VIDEO: ETF of the Week: SPMO

Chuck Jaffe: One fund, on point for today. The expert to talk about it. This is the ETF of the Week! 

Welcome to the ETF of the Week, where we get the latest take from Todd Rosenbluth, the head of research at VettaFi. And at VettaFi.com, you’ll find all the tools you need to be a savvier, smarter ETF investor, and to get more details on the new, newsworthy, trending, and timely ETFs that we discuss here.

Todd Rosenbluth, it’s great to chat with you again!

Todd Rosenbluth: It’s great to be back, Chuck.

Chuck Jaffe: Your ETF of the Week is …

Todd Rosenbluth: The Invesco S&P 500 Momentum ETF, SPMO.

Chuck Jaffe: SPMO, the Invesco S&P 500 Momentum ETF. Well, the market has had momentum. It’s trying to break through to new record highs. Is this basically “ride the wave and that’s it?” Or, is there more to it right now?

Todd Rosenbluth: So, this is less of a projection that people should ride the wave and more that they have been. SPMO has been very popular this year. It’s seen $4 billion of net inflows. That’s accelerating in the most recent four weeks. It’s really exciting to us, when we see an ETF that’s been around for a while but now is starting to get the momentum — pun unintended.

And so, this is using the S&P 500 stocks. It’s the 100 stocks with the best relative strength. And I know we  talk about relative strength with the audience quite often. But what’s inside this surprised me. We can maybe talk about that. It’s performing quite well. The trend has been the friend with this ETF. I wanted to take a closer look.

Chuck Jaffe: Let’s take that closer look. Let’s dig in on the portfolio. Because any time you’re dealing with S&P, and then put a word, an adjective — momentum, quality, whatever it might be, you are looking at how somebody is straining and sifting through the index. So, how are they doing this? Is this done with an overlay strategy of some sort? Is this done by getting rid of the slowpokes? What’s going on?

Todd Rosenbluth: So, this is the 100 stocks every six months that have the best momentum characteristics and relative strength. And I can’t get into the weeds in specifically how they’re doing it from memory. But every six months, the portfolio rebalances with 100 companies. It’s sometimes just more than 100 stocks if they pick a company that has more than one share class behind it.

I had expected this to be mostly technology stocks, and I’m pleasantly surprised to see financial stocks. JPMorgan is one of the top 10 holdings. You see consumer staples stocks. Walmart and Costco are among the larger holdings, the top 10 holdings as well. So, you get exposure to technology stocks [like] Nvidia and Broadcom.

But this is not just a growth strategy. And people tend to think of momentum investing as growth investing. And that isn’t necessarily the same. What you’re going to find inside this portfolio is going to be different. And it’s not a static portfolio.

Chuck Jaffe: But it is S&P 500 stocks, and people will have plenty of S&P 500 in their portfolio. Even if they don’t have an index fund, if they just have a plain-vanilla growth fund. So, how are we doing this? 

Like, if you have never been a factor investor, and momentum is a factor the same way quality could be low, volatility could be, etc. if you’ve never been a factor investor, or if your factors have only been really growth and value, does this play well and mix well, or is this just a lot of overlap?

Todd Rosenbluth: I think this is a way to overweight exposure to a factor. So, many people who own S&P 500-based ETFs and mutual funds from iShares, Vanguard, State Street, what have you. This, you can complement on to that. This is a risk-on strategy, which I’m surprised you didn’t bring up. We talked last week on perhaps the lowest-risk strategy that I could possibly have come up with, tied to Treasury bills.

So that was a risk-off strategy. This is a risk-on strategy. You can add this — this is probably not a good core position. This is a complement to your S&P 500 exposure, to overweight those stocks that are more risk-on in nature. And they aren’t necessarily the largest stocks. So, yes it’s the S&P 500. And yes, I cherry-picked a couple of examples off the top of my head that are large-cap stocks.

But Apple and Microsoft, I believe, are not inside this portfolio. So, you’re not necessarily double-dipping on all of those or those mega-cap stocks, just some of them, as well as some other more moderately sized S&P 500 companies.

Chuck Jaffe: Because this is kind of an add-on, a way to lean in. Is this less of a core position — add this and hold it forever? Because I want to point something out. Now, you are not a trend follower. You are not the guy who says, hey, what about the 200-day moving average? But I’ll just point out that the last time SPMO was below its 200-day moving average was April 2, on Liberation Day, as the tariffs came out. 

And it came above its 200-day moving average about three weeks later, basically as the market had done it. So, it missed — if you did the 200-day moving average — virtually the entire V-shaped downturn that we had, and now it’s again above its 200-day moving average. So, is this maybe because it’s momentum-oriented, the quintessential you don’t want to necessarily lay this down forever?

Todd Rosenbluth: I’m going to trust you on those facts that I didn’t know coming into this conversation. But yes, I think this is a more tactical move. If you believe we are going to continue to see new highs, and we’re going to see the stocks that have led the market continue to lead the market, then a momentum strategy works out very well.

This rebalances every six months. So if the trend shifts and all of a sudden a different group of stocks leads the market higher or bounces back and leads the market higher, you will not necessarily capture that with this ETF. 

That’s why I think it’s good that this is added on to a broadly diversified portfolio. You’re still getting that exposure to all of those large-cap stocks, but then you’re overweighting those if you believe the trend is your friend.

Chuck Jaffe: So, like you said, this is a risk on-choice. Something you want to consider when you’re going, “I like the looks of it. Risk-on.” As opposed to last week, where, “I don’t like the looks of it. Go risk-off.”

Todd Rosenbluth: Exactly. This fits in very well for somebody who’s willing to take on additional risk. And we’re going to offer up a number of different ideas in this ETF of the Week, based on the market environment and based on what is catching our attention, based on the flows and what’s going on in the marketplace.

I think SPMO is a great ETF to get exposure to momentum investing in a broadly diversified manner.

Chuck Jaffe: It’s SPMO, the Invesco S&P 500 Momentum ETF, the ETF of the Week from Todd Rosenbluth at VettaFi. Todd, interesting choice. See you again next week!

Todd Rosenbluth: I’ll see you next week!

Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. And I’m Chuck Jaffe, and I’d love it if you’d check out my hourlong weekday podcast by going to MoneyLifeShow.com, or by searching for it wherever you find your favorite podcasts.

Now, if you’re searching for your next favorite ETF, there’s no better place to go looking than VettaFi.com, where they’ve got all the tools you need to make yourself a better investor. They’re on X or Twitter at @Vetta_Fi. Todd Rosenbluth, their head of research, my guest, he’s there too, at @ToddRosenbluth.

We will be back next Thursday, June 26 with another ETF of the Week. And until then, happy investing everybody!

For more news, information, and analysis, visit the ETF Education Channel.