Finally, someone believes the trend in the S&P 500 is their friend. In mid-August, the Invesco S&P 500 Momentum ETF (SPMO ) had its 2024 net inflows nearly double.
Invesco offers a range of smart-beta (or factor) ETFs tied to the S&P 500 Index. Some have gained significant traction, like the Invesco S&P 500 Equal Weight ETF (RSP ) or the Invesco S&P 500 Quality ETF (SPHQ ). These both manage more than $10 billion in assets. The firm’s large-cap momentum ETF was much less popular.
Not a Slow Summer for Momentum
However, SPMO gathered approximately $840 million in one day on August 20, according to VettaFi. This pushed its year-to-date net inflows to $1.8 billion and its assets to over $2.3 billion.
SPMO has climbed 36% in value thus far in 2024, with its total return double the S&P 500’s. The past two weeks have been particularly strong for the ETF, up 9.1%, but the outperformance this year has been prolonged. While it has performed well for nearly eight months, ETFs like SPMO should be owned for the present and the future, not the past.
How is SPMO Built?
The momentum ETF starts with the same universe of stocks found in RSP. Instead of owning them all in equal size, SPMO holds approximately 100 stocks with the greatest relative strength in the past year.
The index behind SPMO rebalances semi-annually. The next time this will occur is in late September. Recent demand for SPMO is not due to its rebalancing but appears to be pure. Given the size of the one-day flow, we believe this is an institutional move made by a model manager.
What’s Inside SPMO?
Half of SPMO’s assets is in information technology stocks led by NVIDIA (13% of assets) and Apple (9.9%). The sector weighting is significantly higher than the 31% stake found in market-cap weighted S&P 500 Index ETFs.
Consumer discretionary (10.1%) and communications services (9.9%) are the next two largest sectors. Meta Platforms and Amazon.com represent more than half of the sector exposure. Yet, all 11 sectors are represented in the ETF. There is indeed one real estate holding – Iron Mountain – and two utilities – Constellation Energy and NRG Energy. Berkshire Hathaway, Cost Wholesale and Eli Lilly are other top 10 holdings.
Is Now a Good Time for Momentum Investing?
Momentum tends to work best in a risk-on environment when investors believe winners will continue to climb higher. Economically, momentum tends to do well when the economy is expanding. In contrast, quality and lower volatility strategies do better during a slowdown or a contraction. The iShares MSCI USA Momentum Factor ETF (MTUM ) and the JPMorgan US Momentum Factor ETF (JMOM ) are other large-cap momentum ETFs available.
Last week, Fed Chair Powell confirmed market expectations that rate cuts would be starting. With lower inflation and a solid job market, the economy seems to be in strong shape. Is this enough to reward those turning to SPMO? We shall see.
For more news, information, and analysis, visit VettaFi | ETFDB.
