Roundhill Magnificent Seven ETF MAGS has jumped 56.2% so far this year courtesy of its exposure to tech biggies and artificial intelligence (AI) giants Apple, Amazon, Meta, Alphabet, Microsoft, NVIDIA and Tesla. However, the market rally is broadening.
An optimistic economic outlook and a dovish Fed should inspire investors to broaden their focus beyond Mag-7 stocks. Unlike the previous year's trend in which investors clung to the 'Magnificent Seven' mega-caps for innovations and AI mania, the year 2025 should show a shift (read: How to Play Wall Street Stocks in 2025? ETF Strategies in Focus).
Although the small-cap stocks have gained momentum post Trump’s win in the U.S. presidential election, one can pinpoint their focus on large caps. Large-cap companies typically have strong balance sheets, significant cash reserves, and diversified revenue streams, making them more resilient during economic downturns. With talks of a potential inflation rebound in the United States and growth worries looming large, bigger-caps should offer more stability in investors’ portfolios.
Launch of TOPT ETF by iShares
In this pursuit, one can play iShares Top 20 U.S. Stocks ETF TOPT. BlackRock’s iShares launched this ETF on Oct. 23, 2024, for investors wanting to diversify beyond the so-called Magnificent Seven. It’s made up of the 20 largest U.S. stocks by market capitalization.
Aguirre, the firm’s head of U.S. iShares product, noted the ETF’s mission is to deliver an easy and accessible way to tap into the innovation of mega-caps — “whether that be in the tech-heavy Nasdaq space or, more broadly, within the S&P [500],” as quoted on CNBC.
ETF Offers an Alternative to Magnificent Seven Concentration
According to Aguirre, the newly launched ETF provides a solution for investors concerned about the dominance of the "Magnificent Seven" stocks in the S&P 500. This group of mega-cap tech companies has significantly influenced market performance lately but has also raised questions about over-concentration.
Diverging Views Among Investors
“There are split opinions on this topic,” Aguirre noted. Some investors believe these market leaders will continue to dominate, with “the big getting bigger” and “winners continuing to win.” However, others worry about the risks of investing in mega-cap companies, citing their lofty valuations as a potential red flag, as quoted on CNBC.
Inside Newly-Launched ETF TOPT
The TOPT ETF looks to track the performance of the 20 largest U.S. stocks, by market capitalization. Apple (15.31%), NVIDIA (15.29%) and Microsoft (13.57%) are the top three holdings. Apart from Mag-7, the TOPT ETF offers exposure to Warren Buffett’s Berkshire Hathaway, Broadcom, JP Morgan, Eli Lilly, Visa, Mastercard, Costco, Home Depot, Procter & Gramble, J&J and Abbvie. The fund charges 20 bps in fees.
Can TOPT ETF See Success?
The TOPT ETF has gained 1.8% past month (Nov. 22, 2024) versus 5.6% gains in the MAGS ETF due to the latter’s focus on the AI boom. But if there are any downside risks associated with AI mania, MAGS ETF has a higher chance of falling than TOPT.
The TOPT has a P/E ratio of 33.57X and P/B ratio of 9.58X. This compares with the iShares Core S&P 500 ETF’s IVV P/E ratio of 29.17X and P/B ratio of 5.12X. In contrast, MAGS ETF has a much higher P/E ratio of 41.67X and P/B ratio of 14.14X, indicating ripe valuation.
It shows that the TOPT ETF offers fewer risks with the potential for lesser gains (but pretty decent) than MAGS ETF. Risk-averse investors can rely on TOPT ETF. The ETF has amassed $60.5 million in assets within one month of its launch.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.
iShares Top 20 U.S. Stocks ETF (TOPT): ETF Research Reports
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
