The Return of the Magnificent Seven – Thoughts on the US Equity Market

Are the Magnificent Seven still the heroes of the US market?

Since Bank of America analyst Michael Hartnett originally attached the label to the group of leading US tech stocks, recalling the iconic 1960 Western movie (in which seven hired gunmen rescue a village from outlaws), they have dominated the narrative and performance of the US market, and to a large extent the world markets. 

However, the US market has stopped outperforming other major markets. Since the end of March it has recovered c. 9%, while the UK, China and Germany have recovered c. 20%, and Hong Kong c. 30%. In addition, the dollar has fallen – about 5% in trade-weighted terms.   

The US, with around 26% of world GDP, still accounts for 54% of world market capitalisation and the so called Magnificent Seven alone for almost 17%. So, any consideration of exposure to global equities needs to consider them.  Their combined market capitalisation is currently about $16 trillion (vs $2trillion for the entire FTSE100). Views on the US are extremely polarised.   

There are the views of long term and very experienced fund managers, such as Jeremy Grantham and Ray Dalio, and in the UK Jim Mellon. They fear a debt-driven meltdown, exacerbated by the tax-cutting Big Beautiful Budget. The proposition is essentially that a country that spends 37% of GDP but only raises 30% in taxes cannot avoid a debt crisis. How and what triggers it remain to be seen.  The counter view includes inter alia that the US government has substantial untapped resources (gold, land, natural resources) it could deploy to fend off a debt problem; that demographics (a young workforce) favour the USA; and particularly that AI will lead to an explosion in productivity and therefore in profitability. Blockchain gets an occasional hat-tip too as a productivity booster. Plus, the ad hominem dig that the bears have predicted many more bear markets in the past than have ever come to pass and have been over pessimistic.  

The Magnificent Seven 

The Magnificent Seven* US equities continue to be seen as the exemplars of US dominance. The name is perhaps not ideally chosen. Of the seven heroes in the Western, only three survive the film, and in Kurosawa’s original Seven Samurai, the prototype for the Western, the three survivors end by watching the villagers plant rice, maybe a metaphor for the enduring value of basic industry!   

So far in 2025 they have more or less stopped outperforming the broader US equity index. In August, the best performing areas of the US market were (per S&P) “pure value” and “high dividend”- which over the last 12 months have been in the lower half of the table:  

(Source - S&P)

The shares still currently account for about 33% of the market, compared to 20% at the beginning of 2023, and 40% of the Nasdaq 100.   

They are more or less expensive relative to the market – in some cases to a very large extent – and the market valuation is obviously, in part, made up of these companies, so the market excluding them is cheaper.   

Driven by this, the US market itself is at the high end of the last end of the 30 year range:

Some Different Approaches to investing in US Equities

Investors can consider the following approaches towards managing their exposure to the US equity market:  

  1. Accept that the Magnificent Seven as the most interesting part of the US equity market. The technology tailwinds that have driven the premium valuations remain in place and there is no reason to bet against them. Active management has had a poor record, so a low-cost fund based on- say – the S&P 500 would be optimal.   
  2. See the valuations as steep but not absurd. A US equity market portfolio that includes them, but not to the full extent of their current (over-) valuation, would be optimal. In this case a so-called “equal weight” portfolio, which includes equal amounts of all the companies in the index, irrespective of their size, would be the choice.   
  3. Take the view that the tailwinds which have driven the Magnificent Seven are becoming headwinds but that the US overall remains a dynamic and growing economy. In this case exposure to the rest of the market but not to these companies would be optimal and would reduce the risk of a sell-off. There are various ways this could be done: value funds, either active or otherwise; or sectoral funds which omit the Mag 7.   
  4. The previous options are reductive, and an active portfolio of US equities managed by a team with a good long term track record, free to invest in or to avoid these companies on their own merits, is the right way forward. There is no shortage of choices of active funds, but few which have shown a clear return for active investment. Moreover, some of those which have, have done it by making an even more concentrated bet on technology than the market has become (so for example, Baillie Gifford American was at one stage over 50% invested in technology and communications).    
  5. It is also possible to find structured funds with caps and collars, and there are also so-called buffer funds, so protecting against a sell-off whilst still retaining some upside. The buffer funds work by offering an annual reset of a buffer, which absorbs the first 15% (say) of a fall in the market, but correspondingly also has a cap on performance. These both reset on the anniversary of issue. Of course there is no absolute guarantee that the buffer can be delivered.  

