Factors & the Magnificent Seven

Key takeaways

  • Narrow leadership by the Magnificent Seven – Apple, Microsoft, Amazon, Google, Nvidia, Tesla, and Meta – has been a challenge for factor investors
  • Factors tend to favor breadth over concentration. Historically, these seven companies have minimal exposure to factors with the exception of quality
  • Taking a long-term view and staying disciplined may be prudent to help factor investors capture these long-run premiums

Factors and the Magnificent Seven

Seven mega cap US-based companies – Apple, Microsoft, Amazon, Google, Nvidia, Tesla, and Meta (Facebook) – have stayed top of mind for many investors this year. These companies have been dubbed the “Magnificent Seven” (not to be confused with the 1960s movie or 2016 remake), are the largest U.S. based companies by market cap, and have performed very well so far in 2023 partially due to the latest artificial intelligence boom.

YTD Returns of the “Magnificent Seven” vs. the Market

Today’s market concentration

Markets today are very concentrated. Today, the Magnificent Seven make up 28% of the S&P 500 Index and have contributed almost 65% of the S&P 500 Index YTD returns.1 The combined weight of these companies is greater than any combined weight of the top seven companies in the S&P 500 Index since before the turn of the 21st century.2

Market cap weight of top 7 companies in the S&P 500 Index over time

The current market concentration is not unprecedented—but we have to go back more than 100 years to find a period with even more concentration.3