Roundhill Investments Unveils Inverse and Leveraged Magnificent Seven ETFs

The term "Magnificent Seven" has taken on a new meaning in the financial world, representing a group of seven heavyweight tech stocks, including Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL), Amazon (AMZN), Nvidia (NVDA), Meta Platforms (META), and Tesla (TSLA). These tech giants have significantly contributed to Wall Street's impressive rally in 2023. The Roundhill Magnificent Seven ETF (MAGS) has notably exceeded overall market gains, showing an 18.2% rise and a staggering 57.9% increase since April 2023.

Spurred by high investor interest in these top-performing tech companies, Roundhill Investments has expanded its offerings with the introduction of the double-leveraged ETF, known as the Roundhill Daily 2X Long Magnificent Seven ETF (MAGX), and the inverse ETF, named the Roundhill Daily Inverse Magnificent Seven ETF (MAGQ), catering to different investor strategies.

Both the MAGX and MAGQ ETFs were launched on February 29, 2024, opening new pathways for investors to align with the performance of the Magnificent Seven.

Understanding the Newly-launched ETFs

The leveraged ETF MAGX aims to deliver two times (2X) the daily performance of the MAGS before fees and expenses. Holding this ETF is considered higher risk due to the leverage effect that amplifies both gains and potential losses. The ETF incorporates a net fee of 0.95%.

On the flip side, MAGQ, the inverse ETF, is designed to offer results opposite to the daily performance of the MAGS, also before fees and expenses. This ETF allows investors to potentially profit from the decline in value of the Magnificent Seven, providing a safeguard during downward trends. It too charges a net fee of 0.95%.

Positioning the ETFs in a Portfolio

As the Magnificent Seven stocks occupy over 25% of the S&P 500 index, their performance heavily influences the broader market. The rise of these companies, especially in a potentially low-interest-rate environment favoured by investors, is further propelled by their investment in trending technologies like artificial intelligence (AI) and other disruptive innovations.

However, the spectacular rally around AI and tech advancements sometimes inflates the value of these stocks, leading to high price-to-earnings (P/E) ratios compared to the overall market. This overvaluation, along with the regulatory challenges regarding privacy, content oversight, and antitrust concerns, underscores the importance of having downside protection through investment vehicles like MAGQ.

Although MAGX and MAGQ face limited competition from specialized ETFs, the Magnificent Seven stocks are also widely represented in various sectoral ETFs, offering multiple investment options for exposure to these tech behemoths.

ETFs, investment, technology