The stocks and sectors that are outperforming the Magnificent-7 – and why passive investors should be concerned

Duncan Lamont

Despite technology stocks dominating returns in 2023, the market has now broadened out and investors could be missing out on other, overlooked opportunities.

Several times in 2023, I commented that the Magnificent-7 of Nvidia, Apple, Microsoft, Alphabet (Google), Amazon, Meta Platforms (Facebook), and Tesla were dominating global stock market performance. Some people are still pushing that narrative today. They couldn’t be more wrong.

This year, a significant proportion of global companies have outperformed most of the Magnificent-7. This isn’t just down to China’s recent revival. A remarkably similar proportion have also outperformed them in the US.

Don’t get me wrong, many of the Magnificent-7 are fantastic companies. Some have compounded returns for so long, even as they’ve grown ever larger, that naysayers have been forced to eat humble pie on a regular basis.

The point I want to emphasise here is not that they are bad investments, just that it is short-sighted to suggest they are the only good investments. As Figure 1 shows, with the exception of Tesla, they’ve all delivered strong returns this year. It’s just that others have done even better.

There’s a similar trend when we look at the sector level. Across the major markets, the top performer this year has been the, normally considered boring, US utilities sector, with an impressive 32% gain. Financials have also performed well in many parts of the world. Even Japanese and UK industrials have done so. EM-Asia features strongly. There’s more to markets than tech stocks.

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