The "Magnificent Seven" stocks have produced magnificent returns over the years. The seven companies focused on technology megatrends -- Apple, Amazon, Alphabet, Meta Platforms, Microsoft, Nvidia, and Tesla -- have absolutely obliterated the S&P 500:
Magnificent Seven Stock |
1-Year Return |
5-Year Return |
10-Year Return |
---|---|---|---|
Apple |
36% |
358% |
906% |
Amazon |
64% |
78% |
765% |
Alphabet (Google) |
43% |
154% |
380% |
Meta Platforms (Facebook) |
182% |
132% |
441% |
Microsoft |
51% |
242% |
844% |
Nvidia |
175% |
1170% |
10510% |
Tesla |
31% |
860% |
1600% |
S&P 500 |
17% |
76% |
150% |
The tech trends driving their market-crushing returns (e.g., artificial intelligence, cloud computing, e-commerce, and electric vehicles) still have long growth runways ahead. That could give the Magnificent Seven the power to continue outperforming. However, instead of buying all seven stocks, investors could consider taking an even more passive approach by investing in an exchange-traded fund (ETF) with a high concentration of those stocks. The Invesco QQQ Trust (QQQ -0.28%) stands out for its outsized exposure to the Magnificent Seven.
What is the Invesco QQQ Trust?
The Invesco QQQ launched more than two decades ago. It tracks the Nasdaq-100 index, an index of the 100 largest nonfinancial companies listed on the Nasdaq exchange. The Invesco QQQ has grown into one of the largest ETFs by assets under management (AUM). It currently holds over $220 billion of client assets, making it one of the five largest ETFs by AUM in the world. It's the second-most traded ETF in the U.S. by average trading volume, showcasing its popularity among investors.
The ETF has also been a top performer over the years. It has delivered an average annualized total return of 17% over the last decade, compared to a nearly 10% average annual total return for the S&P 500. This ETF would have grown a $10,000 investment made a decade ago into nearly $50,000 today. For comparison, the same investment in an S&P 500 index would have grown to only roughly $30,000.
Driving that outperformance is the underlying growth of the companies in the index. That group has grown much faster than other benchmarks over the past 10 years:
Metric |
Nasdaq-100 |
S&P 500 |
Russell 1000 |
---|---|---|---|
Revenue |
9.9% |
4.9% |
5.9% |
Earnings |
12.9% |
8.5% |
9.3% |
Dividends |
11.4% |
7.8% |
6.9% |
Concentration has played a key role in the index's outsized growth. It holds 100 companies (as opposed to 500 or 1,000) heavily weighted toward faster-growing stock market sectors (technology made up 57% of its holdings). That concentration on companies benefiting from major growth trends has helped power faster financial growth and higher shareholder returns.
A magnificent way to play the Magnificent Seven
The Invesco QQQ Trust is in an excellent position to continue outperforming because it concentrates on companies with outsized growth prospects. It all starts at the top. The fund's top holdings are the Magnificent Seven stocks:
- Apple: 10.8% of the fund's holdings.
- Microsoft: 9.5%
- Amazon: 5.3%.
- Nvidia: 4.3%
- Meta Platforms: 3.8%.
- Tesla: 3.2%.
- Alphabet: 3.1% (class A shares) and 3.1% (class C shares)
Overall, those seven companies comprise 43% of the fund's holdings, with the other 93 stocks making up the remaining 57%. That's almost double their weighting in the S&P 500 (and related S&P 500-focused ETFs). Given their outsized weighting in the index, these companies are helping drive higher returns relative to the S&P 500.
The group has outperformed the market this year. According to data from Goldman Sachs, they had gained an average of 71% through mid-November compared to a 6% average gain for the other 493 stocks in the S&P 500 index. If it weren't for the Magnificent Seven's outsized gains and large allocation, the index wouldn't have rallied 19% this year.
Goldman Sachs expects the Magnificent Seven to have another strong year in 2024, predicting they will again outperform the S&P 500. An analyst at the investment bank wrote that "The seven stocks have faster expected sales growth, higher margins, a greater reinvestment ratio, and stronger balance sheets than the other 493 stocks and trade at a relative valuation in line with recent averages after accounting for expected growth." Given the Nasdaq-00's higher weighting to this group, the Invesco QQQ is an excellent way to play their potential continued outperformance.
Concentrated at the top
The Invesco QQQ has been a great ETF investment over the years. It has delivered outsize returns for its investors because it concentrates on owning some of the fastest-growing companies benefiting from tech megatrends. That makes this ETF a great way to passively invest in the Magnificent Seven.