Why We Don’t Look Like Anyone Else

At GenInnov, our portfolio stands apart. We have yet to find a popular benchmark or well-known fund where our overlap crosses even 30%.

That’s not a boast. It’s a surprise. Even to us.

We never set out to be iconoclasts. In a world saturated with ETFs, indices, benchmarks, and thematic wrappers, it’s genuinely difficult to be truly different, especially while staying sensible, or without flooding the portfolio with obscure names no one recognizes. And yet, here we are.

Of course, we follow ideas. We follow innovation. We don’t follow tags.

Still, the question remains: why is GenInnov’s portfolio so unique? What is it about the way we think that makes us look nothing like a Nasdaq proxy, a tech-heavy ETF, or any of the dozens of so-called innovation funds on the market?

The answer begins with a flaw. A flaw baked into the way financial markets are organized and the way benchmarks are constructed. Most portfolios today still mirror old maps: regional and sectoral groupings that no longer reflect where the moats of modern innovation are being built.

We’re not against geography. But we do pay close attention to where the real breakthroughs are happening. The U.S. and China, yes. But also Korea and Taiwan. Between those four, we find over 85% of our current holdings.

And it’s not just a regional story. Innovation in this cycle isn’t landing where it used to, even sectorally. We’ve written enough about the growing pressures on the application layer. That’s why our exposure to fintech, consumer tech, or traditional app-layer software is close to zero. Not because those sectors lack talent, but because that’s not where innovation is compounding anymore. There are exceptions, of course, but the ground has shifted. And most portfolios haven’t shifted with it.

We have discussed our radical views on the application layer countless times. Time not to rehash. This piece is about geography. Why innovation’s physical centers have changed. Why most investors haven’t noticed. And why, if nothing else, you’ll walk away with multiple, narratable, historic quirks for your conversation when the next time you're ambushed at a conference dinner.

Which Asian Tiger Roars Loudest?

Try this at next such dinner party: rank Japan, South Korea, and Taiwan by per capita income in current U.S. dollars.

Most will hesitate. A few will mutter something about Japan’s golden era. Very few will likely steal your thunder by placing Japan at the bottom.

And yet, that’s exactly where it is.

Unless one is steeped in macro data, Japan’s quiet descent to the bottom of this trio rarely registers. But the numbers are unambiguous. On a purchasing power parity basis, Japan trails Taiwan by almost 20%. Even in nominal terms, one that matters the most when one is counting Dollar spending powers or profits, it’s a photo finish with Japan at the bottom.

This would’ve been unthinkable when many of us began our careers. Back then, Japan loomed large. Korea and Taiwan were still finding their footing, rebuilding from the aftershocks of colonial rule and a series of political and economic resets. Japan’s per capita income was several multiples of its neighbors. We are all aware that Japan’s growth has slowed, but it never appeared like the other two were galloping to overtake the leader in such tables.

Yet here we are.

This isn’t just a trivia point for the IMF crowd. It reflects a deeper truth: Korea and Taiwan have built some of the most powerful innovation engines in the world. But here’s the odd thing. Even now, they’re often left off the itinerary of the most serious and professional investors travelling to the region. A typical “Asia Investment Tour” will stop in Japan, China, India, and maybe Singapore. Taiwan and Korea? They’re optional. Sometimes skipped entirely.

Don’t get us wrong: all the other economies mentioned above have their own scores against Korea and Taiwan in terms of size and other factors. That said, South Korea is not only the tenth-largest economy but also has one of the largest R&D expenditures in the world, at 4.9% of GDP. South Korea’s memory chip exports, led by Samsung and SK Hynix, hit $98 billion in 2024. The country’s innovation leadership extends not only to various consumer tech products and entertainment, but also to robotics and biotech.  Taiwan, meanwhile, has gone from a manufacturing hub to a land of tech monopolies. Its semiconductor complex is now the backbone of global AI infrastructure. Add the less-reported links to companies like NVIDIA and AMD, rooted not just in supply chains but in people, as evidence at the Computex show this week, and the scale of Taiwan’s rise becomes harder to ignore. (worth reading “When a Society Finds Its Heroes: Taiwan's Tech Ascendancy”). 

The reason behind the two innovation giants’ lack of a befitting profile lies in the weight and the weights of the benchmarks. Indices were meant to reflect the investable universe. Increasingly, they are the biggest reason why the innovation universe is misunderstood.

Global Indices Are Broken Maps

Start with the simple question: if an investor wants exposure to innovation, which benchmark do they pick? Most reach for a global tech ETF or a sector index labeled “Information Technology.” And that’s where the misrepresentation begins.

