The current investment landscape may be a beneficial time for investors to consider diversifying away from the Magnificent Seven.
The current investment landscape has been heavily concentrated in a group of seven technology companies, referred to as the “Magnificent Seven” (Mag 7) due to their strong growth and outsized stock performance over recent history. The list includes Apple (AAPL), Microsoft (MSFT), Alphabet (GOOG), Amazon (AMZN), Nvidia (NVDA), Meta Platforms (META), and Tesla (TSLA).
These companies have delivered significant returns and are believed to represent the powerhouses of innovation. However, relying heavily on the Mag 7 within a portfolio could expose investors to risks and potential missed opportunities. Investors should consider strategically diversifying their investment portfolios beyond this concentrated group.
Magnificent Seven companies reported actual earnings growth of 27.7% for the first quarter of 2025. While this looks compelling, it’s important to recognize that this earnings growth rate is below the average earnings growth rate of 32.1% for these seven companies over the previous three quarters, according to John Butters, VP and senior earnings analyst at FactSet.
Despite the strong performance in the first quarter of 2025, analysts still expect lower potential earnings growth for the Magnificent Seven companies over the next four quarters, per Butters.
This could be detrimental for portfolios that are heavily concentrated in the Magnificent Seven, as over-allocation to a limited number of stocks could be significantly impacted by any negative news or sector-specific downturn affecting these companies.
Additionally, the exceptional performance of the Magnificent Seven within the post-COVID era has led to valuation concerns. Investing heavily in potentially overvalued assets increases the risk of lower future returns and potential market corrections.
Diversification may help some of this risk by spreading investments across a wider array of sectors and companies. This allows investors to explore potentially undervalued opportunities with strong growth prospects.
A Potential Solution for Concentration in the Magnificent Seven by Potentially Adding Value Exposure
The VictoryShares Free Cash Flow ETF (VFLO) may serve as a compelling diversifier in the core equity sleeve of a portfolio. The ETF works in this context by adding value exposure while complementing an existing allocation to growth, as VFLO currently has no exposure to the Magnificent Seven.¹
VFLO tracks the Victory U.S. Large Cap Free Cash Flow Index (the Index). The Index invests in quality companies with high free cash flow (FCF) yields that are currently trading at a discount with strong growth prospects.
FCF is important because it represents the cash a company generates after accounting for cash payments to support operations and maintain its capital assets. It allows companies to reinvest cash, pay dividends, or pay down debt. FCF is considered one component for measuring a company’s health.
VFLO carries a net expense ratio of 0.39% (gross expense ratio of 0.48%.)
VFLO’s net expense ratios reflect the contractual waiver and/or reimbursement of management fees through October 31, 2025.
1/ As of 6/30/2025
For more news, information, and analysis, visit the Free Cash Flow Content Hub.
VettaFi LLC (“VettaFi”) is the index provider for VFLO, for which it receives an index licensing fee. However, VFLO is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of VFLO.
Disclosure Information
Carefully consider a fund’s investment objectives, risks, charges, and expenses before investing. To obtain a prospectus or summary prospectus containing this and other important information, visit http://www.vcm.com/prospectus. Read it carefully before investing.
All investing involves risk, including the potential loss of principal. The Fund has the same risks as the underlying securities traded on the exchange throughout the day. ETFs may trade at a premium or discount to their net asset value. Index Funds invest in securities included in, or representative of securities included in, the Index, regardless of their investment merits. The performance of the Fund may diverge from that of the Index. Investing in companies with high free cash flows could lead to underperformance when such investments are unpopular or during periods of industry disruptions.
The fund could also be affected by company-specific factors that could jeopardize the generation of free cash flow. The value of your investment is also subject to geopolitical risks such as wars, terrorism, trade disputes, environmental disasters, and public health crises; the risk of technology malfunctions or disruptions; and the responses to such events by governments and/or individual companies.
The Victory U.S. Large Cap Free Cash Flow Index aims to select high quality companies from its starting universe by applying profitability screens. It then selects companies with the strongest free cash flow yield that exhibit higher growth. The Index is rebalanced and reconstituted quarterly. This Index calculates free cash flow yield by dividing expected free cash flow by enterprise value. Expected free cash flow is the average of trailing 12-month FCF and next 12-month forward free cash flow. Enterprise value (EV) measures a company’s total value, often used as a more comprehensive alternative to equity market capitalization.
You cannot invest directly in an index.
VictoryShares ETFs distributed by Victory Capital Services, Inc. (VCS). VCS is not affiliated with VettaFi.
20250801-4697706
