If you want to find the best growth stocks, the list of companies that make up the Nasdaq-100 index is a great place to start. This index more than doubled the return of the Dow Jones Industrial Average over the last 10 years, and it's holding its lead in 2023. Year to date, the
According to a
Reuters report, Goldman Sachs' (
NYSE:GS
) data shows that
hedge funds have significantly increased their exposure to the magnificent seven stocks, including Apple (
NASDAQ:AAPL
), Alphabet (
NASDAQ:GOOGL
)(
NASDAQ:GOOG
), Microsoft (
NASDAQ:MSFT
), Amazon (
NASDAQ:AMZN
), Nvidia (
NASDAQ:NVDA
), Meta Platforms (
NASDAQ:META
), and Tesla (
NASDAQ:TSLA
). Although
hedge fund signals are positive for these
tech giants, it is best for investors to analyze stocks on multiple parameters. For instance, savvy investors can leverage
TipRanks’ Experts Center tools to make an informed investment decision.
With this backdrop, let’s check what the future holds for these stocks.
What are the Magnificent Seven Stocks Returning So
Far?
After a dismal show in 2022, these seven stocks roared back, making their investors rich. (See the graph below.) The higher probability of less aggressive interest rate hikes in the coming months, continued moderation in the inflation rate, and the solid uptake of Generative
AI (Artificial Intelligence) are why hedge funds and investors are buoyant on these magnificent seven stocks.
Leading the AI race is Nvidia, whose stock is galloping ahead with a stellar 237.2% gain on a year-to-date basis. Following Nvidia is the social media king, Meta Platforms, whose shares are up about 145%. During the same period, Tesla stock more than doubled, just when Amazon and Alphabet stocks are up about 61% and 54%, respectively.
Shares of the tech giant Apple have gained nearly 45%, while Microsoft, which is investing heavily in AI, witnessed a 38% growth in its stock.
Even if these stocks have appreciated significantly, the recovery in cloud computing, reacceleration in advertising spending, and AI-led opportunities continue to support the bull case. However, the economy still exhibits weakness, implying investors should take caution before going long on all seven magnificent stocks.
The Road Ahead
TipRanks’
Stock Comparison tool shows that NVDA, GOOGL, MSFT, and AMZN have received a Strong Buy consensus rating. Moreover, these stocks have an Outperform Smart Score on TipRanks.
Nvidia is poised to benefit from solid AI-led demand that will enable it to generate significant
revenue and cash flows. Further, the company will likely enhance its shareholders’ returns through massive share buybacks. As for Alphabet, Microsoft, and Amazon, the reacceleration in the cloud segment,
investments in AI and its integration into their products, and improvement in ad spending provide a solid foundation for future growth.
On the other hand, the decline in sales of the iPhone, iPad, and Mac in Q3 keeps analysts cautiously optimistic on Apple stock. Nevertheless, it has
a “Perfect 10” Smart Score. Meanwhile, the
near-term pressure on margins keeps analysts cautious about Tesla stock.
The Takeaway
As hedge funds and large institutions are known for generating market-beating returns, investors should closely watch their trades to form investing ideas.
However, when investing for the long term, one must also consider analyzing a stock on multiple parameters, including analysts’ ratings, fundamentals, and insider transactions, among others.
To make things easier for retail investors, TipRanks offers a valuable tool like the Smart Score, which scores stocks based on eight key parameters, such as Wall Street analysts’ ratings, corporate insider transactions, fundamentals, and technical analysis, among other metrics.
Based on Smart Score, Tesla and Meta are the two stocks with a Neutral Smart Score. Meanwhile, the rest carry an Outperform Smart Score, implying these stocks are more likely to beat the broader markets with their returns in the coming days.
Disclosure
Between the
Metaverse,
cryptocurrency, and
AI, plenty of new investment themes have emerged in recent years, at the same time as more individual and retail investors started investing during the pandemic. Predictably, a wave of new ETFs launched in an attempt to capitalize on these new trends.
However, according to a new
Wall Street Journal article
, many of these thematic and niche-focused ETFs are closing up shop. In fact, so far in 2023, 929 ETFs have closed worldwide, up from just 373 this time last year, according to research from ETFGI. In the United States, 178 exchange-traded products have shut down, already exceeding last year’s total of 142.
