S&P500 (SNPINDEX: ^GSPC) The index is up 30% over the past year, and one-fifth of that gain has come from one stock: Nvidia. (NASDAQ:NVDA). The semiconductor giant has returned 186% over the past 12 months and is valued at $3.6 trillion, 7% of the S&P 500’s total value.
But NVIDIA isn’t alone. It’s part of a collection of tech giants known as the “Magnificent Seven,” which have returned an average of 56% over the past year. The combined market capitalization of both companies is $16.9 trillion, accounting for 32.1% of the S&P 500.
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NVDA data by YCharts.
Simply put, investors without exposure to the tech stocks listed above are likely to underperform the overall market. But the good news is that you can get that exposure very easily through the right exchange-traded fund (ETF).
Vanguard Mega Cap Growth ETF (NYSEMKT:MGK) has nearly half of its portfolio invested in four of the largest U.S. tech stocks. It has consistently outperformed the S&P 500 in both the short and long term. This is why it’s a great buy for investors of all experience levels.
The Vanguard Mega Cap Growth ETF holds just 71 stocks. The fund is highly concentrated, with the technology sector accounting for 61.4% of the portfolio’s value, followed by the consumer freedom sector at 20.3%.
In fact, its top four holdings alone account for 45.1% of the portfolio, and they are among the top artificial intelligence (AI) companies that virtually every investor wants to own.
stock
Vanguard Mega Cap Growth ETF Weighting
1. Apple (NASDAQ:AAPL)
13.36%
2. Nvidia
12.52%
3.Microsoft (NASDAQ:MSFT)
12.35%
4. Amazon (NASDAQ:AMZN)
6.82%
Data source: Vanguard. Portfolio weightings are accurate as of October 31, 2024 and are subject to change.
Apple just released Apple Intelligence software developed with OpenAI. It provides owners of the latest iPhone, iPad, and Mac computers with a suite of new AI features, including powerful writing tools that can summarize and generate text content for emails and messages. Apple has over 2.2 billion active devices worldwide, making it potentially the largest distributor of AI to consumers.
Nvidia supplies the most popular data center graphics processing units (GPUs) for AI model development. The company’s data center revenue has grown by triple-digit percentages in each of the past six quarters as demand continues to outstrip supply. That momentum should continue now that Nvidia is shipping powerful new Blackwell GPUs, with CEO Jensen Huang recently calling demand “tremendous.”
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Microsoft and Amazon are two of Nvidia’s top customers. We are equipping our data centers with GPUs and lending that computing power to businesses and developers to affordably deploy AI models. Additionally, both companies are developing their own AI chatbots and virtual assistants, which could be a major source of revenue in the future.
Each Magnificent Seven stock ranks in the top 10 Vanguard Mega Cap Growth ETF. But it’s not all about AI. The fund also owns stocks such as pharmaceutical giant Eli Lilly, payments giant Visa, retail giant Costco Wholesale, and fast food giant McDonald’s.
The Vanguard Mega Cap Growth ETF is incredibly cheap to own. The expense ratio is just 0.07%, which is the portion that is deducted annually from the fund to cover administrative costs. Comparable funds have an average expense ratio of 0.94% (according to Vanguard), and such high costs can eat into investors’ profits in the long run.
Image source: Getty Images.
The Vanguard Mega Cap Growth ETF has delivered a compound annual return of 13% since its inception in 2007. This is better than the S&P 500’s average annual return of 10.2% over the same period.
This ETF has delivered an accelerated annual compound return of 15.9% over the past 10 years, among other things. This coincides with the rapid adoption of technologies such as enterprise software, cloud computing, smartphones, and AI. This compares to the S&P 500’s annual return of 13.2% over the past 10 years.
AI isn’t all there is to the Vanguard Mega Cap Growth ETF, but given the size of its positions in stocks like Nvidia, Apple, Microsoft, and Amazon, this technology will have a significant impact on future returns. So if AI is in line with some of Wall Street’s predictions, ETFs should do very well going forward.
Goldman Sachs believes AI will add $7 trillion to the global economy over the next decade, and PwC estimates that number at $15.7 trillion by 2030. These are just two of the many trillion-dollar estimates released so far.
Conversely, if AI fails to live up to the hype, many shares of the Magnificent Seven could lose significant value. As such, investors should consider owning the Vanguard Mega Cap Growth ETF as part of a balanced portfolio that does not already have high exposure to these large technology companies.
Have you ever felt like you missed out on buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our team of expert analysts will issue a “Double Down” stock recommendation on a company we think is about to crash. If you’re already worried that you’re missing out on an investment opportunity, now is the best time to buy before it’s too late. And the numbers speak for themselves.
NVIDIA:If you invested $1,000 when we doubled in 2009;That’s $368,053!*
Apple: If you invested $1,000 when it doubled in 2008, you would have earned $43,533. *
Netflix: If you invested $1,000 when it doubled in 2004, you would have earned $484,170. *
We currently have “double down” alerts on three great companies, and we may not see an opportunity like this again anytime soon.
See 3 “Double Down” stocks »
*Stock Advisor returns as of November 18, 2024
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Anthony Di Pizio has no position in any stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Costco Wholesale, Goldman Sachs Group, Meta Platforms, Microsoft, Nvidia, Tesla, and Visa. The Motley Fool recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
Introducing the Spectacular Vanguard ETF, with 45.1% of its portfolio invested in Nvidia, Apple, Microsoft, and Amazon. The original article was published by The Motley Fool.
