MAGS, FNGS: Narrow Stock Market Favors These ETFs

MAGS, FNGS: Narrow Stock Market Favors These ETFs

At a time when many stocks are not keeping up, these funds, including XLG, and doing well.

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Reviewed by: etf.com Staff
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Edited by: Ron Day

Year to date through last Friday, the Invesco QQQ Trust ETF (QQQ) was up 17%. More than half of that gain came from five stocks. 

That’s a narrow market, especially when one considers that the S&P 500, an allegedly broader market measure, is as heavily influenced by what happens over at QQQ than ever.  

We can pretend that this is a passing phase, and maybe it is. But rather than predict the future, investors can at least identify how to participate, if they choose to, in the potential for this to continue. The roaring QQQ-led rally from 1998 and 1999 hit its crescendo in early 2000 before falling fast. But the very last stage of that rally was remarkable, steep, narrow and at least temporarily, wealth-enhancing, even if an investor’s portfolio had a modest allocation to the small number of giant winners.

A Trio of Mag-nificent Performing ETFs

Today’s version of this is captured to varying degrees in a trio of ETFs designed for the purpose of zeroing in on a much smaller number of large company stocks than the typical fund would. For instance, the $420 million Roundhill Magnificent Seven ETF (MAGS) bypasses all of those “other” stocks and owns the seven stock that arguably have been the market leaders for some time.  

The Microsectors FANG+ ETN (FNGS) uses those same seven stocks and adds three more. This ETF is a more recent entrant, and as with MAGS, was developed in response to investor demand to own that set of stocks in a single ETF package. And it has done quite well since its late 2019 debut, despite a ticker symbol that reminds me of the word “fungus!”

And for those who want to broaden out a bit more, include a wider range of sectors and escape the allure of the very hottest stocks of the past two years, the $4.9 billion Invesco S&P 500 Top 50 ETF (XLG) has been focused on the top 1/10 of the S&P 500 by weight since back in 2005. By itself, it is a proxy for how top-heavy the stock market is, since we can compare XLG to the full S&P 500 index. The stronger XLG is doing versus the S&P 500, the narrower the market.

Enjoy the Ride While it Lasts

It should come as no surprise that these three have had what modern investment chat groups refer to as a “rip your face off” rally since their common inception date of April 13, 2023, when MAGS was first listed. The S&P 500’s 33% return since that time looks quite impressive. 

That is, until you consider that these three ETFs, with an intentional focus on the stocks driving the S&P 500 north, have returned 46% (XLG), 79% (MAGS) and 84% (FNGS) over that same 13-month period. Very strong, very dot com bubble like, and very real to those who have enjoyed the ride as shareholders.

 

Rob Isbitts' Wall Street career spans 5 decades and multiple roles, all dedicated to providing clarity to investors by busting classic myths and providing uncommon perspective. He did so as a fiduciary investment advisor, Chief Investment Officer and fund manager for 27 years before selling his practice in 2020. His efforts now focus exclusively on investment research, education and multimedia. He started ETFYourself and SungardenInvestment to provide straightforward commentary and access to his investment intellectual property for portfolio construction, stocks and ETFs. Originally from New Jersey, Rob and his wife Dana have 3 adult children and have lived in Weston, Florida for more than 25 years.