Magnificent 7 Outperformance May Not Continue
As companies grow to become some of the largest on the US stock market, their returns can be impressive. But not long after joining the top 10 largest by market
The Magnificent 7 stocks1 continue to capture the focus of investors as these large growth names have outpaced the bulk of global equities. Their outperformance is notable because eye-popping returns for top stocks tend to occur before they reach the top of the market. Once there, subsequent returns tend to lag the market.
This is a cautionary tale for investors expecting continued outperformance from the Magnificent 7. In fact, rather than seeking additional exposure to these mega cap stocks, investors should ensure their portfolios are broadly diversified to capture the returns of whatever companies ascend to the top in the future.
EXHIBIT 1
View from the Top
Annualized returns in excess of the US market before and after joining the top 10 largest US stocks, January 1927–December 2022
FOOTNOTES
1. The S&P 500 Index had an annualized return of 10.3% from January 1926 to December 2023. S&P data © 2024 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.
INDEX DESCRIPTION
Fama/French Total US Market Index: Fama/French Total US Market Research Factor + One-Month US Treasury Bills. Source: Ken French’s data library: https://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html
Results shown during periods prior to the index inception date do not represent actual returns of the index. Other periods selected may have different results, including losses. Backtested index performance is hypothetical and is provided for informational purposes only to indicate historical performance had the index been calculated over the relevant time periods. Backtested performance results assume the reinvestment of dividends and capital gains.
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RISKS
Investments involve risks. The investment return and principal value of an investment may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original value. Past performance is not a guarantee of future results. There is no guarantee strategies will be successful.
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