Investors often seek to capture the essence of market giants, like the tech-focused mega-cap companies Microsoft, Apple, Nvidia, Alphabet, Amazon, Meta Platforms, and Tesla. These behemoths, dubbed the “Magnificent Seven” by Bank of America analyst Michael Hartnett, wield substantial influence over major indexes like the S&P 500 and Nasdaq Composite.

To achieve a balanced exposure across all seven growth stocks, investors may consider constructing their own version of an exchange-traded fund (ETF) tailored to the Magnificent Seven. This alternative approach could offer distinct advantages for those seeking to diversify their holdings and steer clear of ETFs with outsized exposure to these tech giants.

Now, let’s delve into the intricacies of building your personal Magnificent Seven ETF and explore the cost implications of such a venture, along with the rationale underpinning its attractiveness to astute investors.

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The Pitfalls of Top Growth-Focused ETFs

Certain funds, such as the Roundhill Magnificent Seven ETF, specifically target the Magnificent Seven stocks. However, issues arise with this fund due to its significantly lower net assets of only $231.5 million, a stark contrast to the sizable funds boasting tens or even hundreds of billions of dollars in assets. Additionally, the fund carries a higher expense ratio of 0.29% and relies on swaps and stock acquisitions, signaling potential complexities for investors. With its relatively recent inception in April 2023, prudent investors may find it advisable to steer clear of this ETF.

Meanwhile, there exist more robust and time-tested ETFs with substantial exposure to the Magnificent Seven. Noteworthy among them are four formidable Vanguard ETFs, boasting low expense ratios ranging from 0.03% to 0.07%. The Invesco QQQ, characterized by an expense ratio of 0.2%, closely mimics the performance of the 100 largest components of the Nasdaq Composite.

The Vanguard S&P 500 ETF mirrors the S&P 500 but with a more modest exposure to the Magnificent Seven. In contrast, the Vanguard Growth ETF focuses on top growth stocks across the NYSE and Nasdaq Composite. Lastly, the Vanguard Mega Cap Growth ETF takes a step further by concentrating on mega-cap growth stocks, with a substantial 57% investment in the Magnificent Seven.

The Value of Equal Weight vs. Market Capitalization

Market-cap-weighted indexes and financial products inherently prioritize more valuable companies to exert a proportionate influence on the broader market. However, individual investors may opt for a different strategy emphasizing specific companies of personal conviction over generic market trends.

Legendary investors like Warren Buffett, through Berkshire Hathaway, showcase this approach by allocating higher weightings to their top picks. For instance, Berkshire’s leading public equity holding is in Apple, demonstrating a pronounced emphasis on individual conviction over market cap metrics.

Intriguingly, investors can consider an equal-weight approach to investing in the Magnificent Seven stocks, providing an alternative to market-cap-weighted strategies and enabling a more balanced exposure to each stock.

A Hypothetical Equal-Weight Magnificent Seven ETF

Though not a precisely even split, allocating just over $6,000 can achieve a near-equal weighting across each Magnificent Seven stock. The exact allocation may vary based on market prices, with potential refinements available through fractional shares. The following breakdown, based on April 26 closing prices, offers a simplified starting point for investors seeking a uniform stake in these influential companies.