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Want to Avoid the "Magnificent Seven" and Generate Passive Income? This Vanguard ETF May Be for You

Daniel Foelber, The Motley Fool

Mon, Apr 28, 2025, 7:45 AM 5 min read

But that momentum has ground to a halt this year. As of the time of this writing, all seven stocks are underperforming the S&P 500 in 2025. The best of the bunch, Microsoft, is down 8.1% year-to-date, while Tesla has tumbled over 35% even when factoring in its post-earnings rebound on Wednesday and Thursday.

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Here's why investors looking for low-cost exchange-traded funds (ETFs) that don't include the Magnificent Seven may want to take a closer look at the Vanguard High Dividend Yield ETF (NYSEMKT: VYM).

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Before diving into the attractive qualities of the Vanguard High Dividend Yield ETF, it's worth mentioning that it's a mistake to bail on the Magnificent Seven just because their stock prices are lower this year.

The group boasts numerous competitive advantages and robust balance sheets. And the sell-off has only made their valuations more attractive for long-term investors. Risk-tolerant investors may want to consider top names in the Magnificent Seven, such as Meta Platforms, which has strong free cash flow, an inexpensive valuation, and a clear runway for future growth.

However, there are also compelling reasons not to buy Magnificent Seven stocks. The simplest is that you already have your desired exposure to the group, either by directly investing in individual names or through Magnificent Seven-heavy ETFs.

The Magnificent Seven are so large that they comprise a massive amount of the major indexes. The Vanguard S&P 500 ETF has 29.9% in the Magnificent Seven, and the Invesco QQQ Trust -- which mirrors the performance of the Nasdaq-100 -- has a staggering 40.5% in the group.

Investors seeking to deploy new capital in a diversified ETF while avoiding the Magnificent Seven may want to consider income and value funds. One fund that is especially appealing right now is the Vanguard High Dividend Yield ETF.

Many of the top holdings in the Vanguard High Dividend Yield ETF are industry-leading companies from non-tech-focused sectors -- like JPMorgan Chase and Bank of America for financials; ExxonMobil and Chevron for energy; UnitedHealth Group, Johnson & Johnson, and AbbVie for healthcare; and Procter & Gamble, Coca-Cola, and Walmart for consumer staples. The tech stocks the ETF holds -- like Broadcom, Cisco Systems, and International Business Machines -- pay growing dividends.