A Response to "There Is No Magnificent Seven"

On June 14, 2024, Allan Sloan published a commentary in Barron’s with the headline “There Is No Magnificent Seven. There’s Simply the Magnificent One.” Within the article, Sloan credits NVDA as the only component of the group deserving of the “Magnificent” accolade while “the rest range from mediocre to terrible,” ultimately concluding that the Magnificent Seven term should be retired.

Roundhill Investments, the sponsor of the Roundhill Magnificent Seven ETF (ticker: MAGS), offers an alternative view of these seven market leaders. 

The Magnificent Seven each posted an impressive 2023 on a total return basis. However, it is not reasonable to expect the group to consistently trade higher together in perpetuity. Similar to other parts of the market, ebbs and flows within the group will occur because each company manages its own company-specific growth initiatives and hurdles to overcome (whether it be fundamental based, price based, or both). 

There will be periods when certain members of the group struggle and underperform the market. As Sloan noted, TSLA in 2024 is case in point, clocking in as the only negative member of the Magnificent Seven YTD (-27% through 6/20). AAPL struggled for most of the year until an impressive +9% move in June (performance through 6/20 close). As a reminder, in the fourth quarter of 2022, META dropped almost -25% in a single day after an underwhelming earnings report. Conversely, there will be periods when certain members have correction / downside risk after extraordinary runs. NVDA certainly can fall into this camp as it trades roughly 70% above its 200-day moving average (as of 6/24/24).

Roundhill developed MAGS with the purpose of addressing these issues. MAGS is intended to serve as an exposure tool to the Magnificent Seven on an equally weighted basis while mitigating the risks associated with concentrated bets on individual companies. The fund is not intended for Roundhill to make judgments on which holding will perform the best of the group. 

From a fundamental standpoint, it doesn’t seem fair to label the Magnificent Seven term as antiquated. Context is important. Growth will naturally slow, but what continues to bind the group together is their structural relevance to the market. The market cap influence remains clear,  but their contribution to aggregate profits feels underappreciated. 

If treated as its own sector, the Magnificent Seven generates roughly 23% of the S&P 500’s net income, ranking ahead of all Global Industry Classification Standard (GICS) sectors.

From a growth perspective, the Magnificent Seven is expected to have net income growth of roughly +64% in 2024, +21% growth in 2025, and +16% in 2026. These growth rates firmly outpace the expected growth rate of the remaining 493 companies in the S&P 500.

On a trailing twelve month basis, the Magnificent Seven tallied a profit margin of 22.2%, over double that of the remaining 493 S&P constituents. 

Naturally, growth rates will change as the business cycle progresses and the economic environment evolves. However, when considering the magnitude of financial influence, a “less than magnificent” quarter is still better than most company’s “magnificent” quarter. 

Similar to Sloan, Roundhill does not have a view on where NVDA, TSLA, or the rest of the Magnificent Seven will go from here. But given the important fundamental support and market influence the Magnificent Seven currently provide, we are hesitant to dismiss the group or the moniker for now.

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Investors should consider the investment objectives, risk, charges and expenses carefully before investing. For a prospectus or summary prospectus with this and other information about Roundhill ETFs please call 1-855-561-5728 or visit the website at https://www.roundhillinvestments.com/etf/mags/. Read the prospectus or summary prospectus carefully before investing.

Investing involves risk, including possible loss of principal. The Fund expects to have concentrated (i.e., invest more than 25% of its net assets) investment exposure in one or more of the Technology Industries at any given time, which may vary over time. Further, the Fund expects to obtain such investment exposure by transacting primarily with a limited number of financial intermediaries conducting business in the same industry or group of related industries. As a result, the Fund is more vulnerable to adverse market, economic, regulatory, political or other developments affecting those industries or groups of related industries than a fund that invests its assets in a more diversified manner. The value of stocks of information technology companies and companies that rely heavily on technology is particularly vulnerable to rapid changes in technology product cycles. Please see the summary and full prospectuses for a more complete description of these and other risks of the Fund.

Roundhill Financial Inc. serves as the investment advisor. The Funds are distributed by Foreside Fund Services, LLC which is not affiliated with Roundhill Financial Inc. 

The S&P 500 Index is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States. One may not directly invest in an index.