Do you want to invest in “Magnificent Seven” stocks? Buy the best ETFs.

The Big 7 stocks have delivered impressive returns over the years. The seven companies focused on major technology trends — apple, Amazon, the alphabet, Meta platforms, Microsoft, NvidiaAnd Tesla – They completely obliterated the S&P 500:

Data source: Ycharts.

Technology trends that drive market-beating returns (e.g., artificial intelligencecloud computing, E-CommerceAnd Electric car) You still have a long runway to grow. can give Seven greats The ability to continue to excel. However, instead of buying all seven stocks, investors could consider taking a more passive approach by investing in a stock Exchange Traded Funds (ETF) With the high concentration of those stocks. the Invesco QQQ Trust (qqq 0.47%) It features huge exposure for the Magnificent Seven.

What is Invesco QQQ Trust?

Invesco QQQ was launched more than two decades ago. It’s tracking Nasdaq-100 Index, which is an index of the 100 largest non-financial companies listed on the Nasdaq Stock Exchange. Invesco QQQ has grown into one of the largest ETFs ever Assets under management (AUM). It currently holds more than $220 billion in client assets, making it one of the top five ETFs by AUM in the world. It is the second most popular ETF in the US in terms of average trading volume, which shows its popularity among investors.

The ETF has also been a top performer over the years. The ETF has generated an average annual total return of 17% over the past decade, compared to an average annual total return of nearly 10% for the S&P 500. This ETF would have grown on a $10,000 investment made before a decade ago to roughly $50,000 today. By comparison, the same investment in the S&P 500 would have grown to only about $30,000.

This outperformance is driven by the underlying growth of companies in the index. This group has grown much faster than other benchmarks over the past 10 years:

Compound annual growth rates for 10 years. Data source: Invesco.

Concentration has played a major role in the huge growth of the index. It owns 100 companies (versus 500 or 1,000) that focus heavily on the fastest-growing sectors of the stock market (technology makes up 57% of its holdings). This focus on companies benefiting from key growth trends has helped drive faster financial growth and higher shareholder returns.

A great way to play the Seven Wonders

Invesco QQQ Trust is excellently positioned to continue to outperform because it focuses on companies with significant growth prospects. It all starts from the top. The fund’s most important holdings are Magnificent Seven shares:

• Apple: 10.8% of the fund’s assets.
• Microsoft: 9.5%
• Amazon: 5.3%.
• Nvidia: 4.3%
• Introductory platforms: 3.8%.
• Tesla: 3.2%.
• Alphabet: 3.1% (Class A shares) and 3.1% (Class C shares)

Overall, these seven companies make up 43% of the fund’s holdings, while the other 93 stocks make up the remaining 57%. This is roughly double its weight in the S&P 500 (and related S&P 500-focused ETFs). Due to their huge weight in the index, these companies help in achieving higher returns compared to the Standard & Poor’s 500 index.

The group has outperformed the market this year. According to data from Goldman SachsThey had gained an average of 71% through mid-November compared to an average gain of 6% for the other 493 stocks in the S&P 500. Without the Magnificent Seven’s huge gains and large allocations, the index would not have been up 19% this year.

Goldman Sachs expects Magnificent Seven shares to have another strong year in 2024, expecting them to once again outperform the S&P 500. “The Seven stocks have faster expected sales growth, higher margins, a greater reinvestment ratio, and “Balance sheets are stronger than the other 493 stocks and trade at a relative valuation in line with recent averages after accounting for expected growth. Given this group’s higher weighting to the Nasdaq-00, the Invesco QQQ is an excellent way to play its potential continued outperformance.

Concentrated at the top

Invesco QQQ has been a great ETF investment over the years. It has generated huge returns for its investors because it focuses on owning some of the fastest-growing companies that benefit from mega technology trends. This makes this ETF a great way to passively invest in the Magnificent Seven.