Could Buying This Magnificent Seven ETF Today Set You Up for Life?
Key Points
Although it’s the worst performer of the Magnificent Seven, Meta Platforms' shares have still almost quintupled in the past decade.
The Roundhill Magnificent Seven ETF owns the Magnificent Seven stocks in equal weights, and it has crushed the S&P 500 index since June 2023.
If you add this ETF to your portfolio, it implies you are bullish on artificial intelligence.
- 10 stocks we like better than Roundhill Magnificent Seven ETF ›
There is no trend that has impacted the markets and economy more this century than the rise of the technology sector. Double-clicking on this thought, it's clear that there have been a very small number of companies leading the charge as our internet-driven society becomes more digitally native.
According to research from The Motley Fool, the Magnificent Seven stocks make up about 33% of the S&P 500 index's entire market cap. These businesses have a tremendous impact on the overall market's performance.
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In the past decade, Nvidia has been the best investment by far, with its shares skyrocketing 16,930% (as of June 25). The worst of the group, Meta Platforms, still put up a strong 386% gain.
Instead of complaining about the level of concentration in these seven stocks, perhaps it's time to lean in. Could buying a Magnificent Seven exchange-traded fund (ETF) today set you up for life?
Image source: Getty Images.
It's impossible not to come away impressed by the performance
If investors want exposure to only these seven stocks, then the Roundhill Magnificent Seven ETF (NYSEMKT: MAGS) is a good choice. It has only been around since April 2023, and it carries an expense ratio of 0.3%.
The structure of this ETF warrants mention. All seven stocks are weighted equally, and rebalancing occurs every quarter. Based on the target, each business should represent about 14.3% of the portfolio.
It's difficult to argue with the performance figures. Since its inception more than three years ago, the Roundhill Magnificent Seven ETF has produced an exceptional total return of 163%.
But volatility can be hard to stomach. For instance, this ETF registered a max drawdown of 30% in the last three years. On the other hand, the S&P 500 index's biggest dip of 19% was more muted.
There is increased upside in the long run
While the Roundhill Magnificent Seven ETF's performance is eye-popping, investors shouldn't allocate their entire asset base to this single vehicle. It does make sense as part of a diversified portfolio, though.
That isn't to say that the upside isn't real. This is true even as Tesla trades at an astronomical price-to-earnings ratio of 342.
The Magnificent Seven stocks are at the center of the artificial intelligence boom. Nvidia provides the infrastructure hardware and software, while cloud platforms from Amazon, Microsoft, and Alphabet offer the digital real estate for enterprises to leverage AI tools. Apple, Meta Platforms, and Tesla largely build user-facing products and services powered by AI capabilities.
I wouldn't bet on the Roundhill Magnificent Seven ETF setting you up for life. But the smart move is to gain exposure to these innovative businesses.
Should you buy stock in Roundhill Magnificent Seven ETF right now?
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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has a disclosure policy.
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