If you own an ETF tracking the S&P 500 or the Nasdaq-100, the Magnificent Seven are unavoidable. They’re a major part of both benchmarks, where a handful of technology giants continue to dominate index weights.
Personally, I’m a bit cautious whenever financial media starts assigning catchy names to groups of stocks. Historically, that can be a sign that enthusiasm and valuations are beginning to run ahead of fundamentals.Still, there are reasonable arguments on both sides.
Supporters of the Magnificent Seven point to their exceptional earnings growth, enormous cash generation, and ability to fund ambitious long-term projects. These companies are spending billions on artificial intelligence infrastructure, cloud computing, autonomous systems, semiconductors, and other emerging technologies. In many ways, they resemble venture capital firms operating inside publicly traded companies.
Critics see things differently. They argue that soaring capital expenditures are transforming technology from a high-margin, asset-light business into something that increasingly resembles the telecom buildout that occurred during the dot-com era. The concern is that massive infrastructure spending could eventually weigh on profitability and shareholder returns.
Either way, loving or hating the Magnificent Seven does not require aggressively buying or shorting individual stocks. If you want more exposure than what is available through traditional index funds, there is an ETF for that. If you want to avoid the Magnificent Seven entirely without shorting them, there is an ETF for that too. Let’s look at both options.
Doubling Down On The Magnificent Seven
If you want concentrated exposure to the Magnificent Seven, one of the simplest options is the Roundhill Magnificent Seven ETF (MAGS). Rather than purchasing seven individual stocks yourself, MAGS packages them into a single ETF that maintains equal-weight exposure and rebalances quarterly.
The portfolio consists exclusively of Microsoft, Apple, Alphabet, Amazon, Meta Platforms, Nvidia, and Tesla. The ETF charges a reasonable 0.30% expense ratio and has become one of Roundhill’s most successful launches, accumulating approximately $3.8 billion in assets under management.
One interesting aspect of MAGS is that it does not always hold every underlying stock directly. For efficiency purposes, the fund may obtain exposure through total return swaps. In these arrangements, the ETF holds collateral and enters into agreements with counterparties to receive the performance of the underlying stocks.
Another benefit is liquidity. Rather than executing seven separate trades, investors can gain exposure through a single ETF with a very tight 0.01% 30-day median bid-ask spread. The 1.48% 30-day SEC yield paid annually is modest, but investors looking for additional income can also utilize the ETF’s options chain to implement covered call strategies if desired.
Avoiding The Magnificent Seven
If you’re worried about concentration risk but still want broad U.S. equity exposure, the Defiance Large Cap ex-MAG7 ETF (XMAG) takes the opposite approach. XMAG tracks the BITA U.S. 500 ex-Magnificent 7 Index.
The methodology is straightforward. It starts with a broad large-cap universe and removes the Magnificent Seven entirely. The remaining stocks are then weighted by market capitalization and rebalanced quarterly. The practical effect is a significantly less top-heavy portfolio.
As of June 9, the largest holding in XMAG is Broadcom at 4.28%. Compare that to a traditional S&P 500 ETF, where Nvidia currently represents roughly 7.97% of assets. In many Nasdaq-100 funds, concentration is even higher, with Nvidia accounting for more than 8% of the portfolio.
Removing the Magnificent Seven also changes sector exposures substantially. Technology, consumer discretionary, and communication services become less dominant, while healthcare, financials, and industrials receive greater representation.
XMAG remains reasonably affordable with a 0.35% expense ratio. The biggest drawback is liquidity. Its 0.37% 30-day median bid-ask spread is meaningfully wider than what investors will find in larger index ETFs or even MAGS. Still, for investors seeking broad market exposure without relying on seven stocks to drive returns, XMAG offers a practical solution.
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