The S&P 500 has gained 16% so far this year, but more than 50% of that gain came from the Magnificent 7 tech stocks.
Independent Franchise Partners US Equity (IFPUX) has returned 23.23% so far this year, with Oracle being its only tech holding.
Vanguard Utilities Index Fund (VPU) has returned 19.31% so far this year and has no technology stocks in its portfolio.
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One of the most talked about topics lately is the fear of an AI bubble. Trillions of dollars have been committed to its development, and its rapid rise has stoked fears among several savvy market observers that the AI industry is wildly overvalued, similar to the dot-com bubble that burst a quarter of a century ago.
The S&P 500’s massive 16% bull run so far this year is driven more than 50% by the Magnificent 7 tech stocks, all of which are linked to the development of AI. Without Microsoft, Alphabet, Nvidia, Apple, Tesla, Amazon, and Meta Platforms, the S&P 500 only shows a gain of about 7% so far this year. Last Thursday, November 20, the S&P 500 erased -1.5 trillion dollars in market capitalization between 10:40 am (CET) and 12:20 pm (CET). That equates to -15 billion dollars PER MINUTE for 100 minutes straight. Although the market partially recovered, it is interesting to note that there was no news when this occurred. Therefore, this may have been a sign that there are cracks in the dam and that more leaks will follow.
Given the wide range of growth ETFs with technology exposure that often contain Magnificent 7 stocks, investors looking for a diversification hedge or a growth play without an AI component are in luck. There are several funds that fit that description and some of them are even offering superior Come back to date. Two of these examples are: Independent Franchise Partners US Equity (NASDAQ: IFPUX) which is a mutual fund, and Vanguard Utilities Index Fund ETF Shares (New York Stock Exchange: VPU)an ETF.
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Although the structure of mutual funds prevents maximizing AUM for investment due to redemption liquidity requirements, IFPUX is a non-tech fund that is outperforming the S&P 500 by 7 points in returns so far this year.
Although they do not usually appear in Wall Street 24/7, Mutual funds with exceptional performance that justify their inclusion will receive coverage. IFPUX, which, at the time of writing, sports a 23.23% to date return, falls into that category. With Oracle (NASDAQ:ORCL) Its sole technology stock, IFPUX, has managed to outperform the S&P 500 by focusing on “the S&P 493,” as its fund manager, Richard Crosthwaite, explained. IFPUX’s main approach criterion for portfolio inclusion when selecting a stock is that the prospective company possesses an intangible competitive advantage, such as a series of patents, that has proven effective against its rivals.
IFPUX has achieved gains with a 36.32% overweight in telecommunications, 18.42% in defensive consumer and 16.42% in healthcare, in a total of 150 stocks. The five (5) main holdings are:
Additional IFPUX details are as follows:
Return to date
23.23%
Morningstar Rating
5 stars
Produce
1.64%
Portfolio rotation
28.77%
NAV
$22.63
Expense ratio
0.66%
Net assets
1.72 billion dollars
1 year return
25.23%
Beta
0.98
3 year return
25.92%
Start date
12-20-2011
5 year return
16.41%
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The utility sector has shown a strong rebound since the Trump Administration refocused on reliable oil and gas and cut taxpayer-funded subsidies for erratic solar and wind energy.
The utility industry has experienced positive momentum from several sources:
1) Increased demand for electricity due to the proliferation of data centers and electric vehicles;
2) The return to reliable fossil fuels and the reduction of less profitable and reliable solar and wind energy;
3) The interest rate cut announced by the Federal Reserve reduced borrowing costs for companies, with energy being a critical component.
Vanguard Utility Index Fund ETF shares are passively managed and track and replicate the MSCI US Investable Market Utilities 25/50 Index, which features large-, mid-, and small-cap utility stocks. As you might imagine, VPU does not contain any technology stocks. However, it has marked a 19.31% to date go back to date.
VPU’s top 10 stocks represent 52% of the total portfolio and feature many well-known utility companies:
Energy of the next era: 10.38%
Constellation energy: 6.89%
The Southern Company – 6.67%
Duke Energy: 6.42%
Vistra Corp. – 4.44%
US electric power – 4.01%
Sempra – 3.92%
Domain Energy: 3.48%
Xcel Energy – 3.11%
Exelon Corp. – 3.03%
Additional VPU details include:
Return to date
19.31%
Average daily volume
169,531 shares
Produce
2.62%
Expense ratio
0.09%
NAV
$190.99
1 year return
11.20%
Net assets
9.64 billion dollars
3 year return
11.57%
Beta
0.66
5 year return
9.99%
Start date
1-26-2004
10 year return
10.81%
The Magnificent 7 stock has been a tremendously profitable ride for millions of investors. However, all stocks, in the long term, have cycles of ups and downs. Michael Burry, known for his “Big Short” analysis that predicted the collapse of the subprime mortgage market and the subsequent 2008 banking crisis, is publicly shorting Nvidia, which is the darling of the AI industry. As others begin to perceive Magnificent 7 stocks as having overinflated valuations, investors may want to take a closer look at diversifying at least a portion of their holdings into non-Magnificent 7 funds, such as IFPUX and VPU, among many others.
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