Why Would Anyone Buy SCHB Instead of MAGS?
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Why Would Anyone Buy SCHB Instead of MAGS?
May 19, 2026 — 05:20 pm EDT
Written by
Ben Gran for
The Motley Fool->
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Key Points
- The Schwab U.S. Broad Market ETF has outperformed the Roundhill Magnificent Seven ETF year to date.
- Three Mag 7 stocks have underperformed the Schwab U.S. Broad Market ETF for the past year.
- The Schwab U.S. Broad Market ETF has delivered annualized returns of 14.7% for the past 10 years.
- 10 stocks we like better than Schwab Strategic Trust - Schwab U.s. Broad Market ETF ›
The "Magnificent Seven" have been some of the hottest tech stocks in the world for the past several years. Alphabet, Apple, Amazon, Meta Platforms, Microsoft, Nvidia and Tesla are household-name companies that are widely known for innovation and constantly being in the news.
Although the "Magnificent Seven" stocks have driven a large share of stock market growth in the past few years, they might be losing their luster. An exchange-traded fund (ETF) that tracks the Magnificent Seven, the Roundhill Magnificent Seven ETF (NYSEMKT: MAGS), has underperformed the S&P 500 index year to date. The past few years' high returns from the Magnificent Seven might look tempting, but there's no guarantee those seven stocks will keep beating the market in the long run.
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Instead of buying the Magnificent Seven ETF, many long-term investors might be better off buying a diversified stock market index fund like the Schwab U.S. Broad Market ETF (NYSEMKT: SCHB). This low-cost index fund tracks the Dow Jones U.S. Broad Stock Market Index, and it's up 8.4% year to date, which is also outperforming the Magnificent Seven ETF (which is up 5.9%).
Let's look at a few reasons to buy SCHB instead of MAGS.
Image source: Getty Images.
SCHB: 2,414 stocks with 10 years of 14.7% returns
The Schwab U.S. Broad Market ETF is intended to give you exposure to the 2,500 largest publicly traded companies in the U.S. market. As of May 14, the fund owns 2,414 stocks, which include large-cap, mid-cap, and small-cap companies. For the past 10 years, this ETF has delivered annualized returns (by net asset value) of 14.7%. And it charges one of the lowest expense ratios: 0.03%. There are reasons this ETF ranks among the best low-cost index funds.
The top five holdings in the Schwab U.S. Broad Market ETF are all major tech names -- in fact, they're all members of the Magnificent Seven:
- Nvidia (7.9% of the fund)
- Apple (6.1%)
- Alphabet (5.8%) (including Class A and Class C shares)
- Microsoft (4.2%)
- Amazon (3.6%)
However, SCHB is broadly diversified. Information technology stocks make up only 31.1% of the portfolio. The fund also holds solid percentages of financial stocks (12.9% of the fund), industrials (10.3%), healthcare (9.9%), consumer discretionary (9.9%), and other sectors.
Owning the Schwab U.S. Broad Market ETF doesn't mean you have to stop owning tech stocks. This fund gives you access to some tech stock upside, without putting too many eggs in a tech-loaded basket. And if other parts of the U.S. economy start to outperform tech stocks, this fund will automatically shift and rebalance, as new winners get chosen by the market.
MAGS: 7 tech names, 34.2% annualized returns since April 2023
Indeed, the Magnificent Seven tech stocks have strongly outperformed the rest of the market for the past few years. The Roundhill Magnificent Seven ETF was established in April 2023, and since then, the fund has delivered annualized returns of 34.2% for almost the past three years (as of March 31).
This ETF does just what its name promises: it holds seven stocks. The Magnificent Seven names in this ETF are rebalanced to an equal weight on a quarterly basis, so each company makes up about 14.2%-14.3% of the fund. The Roundhill Magnificent Seven ETF charges an expense ratio of 0.30%, which is not the most expensive fee in the world, but is 10 times the fee charged by the Schwab U.S. Broad Market ETF. That fee seems a little high for seven stocks that you could buy yourself with fractional shares in a brokerage account.
Here's another problem with buying the Magnificent Seven ETF: not all seven stocks have been winners lately. For the past year, Alphabet, Nvidia, and Apple have strongly outperformed SCHB, but Tesla, Meta, and Microsoft have underperformed. (Meta and Microsoft have delivered negative returns in the past year.)
GOOG Total Return Level data by YCharts
If this divergence