Is There an ETF for Magnificent Seven Stocks?

In 2023, the S&P 500 index produced a return of about 24%, an impressive recovery from the stock rout that occurred the previous year.

The story, however, was much more complex than the index’s total return, as just seven stocks produced the vast majority of these gains.

Apple, Microsoft, NVIDIA, Alphabet, Meta, Tesla and Amazon, now known collectively as the Magnificent Seven, powered the S&P massively higher on a combination of rising earnings and investor enthusiasm for emerging AI technology.

With so much of the market’s recent return being accounted for by just seven stocks, it’s only natural for investors to look for ways to capture only the returns of these impressive companies. This raises the question of whether there are ETFs exclusively for the Magnificent Seven and whether such funds are a good investment as these tech giants continue to rise.

Is There an ETF for Magnificent Seven Stocks?

For pure exposure to the Magnificent Seven, the main ETF to look at is the Roundhill Magnificent Seven ETF (MAGS).

This fund tracks an equally weighted portfolio of the seven top tech giants, allowing investors to make a pure play on these stocks without buying shares in any other companies. The MAGS fund was launched in April of last year and currently totals about $753 million of assets under management.

Unsurprisingly, MAGS has turned in an exemplary performance as the seven companies have advanced far ahead of the broader market.

In the last 12 months, MAGS has appreciated by 49.8%. This is more than double the 24.5% achieved over the same period by VOO, Vanguard’s benchmark S&P 500 index fund.

One negative aspect of the fund that investors should be aware of is its fairly high expense ratio of 0.29%. This is more than nine times the 0.03% charged by VOO. Though this disparity may not be a huge problem as long as the Magnificent Seven continue to lead the market, it will prove to be a disadvantage to investors in the event of a correction.

Extremely risk-tolerant investors may also want to look at another Roundhill product, the Daily 2X Long Magnificent Seven ETF (MAGX). This ETF tracks the exact same group of stocks weighted in the same way as MAGS.

MAGX, however, uses swap derivatives to double the daily gain or loss that the Magnificent Seven post. For this reason, this extremely young ETF that launched in February of this year has already returned more than 38%.

MAGX’s obvious downside is the fact that it has the potential to produce similarly deep losses if and when the Magnificent Seven correct.

The investment world is fiercely debating the valuations of these companies, as their generally high price-to-earnings ratios will require them to sustain very high earnings growth rates. If growth slows, it’s still entirely possible that the Magnificent Seven will see their prices correct.

If such a correction does eventually take place, those who hold MAGX would see losses double the size of those holding the standard MAGS fund. As such, MAGX is likely a fund best reserved for investors who are both extremely bullish on the business prospects of emerging technologies and very comfortable with the risk of large losses.

What Other ETFs Focus Heavily on the Magnificent Seven?

Although it is possible to invest only in the Magnificent Seven through ETFs, investors may want to consider more diversified options that offer extra protection in the event of an eventual tech stock correction.

Luckily, there are still other ETFs that provide disproportionate exposure to the Magnificent Seven without consisting of only those seven stocks.

Surprisingly, VOO itself is a candidate in this category. Thanks to the concentration weighted index funds have experienced over the past year and a half, slightly over 30% of VOO’s holdings are now in the Magnificent Seven stocks.

With the remainder of the fund filled out with other blue-chip companies, VOO is an underrated vehicle for investing in the Magnificent Seven while still buying a broad cross-section of the American stock market.

The approach of buying the whole S&P 500 may be especially appealing in light of the fact that the trend of stagnant earnings among the index’s remaining 493 companies is expected to end in H2 of this year.

If earnings across the S&P begin rising more evenly, investors who own the index may be able to benefit from price appreciation among both the Magnificent Seven and the hundreds of other companies that make it up.

Another ETF where the Magnificent Seven are weighted even more heavily than VOO is the Vanguard Growth ETF (VUG).

In VUG’s case, the seven stocks make up just over 55% of the fund’s total. This fund may be an interesting option for growth investors, as it offers a combination of very high exposure to the Magnificent Seven, a low expense ratio of 0.04% and diversification with other high-growth stocks.

Reasons to Buy the Magnificent Seven in 2024

Despite some valuation concerns, the Magnificent Seven still carry a decent investment thesis. To begin with, each company in the group is a dominant force in its own industry, giving the stocks very strong moats within their respective parts of the technology sector.

Furthermore, their earnings are expected to continue growing as AI and other technological innovations begin to produce real returns, meaning the potential for further upward motion is high.

The Magnificent Seven may also benefit from modestly lower interest rates over the coming year. As high-growth tech stocks with long time horizons, the members of this group are more attractive when interest rates are lower.

With the Fed still expected to cut rates at least once this year and continue them gradually in 2025, growth stocks are likely to continue to produce solid returns for quite some time.

Beyond these factors, the Magnificent Seven are also gradually becoming better investments from an income perspective. Earlier this year, Alphabet and Meta both announced their first-ever quarterly dividends.

Microsoft, NVIDIA and Apple had all paid dividends for multiple years, leaving Tesla as the only member of the group that doesn’t offer some form of quarterly income. As a result, MAGS yields about 2.4%, though the fund only pays out distributions on an annual basis.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.