FAANG Becomes the ‘Magnificent Seven’

Now the hottest names in the U.S. market include Apple, Alphabet (Google), Meta Platforms, Amazon.com, Nvidia, Microsoft, and Tesla. Extra points if you can make a word out of those initials!

ETF issuers are starting to dial into the potential of the new lineup, including the first ETF dedicated exclusively to the Magnificent Seven. Roundhill converted its Roundhill BIG Tech ETF (BIGT B+) to the Roundhill Magnificent Seven ETF (MAGS A-) just last week. The issuer had added Nvidia and Tesla in October, so really the fund’s name is just catching up with its portfolio.

And Direxion has included a “MAGMA” 2X fund in its most recent filing, with MAGMA referring to Microsoft, Apple, Alphabet/Google, Meta Platforms, and Amazon.com. Nvidia and Tesla will not be included in the mix, based on the prospectus.

However, MAGS is a fund that relies primarily on derivatives such as swaps to achieve exposure to the seven stocks it is targeting. The fund’s portfolio is also highly concentrated with its focus on just seven securities.

But there are other funds that hold those seven stocks. However, they’re not getting that exposure via derivatives but rather through direct ownership. Consider the $13.6 billion Vanguard Mega Cap Growth ETF (MGK B). The fund includes the Magnificent Seven among its top holdings. Those stocks representing a stunning 56.7% of the fund’s total portfolio. Its exposure to the Magnificent Seven may represent the most concentrated exposure to these stocks of any U.S.-listed fund before MAGS.

MGK is up more than 40% year to date. That’s likely due in large part to the spectacular returns demonstrated by those seven stocks. However, there are another 83 securities in the fund’s portfolio to provide additional diversification. Also, large-caps have generally done well this year. MGK, in particular, focuses on only the largest of the large among U.S.-listed securities.

Further, as a passively managed ETF from Vanguard, MGK has an expense ratio of just 0.07% versus the 0.29% charged by MAGS. In addition to concentrated exposure (with some diversification) at a low price, MGK comes with the liquidity that accompanies a nearly $15 billion fund that invests in only the largest and most liquid stocks on the U.S. market. Plus, it carries equity risk rather than derivatives risk.

But MGK isn’t the only ETF offering exposure to the Magnificent Seven. There are plenty of other choices available to investors that simply own them as part of a diversified stock portfolio. The stocks represent 55% of the holdings of the $7.98 billion iShares Russell Top 200 Growth ETF (IWY B), and 53% of the $569.6 million Motley Fool 100 Index ETF (TMFC B).

The $2.6 billion Nuveen Growth Opportunities ETF (NUGO C+) currently has a little over 52% of its total portfolio invested in the Magnificent Seven. NUGO is an actively managed, semitransparent ETF, however. That means you will only see the true holdings on a monthly basis as opposed to daily.

Between something like the Vanguard Total Stock Market ETF (VTI A), which aims to capture the entire investable U.S. equity market, and the highly exclusive MAGS, there are likely a range of concentrations in Magnificent Seven stocks offered by various funds. Investors just need to find the right exposure to suit their investment goals.

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