ETFs
Do you want to invest in the stocks of the “Magnificent Seven”? Buy this ETF instead.
Stocks of the “Magnificent Seven” have been the darlings of Wall Street given their strong performance over the past two years. The group is made up of leading technology growth stocks that have helped fuel the market’s uptrend. Stocks in this exclusive club include the chip giant NvidiaiPhone manufacturer Appleresearch manager Alphabetpower of social media Metaplatformselectric vehicle manufacturer You’re heree-commerce juggernaut Amazonand tech titan Microsoft.
Given their recent market leadership, it’s tempting to invest in this group of stocks. However, before purchasing each of them individually, there is another alternative to consider: investing in the Invesco QQQ Trust ETF (NASDAQ:QQQ).
Why the Invesco QQQ ETF is a great alternative to the Magnificent Seven
The Invesco QQQ ETF is a passively managed fund exchange-traded fund (ETF) which tracks the performance of Nasdaq-100 hint. The index is heavily weighted in favor technological stocks, with nearly 60% of its holdings in the sector. Another 18% of its holdings are in the consumer discretionary sector, although many of these names are also tech-leaning. For example, Amazon, Tesla, NetflixAnd Reservation of funds are included in this segment.
The Magnificent Seven, meanwhile, is heavily represented in the ETF, with all seven stocks appearing in its top 10 holdings. In fact, the group represents 41% of the ETF’s total portfolio. This gives investors great exposure to this group of stocks.
However, the Invesco QQQ ETF also adds a bit more diversity, which can be a good thing. The ETF is very growth oriented and provides investors with exposure to leading companies in the areas of artificial intelligence (AI), cybersecurity, financial technology, electric vehicles and cloud computing.
The ETF also gives investors the opportunity to own the next big trending stocks. Before the Magnificent Seven, FANG was in the lead, along with Facebook (now Meta Platforms), Amazon, Netflix and Google (now Alphabet); then later FAANG, when Apple was added to the group. However, this change shows that these top tech stocks will evolve over time, and the Invesco QQQ ETF likely has the next big tech winner among its holdings.
The advantage of the Nasdaq-100 Index is that it is a market-cap-weighted index that lets its winners run and its losers fall. Thus, the better a stock performs, the greater its share of the index, while the worse its performance, the weaker its position becomes. This goes against many investors’ natural instincts to sell their winners and add to their losers. However, there is often a good reason why winning stocks perform well and reach the highs that they do.
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So, investing in the Invesco QQQ ETF will allow the best stocks of the Magnificent Seven to naturally rise to the top and let the laggards naturally escape from the group, with a potential replacement likely already planned.
Image source: Getty Images.
Solid historical returns
The Invesco QQQ ETF has performed very well over the years. The index has an average annual return of 18.1% over the past 10 years, which easily exceeds the 12.4% return of S&P500 index over the same period. Over the past year, the ETF is up 32.5%, outpacing the S&P’s 22.7% return. In fact, the ETF has outperformed the S&P 500 87% of the time over the past 10 years.
Given that we are in the early stages of a potential AI revolution, investing in growth-oriented technology stocks is a solid strategy. The Invesco QQQ ETF, on the other hand, is a great option for investors to consider. Investors don’t need to worry about finding the big winners in AI, as the index will naturally take care of this problem. It also provides investors with instant diversification with a tiny expense ratio of just 0.2%.
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Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Geoffrey Seiler holds positions at Alphabet. The Motley Fool holds positions and recommends Alphabet, Amazon, Apple, Booking Holdings, Meta Platforms, Microsoft, Netflix, Nvidia and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Mad Motley has a disclosure policy.
Do you want to invest in the stocks of the “Magnificent Seven”? Buy this ETF instead. was originally published by The Motley Fool