TSMC’s AI-Driven Rally Strains Fund Portfolio Limits
TSMC's stock has surged 36% in 2025, catapulting its weight in major indexes to nearly 12%. The relentless demand for AI chips has left over $100 billion in global funds sidelined, constrained by strict single-stock allocation caps.
Active managers face a structural dilemma—even bullish investors can't chase the rally due to mandates prohibiting more than 10% exposure to one holding. "We're consistently underweight TSMC not by choice, but by necessity," admits Roxy Wong of BNP Paribas Asset Management Asia. The risk isn't overexposure, but missing the upside.
Index mechanics exacerbate the problem. TSMC now dominates 43% of Taiwan's Taiex and 12% of key MSCI benchmarks, forcing tracker funds to buy into an increasingly concentrated trade. "It's a self-reinforcing cycle," notes Union Bancaire Privee's Vey-Sern Ling. "Benchmark-driven buying inflates valuations, which begets more benchmark buying."