 

So – there is a huge proliferation of funds available (there are now more ETFs than individual equities) and the ones we mention are examples not recommendations. There are also some specialist US-focused investment trusts and funds. As the BBC sometimes says- “other brands are available.”   

Some Possibilities

In the UK investment fund market, the clearest proponents of US tech have been the Edinburgh firm, Baillie Gifford. Their US Growth Trust, currently trading on about a 9% discount to NAV, includes three of the Magnificent Seven in its top 10 holdings, as well as Elon Musk’s SpaceX. The shares have risen 38% YTD.   

Bill Ackman’s US-managed but London-listed Pershing Square has a rather different philosophy, not completely eschewing tech (Alphabet is a top ten holding) but is far more of a play on the overall US market. Ackman is a controversial figure, and the management structure is cumbersome, but the shares currently trade on an almost 30% discount to NAV. The shares have risen 19.4% YTD.  

In the ETF market (i.e. funds based on a fixed index, market traded), examples of funds accessible to UK-investors which would meet the criteria above would include:   

  • Magnificent-Seven-based. There is no purely Magnificent Seven ETF available on this side of the Atlantic, but the Franklin US Mega Cap 100 UCITS ETF has heavy weighting towards them. Of course, it would be possible just to buy the seven shares directly…  
  • US “equal weight” ETFs: Invesco, iShares, and Amundi, provide S&P500 equal weight funds, or for the S&P 100 and therefore with a higher average market cap, there is  an Equal Weight fund from Legal & General.   
  • Funds branded “value” or “dividend” will generally have criteria which exclude the Magnificent Seven. As (by definition) do Small Cap funds. State Street’s MSCI USA Value UCITS ETF claims, for example, to “track the performance of US equities with a higher weighting applied to equities exhibiting low valuation characteristics.”   
  • Active ETFs are fashionable – but essentially a contradiction in terms. If you want active management you are probably better off choosing a conventional fund. Trustnet noted at the beginning of the year that “no active funds consistently beat the market in the past ten years” – and AJ Bell found that under a quarter of active managers outperformed the market over that period. However, the Artemis US Extended Alpha fund (a long-short fund) had managed to outperform in nine out of ten years – albeit with a successful weighting towards the Magnificent Seven towards the end of the period – and JP Morgan and Axa Framlington have managed 8 out of 10 successful years.   
  • The First Equity Vest UCITS range currently offers 13 choices, with different levels of buffer and cap and on a mix of the Nasdaq 100 and the S&P500.  So for example their US Equity Moderate Buffer UCITS ETF- August, which was set last month and will reset in August 206, had at issue 15% buffer on the downside of the starting level, and an 11.6% maximum upside.  

Down the Rabbit Hole - more from the Pundits 

There are endless YouTube videos featuring commentators named above, and many others, generally delivered in an overwrought styleon the coming ten-year bull market. And here’s Bridgewater’s Ray Dalio on “A Collapse That Will Change a Generation.”  Omega’s Leon Cooperman provides a valuation-based approach – intermittently short the market, long individual stocks, and here’s Pershing Square’s Bill Ackman on trying to continue with the Warren Buffett approach. Wilfred Frost’s UK-based Master Investor podcast (really a YouTube series) is a bit less flashy than the US but has some interesting content, including Jim Mellon on how AI will lead to a proliferation of opportunities in robotics.   

Conclusion

The US equity market is too big to ignore, and a really sharp downturn would inevitably prove contagious. However, that is not to say that leadership within it will stay unchanged, nor that it might deflate gradually.  We have presented just a few options of how to invest in it; many more are available.