According to the Wall Street Journal, this is the highest number of closures since 2020, when collapsing oil prices led to the demise of many energy-themed funds. Here’s why.
It’s Hard to Compete with the 800-Pound Gorillas in the Room
Many of these ETFs are learning that it’s hard to attract capital in a crowded market where there is no shortage of competition and where the biggest ETFs from the largest asset managers dominate. These more established ETFs have the size and scale to offer investors low expense ratios and have long track records of performance that investors can look to, making it hard for newcomers to dislodge them.
Making matters more difficult for these new entrants is the fact that while the stock market has done well this year -- the S&P 500 (
SPX
) is up 18.1% year-to-date, while the Nasdaq (
NDX
) is up 35.0% -- a large portion of these gains come from just a handful of mega-cap tech stocks, known as the "Magnificent Seven." The Wall Street Journal reports that through May, these powerhouse stocks were responsible for virtually all of the market’s year-to-date gains.
Investors looking for exposure to these seven tech behemoths -- Apple (
NASDAQ:AAPL
), Microsoft (
NASDAQ:MSFT
), Amazon (
NASDAQ:AMZN
), Nvidia (
NASDAQ:NVDA
), Meta Platforms (
NASDAQ:META
), Alphabet (
NASDAQ:GOOG
) (
NASDAQ:GOOGL
), and Tesla (
NASDAQ:TSLA
) -- don’t really need to look beyond large, popular technology ETFs like
Invesco QQQ Trust (
NASDAQ:QQQ)
and
Technology Select Sector SPDR Fund (
NYSEARCA:XLK)
to gain exposure to these stocks.
QQQ and XLK are good examples of the large ETFs that dominate the market. QQQ boasts nearly $200 billion in assets under management (AUM), a staggering figure, while XLK is smaller than QQQ but is still approaching $50 billion in AUM. With their massive size and scale, these two leading tech ETFs are able to offer investor-friendly expense ratios of 0.20% and 0.10%, respectively.
Staying within technology, smaller but still-popular ETFs like the
ARK Innovation Fund (
NYSEARCA:ARKK)
have much higher expense ratios of 0.75%, and this disparity in fees and expenses makes a significant difference to investors when compounded over time.
The extent to which these mega-cap stocks (and massive ETFs) have dominated the market as of late leaves would-be competitors gasping for oxygen and fighting for scraps. Furthermore, because the Magnificent Seven have racked up such significant gains this year, they are now the largest seven stocks in the S&P 500.
This means that an investor can simply invest in broad market, low-cost S&P 500 ETFs like the
Vanguard S&P 500 ETF (
NYSEARCA:VOO)
or the
SPDR S&P 500 ETF Trust (
NYSEARCA:SPY)
to gain exposure to all of these stocks.
This is a conundrum for smaller and newer ETFs. On the one hand, investing in these stocks isn’t going to be enough to stand out in the crowd, especially when incumbents like VOO, SPY, XLK, and QQQ have lower expenses and lower track records. Trying to compete with these ETFs is like fighting the proverbial 800-pound gorillas in the room.
On the other hand, because these stocks are propelling much of the market’s overall gains in 2023, many individual investors simply don’t seem particularly interested in chasing other ideas and themes like the Metaverse or some of the politically-themed ETFs that have launched in recent years.
There is an Alternative
Another factor that is making it tough sledding for smaller, narrowly-focused ETFs is that rising interest rates have given investors more alternatives to consider when looking for returns. For years, we all heard the mantra “there is no alternative,” which became so commonplace it even earned its own acronym, “TINA.”
But now, for the first time in years, individual investors do have viable alternatives to stocks. Treasury bond yields have risen to decade-highs, and investors can also earn decent risk-free returns by parking money in Certificates of Deposit and money-market accounts. The new viability of fixed-income investing means that money is flowing into fixed-income ETFs as opposed to the latest ETF with a cute ticker attempting to capitalize on the latest trend.
It’s Not All Bad News for New ETFs
All of that said, there are some outliers out there in newer ETFs that are bucking the trend and seem to be establishing real staying power. For example, the
JPMorgan Equity Premium Income ETF (
NYSEARCA:JEPI)
only launched in 2020 but has quickly garnered nearly $30 billion in AUM, meaning that it has already grown into the market’s largest actively-managed ETF in just a few short years of existence.
