The "Magnificent Seven" is a term coined by Bank of America analyst Michael Hartnett to describe seven tech-focused companies that have been market leaders in recent years. The companies, in order of market cap at the end of 2024, are Apple (NASDAQ: AAPL), Nvidia (NASDAQ: NVDA), Microsoft (NASDAQ: MSFT), Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), Amazon (NASDAQ: AMZN), Meta Platforms (NASDAQ: META), and Tesla (NASDAQ: TSLA).
All seven stocks crushed the S&P 500 (^GSPC -0.04%) in 2023. And all except Microsoft beat the index again in 2024.
Investors who think the Magnificent Seven will continue leading the broader market to new heights may want to consider an exchange-traded fund (ETF) that includes these seven companies. Here's why the Vanguard Mega Cap Growth ETF (MGK 0.16%) is an excellent choice if you are looking for top growth stocks in 2025.
Image source: Getty Images.
Leadership from the top
The Vanguard Mega Cap Growth ETF has just 71 holdings compared to 504 in the Vanguard S&P 500 ETF (NYSEMKT: VOO), which mirrors the performance of the S&P 500. A greater concentration in the largest growth stocks by market cap results in far higher weightings in Magnificent Seven stocks.
In fact, the Vanguard Mega Cap Growth ETF has nearly double the concentration in the Magnificent Seven than the Vanguard S&P 500 ETF does. And those seven companies alone make up a higher percentage than the rest of the stocks in the fund.
|
Holding |
Vanguard Mega Cap Growth ETF |
Vanguard S&P 500 ETF |
|---|---|---|
|
Apple |
13.2% |
7.1% |
|
Nvidia |
12.3% |
6.7% |
|
Microsoft |
12.1% |
6.2% |
|
Amazon |
7.2% |
3.8% |
|
Alphabet |
4.7% |
3.5% |
|
Meta Platforms |
4.7% |
2.5% |
|
Tesla |
4% |
1.9% |
|
Total Magnificent Seven |
58.2% |
31.7% |
Data source: Vanguard.
Technology stocks in general make up 60% of the Mega Cap Growth ETF, and another 21.9% is in consumer discretionary. These sectors can be sensitive to changes in the economy and investor sentiment because many top stocks tend to have expensive valuations.
For example, the Vanguard Mega Cap Growth ETF has a 39.8 price-to-earnings ratio (P/E) compared to a 27.2 P/E for the Vanguard S&P 500 ETF.
A noteworthy nuance
The Mega Cap Growth ETF is chock-full of top growth stocks, but it does leave out some big names such as Broadcom, Oracle, Cisco Systems, IBM, and other big tech stocks. These names are in the Vanguard Mega Cap Value ETF (NYSEMKT: MGV), which is similar to the Mega Cap Growth ETF, only focused on the largest value stocks instead of growth stocks.
Broadcom in particular has skyrocketed in recent years and is up over 300% since the start of 2023. So while it used to be dividend-paying value stock, it is now closer to a high-flying growth stock. Before buying the Vanguard Mega Cap Growth ETF, investors should review the fund's list of holdings to ensure they get exposure to the stocks they are interested in.
A market-beating fund
Over the last 10 years, the Mega Cap Growth ETF has produced a 363% total return (including dividends) compared to a 242.5% total return for the S&P 500. The fund's outsize returns can be attributed to a big gain over the last five years.
|
Total Return |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
2023 |
2024 |
|---|---|---|---|---|---|---|---|---|---|---|
|
S&P 500 |
1.4% |
12% |
21.8% |
(4.4)% |
31.5% |
18.4% |
28.7% |
(18.1%) |
26.3% |
25% |
|
Vanguard Mega Cap Growth ETF |
3.6% |
6.5% |
29.5% |
(2.9)% |
37.4% |
41% |
28.6% |
(33.6%) |
51.7% |
32.9% |
Data source: YCharts.
In particular, 2020 and 2023 were massive years for the ETF, when it beat the S&P 500 by over 20 percentage points each year. But in 2022, the fund lost around a third of its value due to a severe sell-off in mega-cap growth stocks.
Because so many holdings in the Mega Cap Growth ETF are valued based on their potential earnings more so than what they are making today, the fund can be vulnerable to changes in investor expectations. When people are optimistic about future business growth, the fund can do extremely well. When they turn pessimistic, as in 2022, the fund can plunge.
Patience is paramount when investing in this volatile ETF
If the Magnificent Seven continues to produce outsize returns, the Mega Cap Growth ETF will probably beat the S&P 500 again in 2025. But the more stock prices outpace earnings growth, the more extended valuations become, which can pressure companies to deliver incredible results.
Entering 2025, the Magnificent Seven are undeniably stretched thinner than they were entering 2024. So it wouldn't be surprising if gains in mega-cap growth stocks cool off in the new year. However, the fund could still be worth buying for investors who don't mind volatility, and who like the funds' top names and have a long-term time horizon.
Most importantly, making an investing decision based on emotion or a hunch is a mistake. Stock prices can do all kinds of crazy things over short periods, so it's best to filter out the noise and align your portfolio in a way that helps you achieve your financial goals. The Vanguard Mega Cap Growth ETF could be a good tool for helping you hit those goals, but only if you have conviction in the long-term performance of the Magnificent Seven.
