12.06.23 | The so-called ‘Magnificent 7’ have been the talk of Wall Street all year and for good reason: these 7 stocks have dramatically outperformed the overall market, averaging over 100% return while the remaining 493 companies in the S&P 500 are essentially flat year-to-date with average returns of 6% through 11/30. For many of these 7 stocks, their year-to-date performance is not an anomaly and they have been market leadership for the last decade. Given their performance run, they now account for nearly half of the Russell 1000 Growth Index, a level never seen before in its history. The sheer size of these companies is hard to even fathom. Apple Inc. (AAPL), for example, has a market cap of nearly $3 Trillion, larger than the entire Russell 2000 Index. At such a scale, it becomes increasingly hard to move the needle to generate real growth. These are great businesses and play a role in growth portfolios, but we are arguing today that these companies have peaked on a relative performance basis. We see much better risk/rewards outside of these concentrated, over-owned stocks, and foresee a tailwind for the rest of the market as capital rotates out of these few companies, the beginning of which we are starting to see play out. Moving forward, we expect this capital rotation to continue and create substantial opportunities to add value for active stock pickers.

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