2 World Class Funds That Avoid The AI Bubble and Mag 7 Stocks

Quick Read

• The S&P 500 gained 16% year-to-date but over 50% of that gain came from the Magnificent 7 tech stocks.

• Independent Franchise Partners US Equity (IFPUX) returned 23.23% year-to-date with Oracle as its only tech holding.

• Vanguard Utilities Index Fund (VPU) returned 19.31% year-to-date with zero tech stocks in its portfolio.

• If you’re thinking about retiring or know someone who is, there are three quick questions causing many Americans to realize they can retire earlier than expected. take 5 minutes to learn more here

A Magnificent 7 AI Bubble?

One of the most talked-about topics of late is the fear of an AI bubble. Trillions of dollars have been committed to its development, and its rapid ascent has stoked fears by a number of savvy market watchers and insiders that the AI industry is wildly overvalued, similar to the dotcom bubble that burst a quarter century ago.

The huge 16% bull run of the S&P 500 year-to-date is over 50% fueled by the Magnificent 7 tech stocks, which are all tied to AI development.  WIthout Microsoft, Alphabet, Nvidia, Apple, Tesla, Amazon and Meta Platforms, the S&P 500 is only showing a roughly 7% year-to-date gain. On this past Thursday, November 20th, the S&P 500 erased -$1.5 trillion in market cap between 10:40 AM ET and 12:20 PM ET. That equates to -$15 billion PER MINUTE for 100 minutes straight. Although the market recovered partially, it’s interesting to note that there was no news when this occurred. Therefore, this may have been signs that there are cracks in the dam and more leaks will follow.

Given the wide range of growth ETFs with tech exposure often containing Magnificent 7 stocks, investors seeking a diversification hedge or a growth play without an AI component are in luck. There are a number of funds that fit that description, and some of them are even delivering superior YTD returns. Two such examples are: Independent Franchise Partners US Equity  (NASDAQ: IFPUX) , which is a mutual fund, and Vanguard Utilities Index Fund ETF Shares (NYSE: VPU), an ETF.

Independent Franchise Partners US Equity

Although the structure of mutual funds prevent maximizing AUM for investment due to redemption liquidity requirements, IFPUX is a non-tech fund that is beating the S&P 500 by 7 points in year-to-date returns.

Although they are not often featured in 24/7 Wall Street, mutual funds of exceptional performance that warrant inclusion will receive coverage. IFPUX, which, at the time of this writing, sports a 23.23% YTD return, falls into that category. With Oracle (NASDAQ: ORCL)  its sole technology stock, IFPUX has managed to outperform the S&P 500 by focusing on “the S&P  493”, as its fund manager, Richard Crosthwaite, explained. The primary IFPUX focus criteria for portfolio inclusion when selecting a stock is for the prospective company to possess an intangible competitive advantage, such as a series of patents, that has proven itself against its rivals.

IFPUX has achieved its gains with an overweighting of 36.32% in telecom, 18.42% consumer defensive, and 16.42% in healthcare, across 150 stocks held overall. The top five (5) holdings are:

• Bristol-Myers Squibb – 4.98%

• Corteva – 4.98%

• Intercontinental Exchange – 4.91%

• Kenvue – 4.32%

• Z – 4.24%

Additional IFPUX details are as follows:

Vanguard Utilities Index Fund ETF Shares

The utilities sector has displayed a strong upswing since the Trump Administration has refocused on reliable oil and gas and cut taxpayer funded subsidies for erratic solar and wind power.

The utilities industry has seen a positive bump from several sources:

1) The surge of electricity demand from the proliferation of data centers and EVs;

2) The return to reliable fossil fuels and reduction of less profitable and reliable solar and wind power;

3) The interest rate cut announced by the Federal Reserve lowered borrowing costs for businesses, with energy being a critical component.

The Vanguard Utility Index Fund ETF Shares is passively managed and both tracks and replicates the MSCI US Investable Market Utilities 25/50 index, which features large, mid, and small-cap utility stocks. As one might imagine, VPU contains zero tech stocks. Nevertheless, it has notched a 19.31% YTD return to date.

VPU’s top 10 stocks make up 52% of the total portfolio, and features many household name utility companies:

• NextEra Energy – 10.38%

• Constellation Energy – 6.89%

• The Southern Company – 6.67%

• Duke Energy – 6.42%

• Vistra Corp. – 4.44%

• American Electric Power – 4.01%

• Sempra – 3.92%

• Dominion Energy – 3.48%

• Xcel Energy – 3.11%

• Exelon Corp. – 3.03%

Additional VPU details include:

The Magnificent 7 stocks have been a wildly profitable ride for millions of investors. However, all stocks, over the long haul, have cycles of ups and downs. Michael Burry, renowned for his “Big Short” analysis which predicted the collapse of the subprime mortgage market and subsequent banking meltdown of 2008, is publicly short Nvidia, which is the AI industry’s biggest darling. As others start to perceive that the Magnificent 7 stocks have overinflated valuations, investors may want to look more closely at diversifying at least a portion of their holdings in non-Magnificent 7 funds, such as IFPUX and VPU, among many others.

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