The S&P 500 has been on a roll ever since the 2022 selloff started moderating, and this is a rally that has only been beaten by tech-centric ETFs… or you’d think so. You don’t have to go for the Nasdaq-100 to beat the S&P 500 year after year, because an ETF based on the SPY called the Invesco S&P 500 Momentum ETF (NYSEARCA:SPMO | SPMO Price Prediction) has managed to beat the S&P 500 for the past three years.
It has done so while giving you equal to, and in some cases lower downside, versus the S&P 500.
I expect SPMO to do well this year as well. Things have not been in its favor early on this year, but there are tailwinds on the horizon.
How the SPMO ETF works
SPMO is one of the most compelling factor-based ETFs on the market, because it distills the S&P 500 down to its 100 highest-momentum stocks. The end product has handsomely rewarded its investors.
You’re investing in the 100 S&P 500 constituents that score highest on a volatility-adjusted momentum metric. In plain terms, you’re betting on the winners. Trends in the market show that the winners keep winning. However, these winners do change over time. For example, the Magnificent 7 were big-time winners in 2023 and through much of 2024. Wall Street’s focus then changed, and software stocks started winning. We’re now seeing a move towards targeted data center hardware stocks and some defensive names.
If you bought a Mag 7 ETF in 2023 to ride the hype, you wouldn’t be as happy in 2025 and so far in 2026, because you’ll be missing out on the ever-evolving AI action.
The beauty of SPMO is that the portfolio is being refreshed frequently enough to capture shifting leadership while avoiding the excessive turnover of more aggressive strategies. This ETF reconstitutes and rebalances semi-annually on the third Fridays of March and September.
The higher the upside potential, the higher the downside risk, unless you buy SPMO
The most unusual thing about SPMO is that you’re actually not taking on more downside risk, at least not when you look back at this fund’s history. SPMO hasn’t underperformed the S&P 500 to a notable degree during downturns. In some cases, it has actually corrected less. You can’t say the same for most other ETFs that have also outperformed the S&P 500 over the past few years.
Unlike a market-cap-weighted index that passively holds whatever sinks in price, SPMO’s semi-annual rebalancing systematically purges stocks whose momentum has faded and replaces them with whatever is leading the market. This creates a kind of automatic risk management since the fund doesn’t stubbornly ride declining sectors into the ground.
The standard deviation of this ETF since inception is virtually identical to that of the SPY. April 2025 was when the SPY had the worst drawdown of 19.12% in the past three years, with SPMO’s drawdown a little over 1% higher at 20.52%. That’s negligible compared to the massive outperformance this ETF delivers during market rallies.
SPMO’s heavy exposure to financial stocks (which were surging at the time) provided a cushion that pure tech-heavy funds didn’t have. The momentum factor essentially ensures you’re always holding what the market is currently rewarding, not what it was rewarding two years ago.
Not all is perfect with SPMO
As with all things that look perfect, there’s one catch with SPMO. This ETF doesn’t defy every rule, since a sudden, violent factor rotation is its kryptonite. As I said earlier, SPMO rebalances twice per year. So far, the frequency has allowed it to move from trend to trend while dumping the losers in time.
That said, if you get a COVID-esque crash where yesterday’s winners become tomorrow’s biggest losers overnight, faster than the semi-annual rebalance can adjust, SPMO can underperform the S&P 500.
Regardless, the doom scenario isn’t that bad. SPMO was around during COVID and only lost a little over 28% of its value, which is less than the S&P 500’s near-32% loss during the same period. And SPMO ended up rallying significantly more during the recovery period.
Why I expect SPMO to perform well in 2026
If the Fed delivers additional rate cuts in 2026, it could help SPMO enormously. Lower rates tend to boost equity valuations broadly, and this is what sustains the upward trend that momentum thrives on.
And even if the interest rate cuts don’t spur more growth and we get stagflation instead, you’re not going to trail the broader market by much anyway.
Momentum’s preferred environment is one where strong, persistent trends develop instead of choppy, directionless markets. 2026 could either be a transition year or a year where the rally keeps continuing, and both are good for SPMO. Most bull markets last five to seven years, and historically, every bull market that reached a fourth year has delivered a positive fourth year. Thus, SPMO is well-positioned to keep outperforming.
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