Magnificent 7 Outperformance May Not Continue
Dimensional Fund Advisors
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.
Source: Dimensional Fund Advisors
- The Magnificent 7 stocks include Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla. Named securities may be held in accounts managed by Dimensional.
In USD. Data from CRSP and Compustat. Companies are sorted every January by beginning-of-month market capitalization to identify first-time entrants into the top 10.
The market is defined as the Fama/French Total US Market Research Index. The Fama/French indices represent academic concepts that may be used in portfolio construction and are not available for direct investment or for use as a benchmark. Eugene Fama and Ken French are members of the Board of Directors of the general partner of, and provide consulting services to, Dimensional Fund Advisors LP. See “Index Description” for a description of the Fama/French index data.
Indices are not available for direct investment. The index has been included for comparative purposes only.
This article is intended for educational and informational purposes only and does not constitute specific tax, legal, investment, or financial advice. The information provided is derived from sources believed to be reliable and is based on current tax laws and regulations as of the date of publication, which are subject to change. Aegis Wealth Management, LLC is not a law firm or accounting firm and does not give legal, accounting, or tax advice. Readers should consult with a qualified legal and/or tax professional to understand how these laws and regulations may apply to their unique circumstances. This material is not intended to be relied upon to avoid tax penalties under U.S. federal tax law. Past performance does not guarantee future results. All investing involves risk, including risk of loss.