first six months of 2026, as they benefited from soaring demand for semiconductor manufacturers and memory chip producers supplying the global AI boom.
Although the Magnificent Seven have driven global equity returns for much of the past five years, the companies building the hardware behind artificial intelligence in South Korea and Taiwan have propelled the year’s best-performing funds so far.
Bronze-rated Fidelity Asia, managed by Teera Chanpongsang since 2014, ranks top among active funds with a return of 49.49%.
“The dominant theme has been AI infrastructure,” says Mathieu Caquineau, a Morningstar director of manager research. “The build out of AI infrastructure has had a huge impact on emerging markets, particularly Korea and Taiwan.”
The AI Stocks Driving Asia Funds Higher
The biggest beneficiaries have been TSMC 2330 in Taiwan, the world’s largest semiconductor manufacturer, and South Korea’s SK Hynix 000660, a leading producer of high-bandwidth memory chips used in AI data centers. Samsung Electronics 005930 has also enjoyed strong gains as demand for AI hardware has accelerated.
Those three stocks account for 30.6% of Fidelity Asia’s portfolio, underlining just how concentrated the AI infrastructure theme has become.
“Asia has done very, very well on the back of the AI trade,” says Ben Yearsley, co-founder at Fairview Investing. “TSMC, SK Hynix and Samsung have been flying. It’s still an AI trade, but it’s the picks and shovels that are doing really well.”
He adds the league of AI-champion stocks has broadened beyond the US.
“It isn’t just a US play anymore. The managers of the Polar Capital Technology Trust and Global Technology fund recently pivoted their portfolios toward emerging markets and Asia, away from the US.”
Asia Funds Lead the Way in H1
Other top-performing Asian equity strategies include:
- T. Rowe Price China Evolution Equity
- Fidelity Emerging Markets
- abrdn Emerging Markets
- Schroder Asian Alpha Plus
- Schroder Asian Income
Caquineau says the region has finally enjoyed the recovery investors had been waiting for. “Emerging markets had been out of favor for a very long time. Now we’re seeing a recovery, led by Taiwan and Korea because of their exposure to AI infrastructure.”
Despite the strong run, he says investors should not assume the opportunity has passed. “Valuations across emerging markets remain attractive relative to US and European equities. You need to be selective because some markets have become quite concentrated, but there are still opportunities.”
According to Fairview’s Yearsley, Asia’s investment case extends well beyond the current AI cycle.
“If you’re investing for the next decade or two, you want to be overweight Asia. That’s where the growth is coming from, where demographics are stronger, debt levels are lower and the middle classes continue to expand,” he says.
Concentration Risk Increases in Asia
Meanwhile, JPM Emerging Markets is the only Gold-rated fund in the top 10. Managed by Austin Forey, Leon Eidelman, and John Citron, it returned 34.09% during H1. Like Fidelity Asia, its three largest holdings are SK Hynix, TSMC, and Samsung Electronics, accounting for 27.8% of the portfolio.
“They have one of the strongest research platforms in emerging markets and a very experienced team. It’s a time-tested investment process and remains one of our highest-conviction funds,” says Morningstar’s Caquineau.
Both experts also caution that the rally has become increasingly concentrated, creating renewed benchmark risk. Passive investors have become more exposed to Taiwan and South Korea through a handful of technology stocks, while active managers can choose whether to follow the benchmark or diversify elsewhere.
“It has been a very narrow market,” says Caquineau. “A relatively small number of AI-related stocks have generated a significant proportion of returns. You need to be selective because some funds are heavily exposed to overheated markets like Taiwan and Korea.”
Yearsley puts it more simply: “Without TSMC you haven’t got any of it.”
Despite AI Stocks Driving the Rally, Income Funds Also Shine
One other trend in the first half has been the strength of income-focused portfolios at a time when growth stocks and funds have prospered.
“I was surprised to see so many income and dividend funds performing well,” says Caquineau. “Financials have had a strong year and that may explain part of it.”
Outside Asia, BNY Mellon US Equity Income and JPM US Equity Income were among the top performers, returning 14.43% and 13.74% respectively.
The period was broadly positive for equity investors, with 299 of the 330 Morningstar-rated equity funds analyzed delivering positive returns, showing that investors did not need to own specialist technology strategies to participate in the rally.
The Funds That Underperformed in H1
While AI infrastructure rewarded investors exposed to Asia, it created headwinds for many traditional quality-growth managers.
Ninety One Global Franchise, Morgan Stanley Global Brands, and Lindsell Train UK Equity were among the weakest performers as investors rotated away from mature, defensive businesses toward companies directly benefiting from AI spending.
“The quality style simply hasn’t been working,” says Yearsley. “Nobody’s interested. Quality companies and quality managers are all struggling.”
Caquineau says the trend also reflects AI’s disruptive effect on established software and consumer franchises. “Many of these mature global companies simply don’t have exposure to the AI momentum that has dominated markets this year,” he says.
India-focused funds have also disappointed, with Jupiter India, Stewart Investors Indian Subcontinent All Cap, and FSSA Indian Subcontinent All-Cap all appearing toward the bottom of the rankings.
Unlike Taiwan and South Korea, India’s market has little direct exposure to AI infrastructure.
“It’s a market dominated by banks and consumer businesses,” says Caquineau. “It doesn’t really participate in the AI story.”
High valuations, weakening earnings expectations, and rising oil prices earlier in the year compounded the problem for an economy heavily dependent on imported energy.
Are There Buying Opportunities in Under-Performing Categories?
Yearsley says the outlook for the country is improving, however. “India had almost the perfect storm—expensive valuations, weakening earnings expectations, and higher oil prices. But oil has come back, valuations have eased and I’d say the outlook is getting better.”
He adds the recent weakness could present a long-term buying opportunity: “I’m looking at India over the next 10, 20 or 30 years. It’s having a difficult period, but I think today’s investment will look very attractive over that time frame.”
UK smaller companies have also endured another disappointing six months, with Liontrust UK Smaller Companies, rated Neutral, continuing to struggle despite historically low valuations.
Yearsley says investors have been expecting UK small-cap stocks to turn the corner, but it has not yet happened: “You could have written the same story for the last three years.”
The first half 2026 has shown how quickly market leadership can shift. While the Magnificent Seven continue to dominate headlines, it has been Asia’s semiconductor manufacturers and the companies enabling the AI revolution that have driven returns, rewarding investors prepared to look beyond US technology giants.
