The conversation in the stock market often revolves around the "Magnificent Seven," which includes tech giants like Alphabet, Apple, Amazon, Meta Platforms, Microsoft, NVIDIA, and Tesla. These companies have significantly driven index growth over recent years. However, the S&P 500 consists of hundreds of stocks, and some have outperformed these tech giants recently.
This year, only NVIDIA (NVDA) at second place with a 178% rise and Meta Platforms (META) at 19th with a 62% increase, made it from the "Magnificent Seven" into the top 20 performers of the S&P 500. The best-performing stock was Vistra Energy, which surged 240%. Other notable performers include Palantir (PLTR), Constellation Energy (CEG), GE Aerospace (GE), and United Airlines (UAL).
Sylvia Jablonski, CEO and CIO of Defiance ETFs, points out that the "Magnificent Seven" stocks have become overly dominant in portfolios, which could lead to a lack of diversification. Investors might not be fully aware of this concentration or might not understand the extent of their exposure, especially if their investments include tech or semiconductor ETFs or index funds where these stocks are heavily weighted.
The S&P 500 is market-cap weighted, meaning larger companies have more influence. The "Magnificent Seven" recently made up nearly 33% of the S&P 500's total market capitalization. To address this, Defiance launched an ETF named XMAG, excluding the "Magnificent Seven" and offering exposure to the remaining 495 stocks in the S&P 500.
XMAG is aimed at providing diversification for investors worried about their concentrated exposure to the tech giants. It is an alternative to Roundhill Investments' MAGS ETF, which gives equal-weight exposure to the "Magnificent Seven" and has outperformed the S&P 500 since its launch. However, the XMAG might face challenges as historical data shows non-"Magnificent Seven" stocks lagged behind.
Significant changes might be underway, as over the past three months, the "Magnificent Seven" have underperformed, rising just 2% compared to the S&P 500's 5.7% gain, possibly giving XMAG an opportunity to shine.
