Most investors who want broad U.S. equity exposure reach for SPDR S&P 500 ETF Trust (NYSEARCA:SPY). It is the default. But a lesser-known fund built entirely from stocks already inside the S&P 500 has quietly delivered stronger returns over virtually every meaningful time horizon, while also holding up better when markets fall. That fund is the Invesco S&P 500 Momentum ETF (NYSEARCA:SPMO), and understanding why it works reveals something useful about how markets reward certain types of stocks.
How SPMO Actually Works
SPMO does not beat the S&P 500 by picking different stocks. Every holding already lives in the index. The difference is which ones it picks and how much weight it gives them. The fund ranks all 500 companies by their “momentum score,” a measure of how strongly a stock has been trending upward relative to peers over the prior 12 months. The highest-scoring stocks get included; the rest get left out.
The fund reconstitutes and rebalances twice a year, on the third Fridays of March and September. That semi-annual reset is the core mechanism. Every six months, the fund rotates out of stocks whose momentum has faded and into the new leaders. The portfolio ends up systematically overweight in whatever sectors and companies are driving the market at any given time.
Right now, SPMO has a heavy tilt toward technology and financials. Information technology makes up about 33% of the portfolio, financials roughly 21%, and communication services around 14%. Compare that to SPY, where information technology sits at 32%, financials at 12%, and communication services at nearly 11%. SPMO is more concentrated in financials and communication services, where momentum has been strongest.
The top holdings tell the same story. Nvidia (NASDAQ:NVDA | NVDA Price Prediction), Broadcom (NASDAQ:AVGO), and Meta (NASDAQ:META) together constitute ~18% of the fund. SPMO is a concentrated bet on the companies that have been winning, not a diversified slice of the entire market.
But unlike other ETFs that simply hold these winners forever, SPMO constantly changes its portfolio to hold today’s winners, instead of yesterday’s winners.
The Performance Gap Is Real
The return difference between these two funds has been hard to ignore. Over the past year, SPMO returned 24% while SPY returned 16%. a gap that reflects the fund’s heavy tilt toward the technology and financial names that led the market during that stretch. The outperformance is not a fluke of a single good year.
Stretch the window to a full decade and the compounding effect becomes striking.
SPMO is up over 411% compared to SPY’s 274%.You have a gap that has persisted through multiple market cycles. That sustained advantage does not come from leverage or exotic instruments. SPMO is a long-only equity fund that simply holds the strongest-performing stocks already inside the SPY.
The fund carries a 0.13% expense ratio versus SPY’s 0.03%, so the cost difference is negligible relative to the performance advantage SPMO has delivered.
The Catch, and Why It Is Smaller Than It Sounds
Momentum strategies have a well-documented vulnerability: rapid, violent market reversals. When markets crash fast, stocks that had been trending highest tend to fall hardest in the opening days of a selloff. Investors rush to sell their biggest winners first, and SPMO rebalances only twice a year, so it cannot quickly rotate away from those leaders once a crash begins.
The COVID crash of 2020 is the clearest stress test available. From the market peak on February 19 through the trough on March 23, SPMO declined 31% while SPY declined 34%. SPMO actually held up better during one of the fastest crashes in market history, which runs counter to the intuition that a momentum fund would be more fragile.
The real risk is a scenario where the market crashes suddenly and immediately reverses before SPMO can rebalance. The fund could sell beaten-down winners at the wrong time and miss the recovery. That is a genuine structural risk, not a theoretical one.
Who This Fund Is For
SPMO tracks the highest-momentum stocks within the S&P 500 universe. The fund has outperformed SPY over long periods and experienced smaller drawdowns during major market selloffs. It carries a higher expense ratio than SPY and concentrates holdings in recent market leaders, which distinguishes it from a pure passive index approach.
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