JEPI has stood out from the crowd and gained traction with investors by offering a double-digit
dividend yield of 10.0% and a monthly payout schedule, with a strategy of selling covered calls to boost its payout. Similarly, JEPI’s cousin, the
JPMorgan Nasdaq Equity Premium Income ETF (
NASDAQ:JEPQ)
launched last May and has already accumulated $5.0 billion in assets under management. Like JEPI, JEPQ pays a double-digit
dividend yield of 11.5% and makes monthly payouts but invests in the Nasdaq instead of the S&P 500.
Below,
you can view a comparison of the two ETFs using TipRanks' ETF comparison tool.
The Takeaway
In conclusion, investors today have more choices than ever when it comes to investing in ETFs, with a bevy of new options launching for each hot theme that emerges. However, many of these ETFs never end up gaining traction with investors and end up shutting down. Essentially, when it comes to ETFs, the competitive landscape is a Darwinian "survival of the fittest," and not everyone is going to attract enough capital to survive.
The ETF market may benefit from a "thinning of the herd" in which some of the weaker ETFs that have not found a product-market fit go by the wayside. The Wall Street Journal previously found that "because many newly launched ETFs are risky attempts to capitalize on the latest trend, they end up investing in overvalued stocks. One consequence is that such funds, on average, can be expected to lag behind the broad market’s returns over at least five years after launch—if they even live that long."
Thus, ETFs looking to capitalize on the latest trend may be late to the party and are buying in after large gains have already been made. Meanwhile, some ETFs, such as politically-themed ones or ones that let you
invest alongside or fade the picks of prominent investing personalities, are better characterized as gimmicks than viable long-term investing strategies.
These ETFs face a challenging landscape right from the beginning, as offering investors exposure to the typical large-cap growth and tech stocks won’t give them much differentiation against the market’s top ETFs, but conversely, offering different exposure may not interest investors either.
However, the massive success of a few new ETFs like JEPI and JEPQ shows that it is still possible to gain success if an ETF finds a differentiated strategy that appeals to investors.
Disclosure
Canada's Shopify said on Wednesday Amazon will release an app in Shopify's app ecosystem that will give US-based merchants access to Amazon's "Buy with Prime" option.
The NASDAQ 100 After Hours Indicator is up 3.08 to 15,465.51. The total After hours volume is currently 76,863,751 shares traded.The following are the most active stocks for the after hours session: Intel Corporation (INTC) is +0.01 at $34.54, with 3,485,625 shares traded. INTC'
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Nvidia Corp’s soaring rally has thrilled investors this year - except for the sizeable number of fund managers who avoided what they believe to be an expensive stock.
The
SPDR Portfolio S&P 500 ETF (
NYSEARCA:SPLG)
already had a low expense ratio, but it got even more affordable when it slashed its expense ratio by 50% at the beginning of August. According to
Bloomberg, SPLG is the lowest-cost large-cap blend S&P 500 ETF offering, with a gross expense ratio that got lowered to 0.02% from a previous 0.03%.
This rock-bottom expense ratio means that an investor will pay just $2 in expenses when putting $10,000 into SPLG, making it the type of cost-effective ETF an investor can build their portfolio around. Assuming that the fee remains at 5% and that the fund returns 5% per year going forward, this investor would pay just $6 in fees over the course of three years, $11 over five years, and a paltry $26 over an entire decade.
While the old adage says that you get what you pay for, that’s not necessarily the case for SPLG, which gives investors plenty of bang for their buck. Let’s take a closer look at this $19.6 billion S&P 500 (
SPX
) ETF.
What is SPLG ETF’s Strategy?
SPLG is an ETF from State Street (
NYSE:STT
) that seeks to provide results that “correspond generally to the total return performance of the S&P 500 index,” according to State Street. The company also describes SPLG as “one of the low-cost core SPDR Portfolio ETFs, a suite of portfolio building blocks designed to provide broad, diversified exposure to core asset classes.”
History shows that investing in the S&P 500 has been a winning proposition over the long term. The S&P 500 has averaged double-digit annualized returns of 10.15% for more than six decades since it assumed its current form of owning 500 stocks in 1957, and you can't really argue with that type of track record.
