Could Buying the Roundhill Magnificent Seven ETF Today Set You Up for Life?
The so-called “Magnificent Seven” stocks have been the primary drivers of the market in recent years and have been the fuel for the AI boom.
The seven — Nvidia, Apple, Microsoft, Amazon, Alphabet, Meta Platforms, and Tesla — account for about 32.7% of the market cap of the S&P 500, according to Motley Fool research. For some perspective, they made up only 12.5% of the S&P in 2016.
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Research by The Motley Fool indicates that the Magnificent Seven have outperformed the S&P 500 in eight of the past 10 years. Over the entire 10 years, the seven stocks have had a combined return of 876%, dwarfing the combined 235% return for the S&P over that same period.
It shows that the Magnificent Seven have been the jet fuel that has propelled the market over the past decade. Investors can tap into them with any number of large-cap exchange-traded funds (ETFs), but if they want exclusive exposure to only those seven stocks, they should consider the Roundhill Magnificent Seven ETF (MAGS +0.44%).
Jet fuel for your portfolio
The Roundhill Magnificent Seven ETF invests just in those seven, which are equal-weighted, each representing about 14% of the portfolio.
The ETF has only been around for about three years, debuting in April of 2023, but since then, it has had an average annualized return of 39% compared to the S&P’s 21% annualized return.
Roundhill Magnificent Seven ETF
Today’s Change
(0.44%) $0.27
Current Price
$61.99
Key Data Points
Day’s Range
$61.58 – $62.34
52wk Range
$39.00 – $69.14
Volume
2.3M
It is a small sample size, and it does capture one of the best three-year periods in history for stocks, so investors should not expect that type of return over time.
What investors should expect is blowout returns during bull markets and more volatile returns when markets are down. For example, during 2020, the Magnificent Seven returned 66% while the S&P returned 16.3%, per Motley Fool research. But in 2022, when the S&P fell 19.4%, the Magnificent Seven were down 41%.
This year, with the S&P 500 up just 0.5% through February, the Magnificent Seven were down 5.1%.
But over time, the bulls tend to outrun the bears, so that should bode well for this ETF to generate market-beating returns.
Can it set you up for life?
Investors should understand that this is an ultra-aggressive ETF that can add a lot of alpha to your holdings. However, it should not take up an outsize space in your portfolio.
There are going to be stretches when the returns are negative and underperform the larger market, so it should only make up a small portion of an overall portfolio — the segment set aside for aggressive growth stocks.
You could diversify it with an S&P 500 ETF, which also includes the Magnificent Seven, just in lower doses. It would also fit alongside ETFs that invest in value, dividend, and different-sized stocks.
But even if you invested just $2,000 in the Roundhill Magnificent Seven ETF and it generated an average return of 20% over the next 20 years, with a contribution of $100 per month, you would accumulate over $400,000. If it averaged a return of 15% over 20 years, you would have about $200,000.
That would certainly help set you up for retirement alongside other diversified investments and retirement accounts.
