SPMO Tops SPY With 26% 2026 Return via Momentum Strategy
The Invesco S&P 500 Momentum ETF has returned 26% year-to-date, more than double the flagship SPDR S&P 500 ETF, highlighting how factor-tilted strategies can outperform cap-weighted benchmarks during concentrated market rallies.
Investors holding the standard SPDR S&P 500 ETF Trust are significantly underperforming a closely related momentum strategy this year. Through July 13, the Invesco S&P 500 Momentum ETF has returned 26.03%, compared to just 9.86% for SPY. The 16-percentage-point divergence underscores a structural limitation in market-cap-weighted indexes during periods of strong trend continuation.
SPY remains the default core equity allocation for millions of institutional and retail investors, closing at $749.17 on July 13 with a minimal 0.0945% expense ratio. It holds the entire large-cap U.S. market by size, leaving NVIDIA, Apple, and Microsoft as its largest positions at 7.58%, 6.66%, and 4.91% respectively. Over a decade, this passive approach has generated a respectable 247.11% total return.
However, capitalization weighting inherently anchors portfolios to past winners. When market leadership rotates, SPY only captures the shift gradually as companies grow larger. It cannot proactively allocate capital toward the strongest current market trends, leaving returns on the table when momentum accelerates.
SPMO addresses this by drawing from the exact same S&P 500 universe but applying a rules-based filter. It selects roughly the top 100 stocks exhibiting the highest risk-adjusted price momentum and rebalances the portfolio semi-annually. The strategy costs slightly more, carrying a 0.13% expense ratio, but the marginal fee is negligible against the sheer scale of the performance differential.
The financial impact for allocators is substantial. On a $50,000 position, SPMO would have generated roughly $13,015 year-to-date, compared to just $4,930 for SPY. The roughly $18 difference in annual fees is mathematically inconsequential next to an $8,085 return gap.
For market professionals, the outperformance highlights the appeal of factor-tilted strategies, but it is not without risks. Concentrating a portfolio in just 100 stocks introduces higher volatility than the broad benchmark. Furthermore, the rigid semi-annual rebalancing schedule can trigger sharp underperformance if momentum abruptly reverses between adjustment dates. The strategy also tends to generate higher capital gains distributions, creating a potential tax drag for investors holding shares in taxable accounts.
Over ten years, SPMO has more than doubled SPY’s 247% cumulative return, suggesting momentum has been a durable market premium. Yet the current yawning gap serves as a reminder that factor tilts extract a price in concentration and turnover, even as they solve the structural lag inherent in cap-weighted funds.
