The "Magnificent Seven" is a term coined by Bank of America analyst Michael Hartnett to describe seven tech-focused mega-cap companies -- Microsoft (MSFT +1.03%), Apple (AAPL 0.27%), Nvidia (NVDA +4.39%), Alphabet (GOOGL 0.49%) (GOOG 0.54%), Amazon (AMZN 1.15%), Meta Platforms (META +0.30%), and Tesla (TSLA 0.44%).
Due to their size and leadership across many industries, these companies have a lot of influence over the trajectory of major indexes like the S&P 500 and Nasdaq Composite. Investors who want a piece of each company may be interested in building their own version of a Magnificent Seven exchange-traded fund (ETF) instead of buying an ETF with a high allocation in these companies.
Here's how much this approach would cost and why it could be an effective choice for investors looking for balanced holding across all seven growth stocks.
Image source: Getty Images.
The drawbacks of top growth-focused ETFs
Some funds specifically target the Magnificent Seven, like the Roundhill Magnificent Seven ETF. But the issue with this fund is that it has far lower net assets -- just $231.5 million compared to tens if not hundreds of billions of dollars for larger funds. It also has a higher expense ratio at 0.29% and relies on swaps and stock purchases. And the ETF has only been around since April 2023, so it's best to avoid the fund.
There are plenty of better, more proven ETFs with high exposure to the Magnificent Seven. The following four funds are arguably the best products out there. All three Vanguard ETFs feature expense ratios of just 0.03% to 0.07% -- while the Invesco QQQ has an expense ratio of 0.2% and mirrors the performance of the 100 largest components of the Nasdaq Composite.
The Vanguard S&P 500 ETF replicates the S&P 500. It has the lowest exposure to the Magnificent Seven of the four ETFs on this list, but it does showcase how the group has grown to make up a sizable percentage of the famous benchmark. The Vanguard Growth ETF picks top growth stocks on both the New York Stock Exchange and the Nasdaq Composite. And the Vanguard Mega Cap Growth ETF takes this approach a step further by targeting mega-cap growth like the Magnificent Seven. Mega Cap Growth ETF has invested 57% in the Magnificent Seven.
|
Company |
Vanguard S&P 500 ETF |
Invesco QQQ |
Vanguard Growth ETF |
Vanguard Mega Cap Growth ETF |
|---|---|---|---|---|
|
Microsoft |
7.1% |
8.7% |
13% |
14.9% |
|
Apple |
5.6% |
7.7% |
10.4% |
11.9% |
|
Nvidia |
5.1% |
6% |
8.9% |
10.1% |
|
Amazon |
3.7% |
5.3% |
7% |
7.9% |
|
Alphabet |
3.7% |
5.3% |
6.7% |
5% |
|
Meta Platforms |
2.4% |
4.5% |
4.5% |
4.8% |
|
Tesla |
1.1% |
2.4% |
2% |
2.4% |
Data sources: Vanguard, Invesco.
Each ETF assigns higher weightings to components with higher market caps. Given that Microsoft has a market cap of over $3 trillion, it has a much higher weighting than some of the less-valuable components.
Individual portfolios are rarely based purely on market cap
Indexes and many financial products are market-cap-weighted because more valuable companies deserve to have more influence on the broader market. However, an individual investor may not want to follow the same principle.
One of the main reasons you may want to target individual stocks over ETFs and index funds is that you believe in a certain company and want heightened exposure to it. This is how the top money managers do it, too. For example, Warren Buffett-led Berkshire Hathaway's (BRK.A 0.07%) (BRK.B 0.32%) top public equity holding is Apple. Berkshire has a small position in Amazon and doesn't own the other five Magnificent Seven stocks.
The natural way to go about investing is to assign a higher weighting to your highest-conviction ideas. But what if you want to put an equal amount of money into each Magnificent Seven stock?
A sample equal-weight Magnificent Seven ETF
It's not a perfectly even split, but for just over $6,000 you can get very close to an equal weighting in each Magnificent Seven stock. Of course, the exact allocation will change based on market prices (these prices are based on market close on April 26). And you can get even more accurate with fractional shares. But in terms of simplicity and non-fractional shares, the following breakdown is a good start.
|
Company |
Price Per Share |
Shares |
Cost |
Weighting |
|---|---|---|---|---|
|
Nvidia |
$877.35 |
1 |
$877.35 |
14.6% |
|
Meta Platforms |
$443.29 |
2 |
$886.58 |
14.7% |
|
Microsoft |
$406.32 |
2 |
$812.64 |
13.5% |
|
Amazon |
$179.62 |
5 |
$898.10 |
14.9% |
|
Alphabet |
$173.69 |
5 |
$868.45 |
14.4% |
|
Apple |
$169.30 |
5 |
$846.50 |
14% |
|
Tesla |
$168.29 |
5 |
$841.45 |
14% |
Data source: Yahoo Finance prices as of market close April 26.
This method could be a good fit for investors looking for baseline exposure to each company. One of the best ways to build wealth in the stock market is to gradually acquire shares over time. The holdings of an ETF will rebalance based on which companies gain or lose value. However, in an individual portfolio, you can control how many shares of each company you own.
Building positions over time
To feel in control of your financial health, you must know what you own and why. ETFs are useful, but knowing your true allocation to a certain company or theme can take more digging.
Building the equivalent of your own equal-weight Magnificent Seven ETF for a little over $6,000 could be a worthwhile endeavor if you feel like you are underweight mega-cap growth, don't want to base your allocation on market cap, and want a catch-all way to get starting positions in the Magnificent Seven that you can build around over time.
