Investors don't need Nvidia to beat the stock market. Two exchange-traded funds that don't own the chip giant are outperforming the S&P 500 this year, offering a way to sidestep the drama surrounding Jensen Huang's departure without sacrificing gains.
Nvidia shares fell 5% on Thursday following Huang's decision to step down as CEO. The stock has fallen more than 10% this week.
The Defiance Large Cap ex-Mag 7 ETF is up 16% this year, compared with a nearly 12% gain for the S&P 500. The Goldman Sachs Future Tech Leaders Equity ETF has done even better, gaining 24%. Neither fund owns Nvidia.
The Defiance Large Cap ex-Mag 7 ETF, as its name implies, has no exposure to shares of Nvidia -- or fellow Magnificent Seven members Apple, Microsoft, Amazon, Alphabet, Meta Platforms or Tesla for that matter. And it hasn't sacrificed performance by excluding those companies.
Why has the Defiance fund done this well? It may not own Nvidia. But that doesn't mean it's sat out the big rally in other chip stocks this year that have gotten a boost from artificial-intelligence spending. It's ex-Mag 7, not ex-semiconductors. Micron, Broadcom and AMD are among the fund's top five holdings.
The Goldman Sachs Future Tech Leaders Equity ETF is another intriguing fund that doesn't have a stake in Nvidia. The fund focuses on other emerging tech companies around the globe, with top holdings such as Taiwan-based Jentech Precision Industrial, ASE and MediaTek, South Korea's SK Square, the investment company that owns a 20% stake in SK Hynix, as well as U.S. techs such as Cloudflare and Marvell Technology.
The fund's nearly 25% gain this year shows that investors haven't needed Nvidia to benefit from the tech rally.
Still, avoiding Nvidia hasn't guaranteed outperformance.
Two other passively managed funds strip out Nvidia -- and the rest of the tech sector. The ProShares S&P 500 Ex-Technology ETF and First Trust Nasdaq-100 Ex-Technology Sector Index Fund don't own Nvidia or any other chip stocks. These funds don't have exposure to Apple or Microsoft either. But they own other Mag 7 stocks -- and have been punished for doing so.
Unlike the Defiance and Goldman ETFs, both the ProShares and First Trust funds own Amazon, Alphabet, Meta Platforms and Tesla as top holdings. That's because Amazon and Tesla are technically classified as consumer discretionary stocks instead of being in the information technology sector. Alphabet and Meta are lumped in with the communication services sector. The ProShares fund is lagging behind the S&P 500 this year, with a 9.5% gain. The First Trust ETF is up only about 4%.
Still, one prominent fund company is doubling down on Nvidia -- and other megacap techs for that matter. Roundhill, the firm behind the Roundhill Magnificent Seven ETF, which has gained just 4.5% this year, launched a new fund Thursday that has exposure to 11 tech leaders, two of which are still private -- although one won't be for much longer.
The Roundhill Magnificent Seven Plus ETF has exposure to the Mag 7 stocks as well as Broadcom and SpaceX, and indirect exposure to Anthropic, which is set to start trading next week, and ChatGPT maker OpenAI.
The new fund actually rose nearly 2% on its first day while the companion Mag 7 fund was flat. So even with Nvidia as a top holding, it seems that (for one day at least) 11 is luckier than seven.
Still, avoiding Nvidia altogether could offer investors some protection from the uncertainty surrounding its leadership transition without necessarily sacrificing returns.
Next week's earnings will be quite interesting.
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