For all we hear about diversification and spreading out your investments, sometimes it just makes sense to target the companies with the best track records of success. Don't be fancy. Don't overthink it. Just invest in companies that have consistently delivered.
By that logic, the Roundhill Magnificent Seven ETF (MAGS +0.21%) might be the smartest exchange-traded fund to invest in right now. These megacap tech giants aren't just the leaders of today. They're likely to also be winners in the next great technological revolution: artificial intelligence (AI).
What is the Roundhill Magnificent Seven ETF?
The holdings are just what you would expect, based on the name: An equally weighted portfolio of Nvidia, Apple, Microsoft, Amazon, Meta Platforms, Tesla, and Alphabet.
A few of the Roundhill Magnificent Seven ETF's key advantages:
- The fund rebalances quarterly. That rebalancing amounts to a forced "buy low, sell high" strategy, which can be a good thing for investors.
- The expense ratio of 0.29% isn't the lowest in the tech ETF space, but it's reasonable for the strategy you're buying.
Plus, with shares priced around $67 (as of this writing), a scant $500 investment will easily get you in the game.
NYSEMKT: MAGS
Key Data Points
Why now is still a good time for tech investing
Since tech and AI stocks began outperforming the S&P 500 about three years ago, questions about their high valuations have justifiably surfaced. The average forward price-to-earnings ratio for the "Magnificent Seven" stocks is around 29. That's meaningfully higher than the S&P 500's P/E ratio of 22.
While premium valuations are something to watch, there are still numerous reasons to be optimistic about this group's long-term potential.
First, they're involved in some of the economy's biggest industries right now, including artificial intelligence, cloud computing, smartphones, semiconductors, and application software. These companies are driving the development of the world's technological infrastructure.
Second, they have healthy balance sheets and generate strong and durable cash flows. While their status as growth stocks generally means they exhibit higher volatility than the broader market, their strong financial foundations provide a cushion that should help them thrive in almost any economic environment.
Third, the Magnificent Seven all possess wide economic moats -- durable competitive advantages such as network effects, brand value, or high switching costs.
Source: Getty Images.
Is this ETF right for your portfolio?
There are two important factors for investors to weigh when considering this ETF: First, it's likely to experience above-average volatility, and second, it's highly concentrated. Some may look at the recent performances of tech stocks and conclude that they're just fine with that, but those who invest in the fund should be comfortable with riding out some periods of lower lows along with the higher highs.
But the Roundhill Magnificent Seven ETF may be one of the rare non-diversified ETFs that can still work as a core portfolio holding. These seven stocks already comprise significant percentages of the value of both the S&P 500 and the Nasdaq-100 indexes. It might seem like replacing, for example, the Invesco QQQ Trust with the Roundhill Magnificent Seven ETF isn't that big of a difference.
In terms of year-to-date returns, that could be a reasonable assumption. As of this writing, MAGS's year-to-date return of 22.7% is only marginally better than QQQ's 21.7% return. Look back further, however, and you'll see a significant difference.
Since Nov. 9, 2023 (when the fund officially rebranded itself as the Roundhill Magnificent Seven ETF), it's beaten the Invesco QQQ Trust by a 115% to 68% margin. When the leaders are leading, the gains can be substantial.
I don't think it would be a good idea to replace an S&P 500 ETF in your portfolio with MAGS, but for investors looking to swap out the QQQ for something with more mega-cap tech exposure, it could appeal.
Overall, if you've got $500 to invest and want a clean, simple way to invest in the future of tech and AI, MAGS could be one of the smartest ways to do it.