Clearly, the S&P 500 has been a long-term winner, making SLPG a viable long-term holding. Also, in terms of affordability for investors, you can't really beat SPLG.
Solid Returns
As of the end of July, SPLG had returned 20.2% year-to-date and 12.4% over the past year. Over the past three years, it posted an impressive annualized total return of 13.7%. Looking further out, SPLG’s five-year and 10-year annualized returns of 12.2% and 12.6%, respectively, aren’t too shabby either. Going back to its inception in 2005, SPLG has managed to post a double-digit annualized return of 10.0%.
The fact that this strong performance encompasses multiple bear markets, including the great financial crisis and the COVID-19 crash of 2020, shows the power of long-term investing and investing in high-quality, broad-market ETFs.
SPLG’s performance is admirable, to begin with, and even more so when considering the fact that there are plenty of ETFs with exponentially higher expense ratios in the neighborhood of 0.35%, 0.50%, and even 0.75% or higher that can’t match SPLG’s performance over the years.
SPLG's Holdings
In addition to its best-in-class affordability and excellent long-term performance, SPLG offers strong diversification by investing in the entire S&P 500. This broad-market ETF holds 504 stocks, and its top 10 holdings account for just 30.2% of the fund. You can check out
SPLG’s top 10 holdings below using TipRanks’ holdings tool.
The nice thing about investing across the S&P 500 is that it gives investors exposure to the breadth and depth of the entire U.S. economy. State Street says that the index “represents approximately 80% of the U.S. market.”
SPLG’s largest holdings are some of the U.S.’s largest and most innovative companies, including tech mega-caps like Apple (
NASDAQ:AAPL
), Microsoft (
NASDAQ:MSFT
), Amazon (
NASDAQ:AMZN
), Nvidia (
NASDAQ:NVDA
), Alphabet (
NASDAQ:GOOGL
) (
NASDAQ:GOOG
), Meta Platforms (
NASDAQ:META
), and Tesla (
NASDAQ:TSLA
). These are the stocks that comprise the "magnificent seven" that have propelled the markets to new heights in 2023.
And there is plenty more than just tech here. SPLG’s top 10 holdings are rounded out by
Warren Buffett’s investment conglomerate Berkshire Hathaway (
NYSE:BRK.B
) and health insurance giant UnitedHealth Group (
NYSE:UNH
).
These top holdings feature strong Smart Scores across the board. The
Smart Score is a proprietary quantitative stock scoring system created by TipRanks. It gives stocks a score from 1 to 10 based on eight market key factors. A score of 8 or above is equivalent to an Outperform rating. The score is data-driven and does not involve any human intervention. Seven of SPLG’s top 10 holdings feature outperform-equivalent Smart Scores of 8 or higher.
SPLG itself features an Outperform-equivalent Smart Score of 8.
Just outside the top 10, you’ll find no shortage of familiar, blue-chip names, including healthcare leaders like Johnson & Johnson (
NYSE:JNJ
), Eli Lilly (
NYSE:LLY
), Merck (
NYSE:MRK
), and AbbVie (
NYSE:ABBV
), consumer staples mainstays like Coca-Cola (
NYSE:KO
), Pepsico (
NASDAQ:PEP
) and Procter & Gamble (
NYSE:PG
), plus household names from the financial sector including JPMorgan Chase (
NYSE:JPM
), Visa (
NYSE:V
), and Mastercard (
NYSE:MA
).
Is SPLG Stock a Buy, According to Analysts?
Turning to Wall Street, SPLG earns a Moderate Buy consensus rating based on 399 Buys, 97 Holds, and 10 Sell ratings assigned in the past three months. The
average SPLG stock price target of $60.34 implies 14.2% upside potential.
This Long-Term Winner Continues to Look Attractive
SPLG’s rock bottom expense ratio of 0.02%, its strong long-term performance, and its diversified portfolio that gives investors exposure to the breadth and depth of the entire S&P 500 make this long-term winner an attractive investment opportunity. There are plenty of more expensive ETFs out there that can’t hold a candle to SPLG’s annualized returns, making this look like a solid building block for investors to build portfolios around.
Disclosure
TipRanks
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