ETFs Highly Exposed to the ‘Magnificent 7’ Have Been Pummeled Amid a Tech Selloff

Some of the largest exchange-traded funds (ETFs) Companies that are heavily exposed to the "Magnificent 7" have been hit since last week amid a selloff in tech stocks.

The group of mega-cap tech stocks includes Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), Metaplatforms (GOAL), Google Primary Alphabet (GOOGLE), Tesla (TSLA), and Nvidia (NVDA), which have taken a hit this week amid weaker-than-expected earnings and soaring Treasury Returns.

The list of hard-hit ETFs includes some of the most recognized on the market, such as Invesco QQQ Trust (QQQ), which tracks technology-focused market indices such as the Nasdaq 100. QQQ invests approximately 40% of its assets in Magnificent 7 stocks and has lost more than 6% since October 17. That was just before Tesla reported earnings, the first of seven companies to do so.

The Vanguard Information Technology ETF (VGT), one of the largest technology-focused ETFs, with holdings in Apple, Microsoft and Nvidia accounting for more than 45% of its roughly $50 billion in assets under management (AUM)It is also down about 6% since last Tuesday.

Perhaps the most exposed ETF, in terms of the percentage of assets allocated to the Magnificent 7, is the Vanguard Mega Cap Growth ETF (NSC), with stakes in the seven tech giants making up 57% of its portfolio. MGK has fallen approximately 6% since October 17.

While MGK may be among the most exposed to the Magnificent 7, its returns do not top the rankings for the steepest declines. The VanEck (SMH) and iShares Semiconductor ETF (SOXX), which have invested heavily in Nvidia and other chipmakers, have lost 7% and 8% of their value, respectively, as chipmakers have posted some of the steepest losses among technology stocks.

How have individual tech stocks fared?

Among the 7 magnificent companies, Tesla shares, which were listed lackluster third quarter earnings on October 18, have lost almost 19% of their value since last Tuesday, the steepest drop among the group.

Shares of Google parent Alphabet had the second-worst performance, falling more than 12% after the tech giant's cloud revenue. did not meet expectations in the last quarter, prompting investors to sell their shares.

Shares of Nvidia and Meta Platforms have fallen about 8% since last Tuesday, while Apple's are down just over 5%. Shares of Amazon and Microsoft, which fell 3% and 1% respectively, were the least affected. Both companies benefited from strong cloud revenue in the last quarter.

Taken together, the selloff in big tech stocks, which even alone make up a sizable chunk of the U.S. stock market capitalization, dragged major stock averages lower. The S&P 500 is down 6% since last Tuesday, while the Nasdaq Composite Index has fallen almost 7%.

Rising yields drag technology down

US Treasury yields have soared in recent weeks, with the 10-year bond yield briefly crossing 5% on Monday for the first time since 2007.

Why is this significant? Tech stocks are particularly vulnerable to rising yields as they make borrowing more expensive to finance rapid growth. When long-term Treasury bond yields rise, companies need to pay bondholders more in the form of interest payments, which affects cash flows.

However, the performance of technology stocks so far this year paints a different picture.

The Nasdaq 100, a collection of some of the biggest tech stocks listed on the Nasdaq, is slightly higher now than when the Federal Reserve began raising interest rates in March 2022, even taking into account the recent sell-off.

According to analysts at Wedbush Securities, more gains could be coming in the future as the AI ​​revolution creates a unique experience. take a risk environment that could drive higher interest rates.