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Inverse/Leveraged Magnificent Seven ETFs Hit the Market

Sanghamitra Saha
·3-min read

The "Magnificent Seven" typically refers to the 1960 Western film, but today’s stock market investors recognize the term as the set of seven big tech stocks, namely Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL), Amazon (AMZN), Nvidia (NVDA), Meta Platforms (META) and Tesla (TSLA). Magnificent Seven have contributed massively to 2023’s Wall Street’s rally. Roundhill Magnificent Seven ETF MAGS has gained 18.2%, way higher than the broader market and is up 57.9% since Apr 2023.

Investors’ interest with "Magnificent Seven" is at sky high, which inspired Roundhill Investments to launch the double-leveraged ETF on this concept, namely RoundhillDaily 2X Long Magnificent Seven ETF (MAGX). However, although the potential about these fabulous seven stocks is pretty high, risk factor cannot be overruled. As a result, Roundhill Investments also launched an inverse fund on the same concept to give investors access to gains while "Magnificent Seven" are falling. The name of the fund is Roundhill Daily Inverse Magnificent Seven ETF (MAGQ).

Both funds hit the market on Feb 29, 2024.

Inside the Newly-launched ETFs

Roundhill Daily 2X Long Magnificent Seven ETF (MAGX)

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The actively-managed fund looks to track daily leveraged investment results, before fees and expenses, that correspond to two times (2X) the performance of the Roundhill Magnificent Seven ETF. As a result, the fund may be riskier than alternatives that do not use leverage because the fund’s objective is to magnify the daily performance of the Magnificent Seven ETF. The fund charges 95 bps in net fees.

Roundhill Daily Inverse Magnificent Seven ETF (MAGQ)

The actively-managed fund seeks daily investment results, before fees and expenses, that correspond to the inverse (-1X) of the performance of the Roundhill Magnificent Seven ETF. The return of the fund for periods longer than a single day will be the result of its return for each day compounded over the period. The net fee of the funs is 0.95%.

How Do They Fit In a Portfolio?

This group has made the S&P 500 more concentrated than ever, which means this key U.S. equity gauge’s further boom or doom depends on these seven stars." At the current level, S&P 500 ETF – SPDR S&P 500 ETF Trust SPY – invests more than 25% in Magnificent Seven stocks.

The expectations of a less-hawkish Fed should boost Magnificent Seven even more as the stocks are high-growth in nature and should do well in a low-rate environment. These stocks also bet big on artificial intelligence (AI) – the red-hot topic in the tech world currently. Apart from AI, these stocks are associated with several kinds of disruptive technologies (read: Will Apple ETFs Gain Momentum After Announcement of AI Project?).

But such a stupendous rally caused by AI enthusiasm, at times makes Magnificent Seven overvalued too. One of the pillars of Magnificent Seven – NVIDIA – boasts a forward P/E of 34.08X. Microsoft has a forward P/E of 35.57X. Amazon.com has a P/E of 43.50X. These stocks have a way higher P/E ratio than the S&P 500 (i.e. P/E of 23.27X) (read: More Rally Awaits ETFs as Nvidia Hovers Around $2Tn Market Cap?).

Plus, big Tech grapples with three regulatory hurdles: Privacy, content oversight, and antitrust scrutiny. These tech giants face challenges in safeguarding user privacy, moderating content, and addressing potential antitrust actions. Big Tech companies are currently under intense antitrust scrutiny, with regulators examining their market dominance and potential anti-competitive practices. Hence, a downside protection in the form of ETF is also needed. This purpose will be served by MAGQ.

As far as competition is concerned, these funds together do not face much competition from pureplay ETFs. However, these seven stocks have individual exposure to several sectoral ETFs (read: Guide to the Magnificent Seven Stocks & ETFs Investing).


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SPDR S&P 500 ETF (SPY): ETF Research Reports

Roundhill Magnificent Seven ETF (MAGS): ETF Research Reports

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Zacks Investment Research