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Investing in the ‘Magnificent Seven’ – which shares are held in my fund and why

Where next for the Magnificent Seven, which ones are held in my fund and why.

Important information - This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

The original ‘Magnificent Seven’ were a group of hired gunslingers, on a mission to save Mexican villagers from marauding bandits. Nowadays it’s more often the term refers to giant tech companies than Yul Brynner and the rest of the 1960’s movie cast.

Who are the Magnificent Seven?

Microsoft, Amazon, Google parent Alphabet, Tesla, Facebook (aka Meta), Nvidia and Apple have been dubbed the Magnificent Seven in part due to their scale and in part due to their performance.

Individually and collectively, their performance has far outstripped the wider market in recent years. Between them, the group have a combined market worth of almost $12 trillion – that’s around a sixth of the value of stock markets globally.

Within the group are some extraordinary commercial propositions.

The three leading cloud computing providers are in there. So is the world’s dominant office software suite and the operating system running in the large majority of PCs. The world’s leading electric vehicle (EV) manufacturer is also on the list. And so too is the dominant producer of artificial intelligence (AI) computing capacity, along with the major e-commerce players and the western hemisphere’s top search engine.

Few investors will have held all of these companies from their early days. Their commercial success is something that’s compounded over time and hasn’t always seemed as certain as it might appear today.

Tesla, for instance, was plagued by production challenges that would’ve seen off many other manufacturers. But it was saved because customers wanted to be part of the shift to green transportation more than they minded about getting quality quibbles sorted out.

Microsoft has had periods of being deeply out of favour, with investors writing it off as a vendor of yesterday’s technology. We rarely hear from those investors these days.

Nvidia was seen as a niche producer of graphics chips, good at what it did, but constrained by its niche. Not anymore. The applicability of Nvidia’s intellectual property to AI computing has dramatically increased the commercial opportunities the company faces.

Then there’s regulation.

Being big has its downsides. Regulators get nervous when businesses become too influential or even dominant. Investors have to try and juggle the success of these companies with the risk that regulation eventually clips their wings.

This article isn’t personal advice or a recommendation to buy, sell or hold any investment. All investments can rise and fall in value, so you could get back less than you invest. Past performance also isn’t a guide to the future. If you’re not sure whether an investment is right for you, ask for financial advice.

How we’ve approached the Magnificent Seven in our Select funds

Microsoft

In my opinion, this is one of the most impressive businesses that I have come across in almost 40 years of investing.

Microsoft has created multiple effective monopolies in huge product categories, from Windows to Office, while also building Azure cloud computing services and the Xbox console.

Along the way it’s acquired LinkedIn and taken a big stake in Open AI, which has allowed it to launch Copilot. This promises to be another huge global franchise.

We’ve held Microsoft in the HL Select Global Growth Shares fund continuously since we launched and I see little reason to change that stance any time soon.  

Alphabet

Alphabet owns Google and the search business remains far and away the most important part of the group.

We’ve always felt that Google’s grip on the search market and the group’s control of the essential plumbing that underpins so much ecommerce is a unique strength.

We’ve been invested ever since we launched our HL Select Global Growth Shares fund.

Amazon

Likewise Amazon, which has made itself synonymous with online shopping and remains the go-to provider for so much online activity.

Its Amazon Web Services division is the clear leader in cloud computing services, the use of which is an increasingly staple part of corporate IT strategies.

Nvidia

We see the AI opportunity as vast, both for the companies that enable the technologies and those that use them most effectively.

Nvidia is currently at the heart of this explosive new market. Its chips are being deployed into a huge proportion of AI applications.

The market is so large and growing so fast that we see plenty of scope for Nvidia to keep growing rapidly. However, we doubt it will retain their current market share, as too many other players are desperate to muscle in.

Meta

Meta owns Facebook and from where we sit, is probably the most exposed of the Magnificent Seven to regulatory interventions going forwards.

The group’s platforms are powerful commercial engines, driving vast amounts of advertising revenues. But its ability to control what’s passing across these platforms is questionable.

There’s too much potential for harm, as well as intrusive regulation limiting operational freedom, for us to feel relaxed about owning Meta.

Tesla

Tesla is an extraordinary business, and Elon Musk and his team have faced down seemingly insurmountable challenges time and time again to become a leading EV manufacturer.

But they have no monopolies, just very good automobiles.

Where Tesla has led, others threaten to catch up. Tesla might have known more about making EVs than anyone else at some stage, but the consumer has an ever-widening choice these days. That makes Tesla vulnerable in my eyes.

The company is valued far more highly than any other automobile producer, despite making fewer vehicles than many. We’ve never felt confident enough in Tesla’s ability to stay out in front to invest.

Apple

Apple has been the biggest mistake that we’ve made since we launched the HL Select Global Growth Shares fund.

We’ve never held it and it’s kept on going up.

Our reservations have always stemmed from the fact that it’s a manufacturer of consumer electronics, but trading on a multiple more akin to that of a software producer.

Apple have done a great job in creating more service-based revenue streams, from the App store to Music, TV and storage. Often these are subscription services which are highly desirable. It’s a constant debate for us, are the ancillary revenues sufficient to justify paying the higher multiple for the entirety of the group?

What does all this mean for investors?

These seven businesses are so profitable, and have grown so strongly, that it’s no surprise to see how well they’ve done.

They’re trading on quite punchy multiples in some cases, reflecting the rapid emergence of major new technologies. But that also means there’s not much room for error.

With trillions of dollars of value now depending on the success of just a few massive companies, how these businesses fare in the future is going to be very impactful on many investors’ portfolios.

Want to invest in the Magnificent Seven?

One of the easiest ways to do this is by leaving it to an expert fund manager.

While our Select funds might not invest in each stock in the Magnificent Seven, funds can be a great way to take the hard work out of picking and monitoring shares.

HL Select is a group of three funds focused on a small number of shares with long-term growth potential.

Steve Clayton is Head of Equity Funds and created the HL Select fund range.

The HL Select funds are run by our sister company Hargreaves Lansdown Fund Managers Ltd.

Information provided about individual companies is our view as managers of the fund. This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Steve-Clayton-2023
Steve Clayton
Head of Equity Funds

Steve is the Head of our HL Select fund range, using his wealth of experience to craft the overall strategy for the funds. He also provides insightful analysis to clients from a fund manager's perspective, playing a pivotal role in letting clients peek behind the curtain.

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Article history
Published: 19th December 2023