Today's technology indices are bloated with application-layer software companies, many of which are precisely the layer most threatened by advances in generative AI. In 2023, software’s share in the MSCI World IT Index was 42%, while semiconductors, the backbone of AI, were just 28%. As promised earlier, we are not going to belabor this point more in this note.

When you flip to regionally constructed indices, the problem deepens. The U.S. and China, the two largest innovation ecosystems, rarely appear together in a single basket. You either get one or the other. All-country world indices claim to solve this problem, but in practice, they dilute real innovation exposure by including dozens of markets that contribute little to the global tech frontiers.

Emerging market indices are worse. They were born in an era when global capital markets looked entirely different. When MSCI launched the EM index in 1988, the time when Japan’s neutral weight in global indices was higher than the US (which changed somewhat to the US at 64% compared to Japan below 5% by 2024), Brazil and Malaysia made up over 50% of its neutral weighting. That legacy continues to distort allocation, even though the structure of EM has changed dramatically, especially post the Asian Financial Crisis.

Figure: Regional splits in EM baskets and how Asian dominance hurts investing through these benchmarks

Asia’s utter dominance of the EM asset class has largely made investing through the EM benchmark meaningless in preference for baskets like Asia ex-Japan, but the EM classification history continues to weigh on Korea and Taiwan.

Indices were meant to reflect the investable universe. Increasingly, they are the biggest reason why that universe is misunderstood.

Korea and Taiwan: Misclassified, Misunderstood

Korea and Taiwan are the poster children for this disconnect. MSCI still categorizes them as emerging, citing technicalities such as currency convertibility, despite their GDP per capita rivaling that of developed markets. FTSE Russell calls Korea developed since 2009 and Taiwan “advanced emerging,” but these labels do worse than obscure their role as innovation leaders.

This isn’t about technicalities. It’s about consequences. When Korea is excluded from developed indices and shoehorned into EM baskets, it ends up repeatedly ignored by some of the world’s leading innovation investors who continue to hunt for appropriate names in places in Europe or Japan, even if far more appropriate investments could be in these markets that are just not in their mandates.

Effectively, companies that are technically excellent, and often world leaders, get overlooked because of their passport, not their product. 

Taiwan, at least, has an uncynical local investor class with deep respect for local achievements, as reflected in the valuations of its stocks. They may not be as high as what one witnesses for similar-quality or growth companies in the US or India, but they are not at a level where one misses the presence of large, growth-oriented investors.

Alas, this is not a situation in Korea! As we elaborated in “The Korean Valuation Duality: A Tale of Growth without Wealth Creation” (link), there is no local investor class as pessimistic and antagonistic in valuations about the local corporates as one in South Korea. 

Innovation Compounds, Indices Fragment

At Computex last week, the mood wasn’t just optimistic; it was foundational. The world came to Taipei not to window-shop, but to plug into the future.

It’s no exaggeration to say that some of the most structurally important business moats in the AI era are being built, refined, and defended in both Taiwan and Korea. Innovations with moats are definitely far less in building agents or LLMs. They are in GPUs and HBM memories. They are in foundries and packaging. They are also in Robotics, biologic development, and automating mobility. These are fields where it is not easy to find world-leading, profit-making corporates outside a handful of markets. 

What makes innovation unique as a theme is that it’s self-concentrating. Breakthroughs in compute lead to demand for better thermal solutions, which drive new materials science, which cascades into sensor design and memory architectures. Such circularities create positive feedback loops and dependent supply chains, often with a geographic anchor.

A Critique of Passive Thinking

Yet benchmark construction resists that concentration. It forces diffusion across sectors, geographies, and styles. This is why portfolios built on sectoral balance or geographic neutrality are failing to deliver on innovation exposure. They spread bets instead of following compounding capabilities.

At GenInnov, we do the opposite. We seek concentration where it matters. That doesn’t mean our portfolio is fragile. On the contrary, when you analyze correlation matrices or look at our drawdown profiles, what emerges is a high-conviction but well-balanced structure. But it’s balanced by type of innovation, not by sector or country code.

As we saw with India over the last decade, investors wanted to play its unique growth story directly, rather than through baskets created by benchmark producers based on parameters that have little to do with investing. In the case of India investing, the pathway was through single-country, high-conviction exposure.

Innovation investing needs a pathway that ignores the necessity to have minimum investment or caps on country or sector labels created through historical quirks. We’re not saying indices are wrong; they serve a purpose. But they’re not built for the innovation race. At GenInnov, we’ve chosen a different path, one that’s concentrated yet diversified, global yet selective. It’s not about where a company is based. It’s about where it’s going.  

Innovation doesn’t respect borders. Neither do we.