The "Magnificent Seven" stocks are popular among investors right now. This group focuses on tech stocks that are cashing in on huge trends such as artificial intelligence (AI) and the shift toward digital workflow. These trends could lift the results of businesses like Microsoft and Apple (two members of the Magnificent Seven) for years and potentially decades to come.
Yet buying into these stocks is a risky proposition. Most of them have rallied in the past year and are trading near all-time highs. That performance may raise concerns that you'll purchase the shares right before a downturn. There's always the chance that the stock you pick will underperform its peers, as well.
Instead, consider owning an exchange-traded fund (ETF), which would reduce these diversification risks. The Schwab U.S. Large-Cap Growth ETF (SCHG 1.42%) is a great way to gain exposure to members of the Magnificent Seven without the hassles involved with putting together your own portfolio of tech giants.
About the ETF
This ETF is a passively managed fund, so it seeks to simply replicate the returns of an index fund while keeping fees and expenses at a minimum. This Schwab fund charges its owners just a 0.04% expense ratio, compared to the 0.20% or higher that other growth-focused ETFs can cost .
NYSEMKT: SCHG
Key Data Points
The fund owns 250 stocks across all the major market sectors. Most of its assets are invested in the largest, fastest-growing stocks in the U.S., which these days are tech giants.
The Magnificent Seven stocks are all among the Schwab U.S. Large-Cap Growth ETF's top 10 holdings, with Microsoft alone taking up 13% of its asset base. Apple and Nvidia are the next two biggest holdings, with each about 10% of the fund's assets. Amazon, Meta Platforms, Alphabet, and Tesla round out the list and together take up a further 21% of the ETF's holdings. Altogether, the Magnificent Seven stocks account for 53% of the fund's exposure.
Why an ETF is better
There are several reasons why an investor would prefer to own the Magnificent Seven through an ETF like this one rather than as individual stock holdings. You might already have one or more of this group in your portfolio, for example, and are looking for ways to add to your exposure without taking on more risk. The Schwab ETF spreads out its exposure among all members of the list and sectors outside of tech, too.
As a result, you'll be better protected against a surprise stock-price slump that could hit any individual stock or the wider tech industry -- especially following the head-turning rally that growth investors have seen in the past year.
It's important to note that even with that diversification, you'll likely see weak returns from this ETF during the next market decline. Growth stocks tend to be among the first to drop when fears spike about a looming recession.
On the flip side, the Schwab U.S. Large-Cap Growth ETF may perform better during rallies. The fund has returned 42% in the past full year to beat the Nasdaq Composite Index's 34% rally and the 27% increase in the S&P 500 during that time.
There are many ways to gain exposure to the Magnificent Seven stocks that allow you to adjust your risk and exposure level to these tech giants. Adding a growth-focused ETF like the Schwab U.S. Large-Cap Growth ETF to your portfolio is one of the easiest ways to tailor that exposure to whatever level of risk you're most comfortable with.
