Unlock The “Magnificent Seven”: 3 Smart Ways To Invest In US Tech Titans – Beragampengetahuan

In recent months, I have been doing some homework on the Magnificent Seven, a group of dominant technology companies that have been exceptionally successful in their respective industries and, more importantly, the stock market.

Online articles seem to credit Michael Hartnett (Bank of America) or Mike O’Rourke (Jones Trading) for coining the term Magnificent Seven in 2023.

The companies included in the Magnificent Seven (in alphabetical order) are –

1. Alphabet (Google)
2. Amazon
3. Apple
4. Meta (Facebook)
5. Microsoft
6. Nvidia
7. Tesla

I was curious because it is not an overstatement to say that many of them (perhaps with the exception of Tesla) are products and services that we can’t do without in our daily lives.

Even my mom and dad (who are, respectfully, tech-challenged) use at least three of the seven companies on the list, whereas I have used six.

I have these questions in mind: Are these companies here to stay? Will their dominance continue? How will I invest in them?

Magnificent Seven’s 1-Year Performance vs. SPY, QQQ and VT

The primary reason for the fascination with the Magnificent Seven is obvious, and it lies with their stock market returns.

The chart below shows the overwhelming amount of returns generated by just these seven stocks.

• 1.7x of QQQ (Invesco Nasdaq ETF)
• 2.5x of SPY (SPDR S&P 500 ETF)
• 3.1x of VT (Vanguard Total World Stock ETF)

It is extremely fascinating to note just how powerful the financial prowess of the Magnificent Seven is.

To put this into focus, their combined profits are greater than those of most countries (listed companies), with the exception of China and Japan.

Percentage Of The Magnificent Seven Within The Holdings Of QQQ

The Invesco QQQ ETF tracks the Nasdaq-100 Index (performance of the 100 largest non-financial companies) and is rebalanced quarterly.

Since the Magnificent Seven are basically technology companies, they would obviously occupy the top holdings of the QQQ ETF.

Below are the allocations of the Magnificent Seven in QQQ, and they add up to 40% of the ETF.

1. Microsoft → 8.67%
2. Apple → 7.75%
3. Nvidia → 6.11%
4. Amazon → 5.12%
5. Meta (Facebook) → 4.92%
6. Alphabet (Google) → 4.64%
7. Tesla → 2.47%

Looking back to the previous chart, this 40% allocation is achieving outsized returns compared to the Nasdaq index as a whole.

Option 1: Buying All 7 Stocks

By far, the most straightforward method of investing in the Magnificent Seven stocks is to purchase them individually with a brokerage that provides access to the US stock market.

In case you missed them, China-owned online brokerages are always offering super attractive sign-up rewards, such as Webull (SGD90 cash) and Tiger (SGD210 cash), to pursue user growth.

Use this bonus reward to give your investment portfolio a boost.

The first concern I have about buying all seven stocks is the transaction fees, which might add up to be somewhat significant since we need to make seven individual purchases.

Quick plug for Syfe Brokerage because they have recently overhauled their fees and pricing, so their monthly free trades can help to absorb the transaction fees and keep costs down.

In the past, I did not even use Syfe Brokerage at all.

Since my portfolio with Syfe REIT+ (Managed Portfolio) is now included in the calculation for the total asset, I have used it to get a little exposure to more volatile assets outside of my core portfolio.

The downside to using mobile-only Syfe Brokerage vs. a more traditional platform such as IBKR is that their currency spread (e.g. SGD conversion to USD) is higher.

For larger investment amounts, I would suggest using Interactive Brokers (IBKR) instead.

Although IBKR charges a transaction fee per trade, their currency conversion literally uses Google (mid-market) rates, which is very nice.

To make it even sweeter for investors, Bundles by Syfe Brokerage enjoy just half the fees of buying each stock individually.

However, do take note that the purchased securities do not rebalance automatically.

The buy-transactions via Syfe Bundles are simply a one-off event.

If you wish to automate the process of investing in the Magnificent Seven with zero-hassle auto-rebalancing, consider the next option below.

Option 2: Buying The Roundhill Magnificent Seven ETF

People are often unaware of simpler options that exist, and the second option is far easier to execute.

Investors like you and I are already buying index ETFs all the time with SPY and QQQ.

Why not do the same with the Magnificent Seven?

In simple terms, the Roundhill Magnificent Seven ETF ($MAGS) consists of only the seven stocks that we want, and it is rebalanced to equal weight on a quarterly basis.

The Roundhill Magnificent Seven ETF has an expense ratio of 0.29% and asset-under-management of $179 million.

Think of it as paying the ETF issuer to help us with the automated rebalancing.

The chart above compares the total returns (inclusive of dividends) of $SPY, $QQQ and $MAGS.

If we start comparing based on its inception date, $MAGS is winning at the moment.

Option 3: Buying The Magnificent Seven Fund Option Income ETF

The last option is the riskiest and least recommended of the three and is more suitable for a somewhat muted take on the Magnificent Seven stocks.

If I agree with Dimensional (see above) and believe that the extreme outperformance of the Magnificent Seven could be coming to an end, I may choose to adopt an options income-based strategy.

Assuming a stagnant price performance, this will give me exposure to (capped) gains and (all) losses of the share price returns of the underlying stocks.

Pursuing an options-based strategy, such as selling covered calls for (sometimes insanely) high double-digit yield, can generate attractive monthly income.

The Magnificent Seven experiences some of the highest volatility, which translates into juicy premiums that can be harvested.

Having said that, this ETF that I am highlighting today as a case study is one heck of a blood-sucker.

YieldMax ETFs have a notorious reputation for their high-yield ETFs, and their Magnificent Seven Fund of Option Income ETF ($YMAG) is basically a fund of its single-stock funds.

It has an eye-watering expense ratio of 1.28% (underlying 0.99%), and the reason that they can do this is because –

• Ridiculous yield. The supposed yield is way higher relative to the expense ratio, so people tend to care less.
• Uneducated investors. Some of the things I read (social media) or watch (YouTube) about YieldMax are straight-up wrong and ignorant.

In all likelihood, most investors tend to underperform the actual underlying securities most of the time when we mix in options.

Furthermore, playing the dividend yield game with the US stock market is a losing battle from the start because the 30% dividend withholding tax handicaps our total returns.

Although there are specific situations in which such a fund might make sense, I think most people should avoid it if they don’t absolutely need the income aspect.

Learn more about covered calls here if you are interested.

Don’t Make The Same Mistake As me

I mentioned earlier that I have been using Syfe Brokerage, which is mainly meant for smaller trades to explore interesting things (cough) outside of my core portfolio.

Late last year, I wasn’t expecting Coinbase ($COIN) to experience such rapid price action and was thinking it might crab for a little while as we plodded towards the second quarter.

Instead of adding more $COIN to my existing holdings, I unwisely chose to buy $CONY with Syfe Brokerage, hoping to benefit from the crazy volatility in the short term.

Unfortunately, the crypto market seemed to have a mind of its own and moved earlier than expected.

Although $CONY has yielded a staggering 89% annualized dividend (based on my StocksCafe portfolio tracker) right now, the sad reality is that I would have been better off just holding $COIN instead.

When we invest in a fund like the YieldMax Magnificent Seven Fund of Option Income ETF, the same outcome will likely repeat itself.

Such a strategy is typically ideal for outperformance in mildly bullish or bearish environments.

The upside is deliberately capped, and any sudden burst of price gains would not be fully captured.

I believe that there is probably an appropriate tool for every purpose, so we need to choose wisely.

Longevity Of The Magnificent Seven Stocks

Looking at the past history, I have no idea how long this iteration of the Magnificent Seven would last.

Many would remember the acronym FANG, which refers to Alphabet (Google), Amazon, Netflix and Meta (Facebook) not too long ago.

Netflix has since been replaced by the new darling of the stock market, Nvidia.

Meanwhile, Tesla hasn’t been doing too well lately and has been languishing at the bottom for quite a while.

If you ask me, it is only a matter of time before the constituents of the Magnificent Seven get replaced by new shinier counters.

Recap: Magnificent Seven

Below are the three ways that I can invest in the Magnificent Seven –

1. Buy the Magnificent Seven stocks individually. Higher fees without auto-rebalancing.
2. Buy an ETF that invests in the Magnificent Seven stocks. Lower fees with auto-rebalancing.
3. Buy an ETF that gives exposure to the Magnificent Seven stocks plus options income. Sacrifice upside potential for higher yield.

For exposure to the Magnificent Seven, I would certainly go with option two, the Roundhill Magnificent Seven ETF, due to its relatively low cost and auto-rebalancing feature.

This decision would future-proof my potential investment, assuming Tesla or any other stock gets replaced in future.

Meanwhile, you can give your portfolio a head start with these outstanding promotions.

Kevin started beragampengetahuan when his net worth languished at negative $25,755. His desire to turn things around led him to build passive income from investments and side hustles that pay for his daily expenses and vacations. You can learn more about Kevin here.