This Momentum ETF Has Outperformed The Broader Market, But Can It Continue?
" Will AI's Projected Market Growth Help Drive Strong Returns Ahead?"
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Current Price: $146.44
The market continues to climb despite rising macroeconomic uncertainty.
While inflation concerns, geopolitical tensions, and Federal Reserve policy remain key risks, investors continue rewarding one theme above all else: artificial intelligence.
That trend has been a major driver of market performance throughout 2026, helping push the S&P 500 (SP500) nearly 10% higher year-to-date. More importantly, it has fueled massive gains among the market’s strongest growth companies, creating an ideal environment for momentum-focused investment strategies.
One ETF that has benefitted significantly from this environment is the Invesco S&P 500 Momentum ETF (SPMO).
Unlike traditional index funds that simply hold companies based on market capitalization, SPMO systematically allocates capital toward stocks exhibiting the strongest price momentum.
The strategy is simple: own the market leaders and continuously rotate into the companies demonstrating the strongest performance.
As artificial intelligence continues reshaping industries and attracting capital, that approach has proven extremely effective.
While I believe investors should remain prepared for short-term volatility, particularly if inflation reaccelerates or interest rates remain elevated for longer than expected, I continue to view SPMO as an attractive long-term investment.
In my view, any meaningful market correction should be viewed as an opportunity rather than a reason to abandon the AI trade.
Why SPMO Has Been Winning 🏆
When I last discussed SPMO earlier this year, the outlook was considerably less certain.
Rising geopolitical tensions and inflation concerns were weighing on investor sentiment, causing many investors to favor defensive and dividend-focused strategies. During that period, funds such as SCHD and iShares Core Dividend Growth ETF (DGRO) outperformed as investors sought stability and income.
SPMO struggled during that environment. Through the first quarter, net asset value growth was essentially flat, and momentum stocks lost leadership as investors rotated toward lower-volatility sectors.
However, the long-term thesis remained intact.
The ETF’s heavy exposure to technology and growth-oriented companies positioned it perfectly for an eventual resurgence in AI-related spending and investor enthusiasm.
Since then, that thesis has played out in a big way.
SPMO has significantly outperformed the broader market, delivering gains that have more than doubled those of the S&P 500.
As AI-related companies regained leadership, the fund’s momentum strategy allowed it to systematically increase exposure to the strongest performers.
The Power of Momentum ↗️
One of the biggest advantages of SPMO is its semi-annual rebalancing process.
The ETF continuously evaluates momentum across S&P 500 constituents and adjusts holdings accordingly. Companies exhibiting deteriorating momentum are removed or reduced, while stronger-performing companies receive greater allocations.
This process may sound simple, but it has historically been one of the most effective factors in investing.
Momentum strategies tend to thrive during bull markets because they systematically allocate capital toward companies already benefiting from strong earnings growth, positive sentiment, and expanding valuations.
In other words, momentum funds don’t attempt to predict future winners.
They simply own the companies that are already winning.
In the current market environment, that means significant exposure to artificial intelligence beneficiaries.
Recent portfolio changes highlight this trend. Micron Technology (MU) has moved into the ETF’s top position, overtaking NVIDIA (NVDA), while Intel has entered the fund’s top holdings following its impressive recovery.
These adjustments demonstrate exactly how momentum investing works in practice. As leadership changes, the portfolio adapts accordingly.
Rather than relying on investor predictions, SPMO lets market performance determine portfolio allocations.
Why AI Still Matters 🤖
The primary driver behind SPMO’s recent success remains artificial intelligence.
Technology (XLK) now represents roughly 55% of portfolio assets, making it by far the ETF’s largest sector allocation.
While this concentration increases risk, it also creates significant upside potential.
The global AI market is still expected to expand rapidly over the coming decade, with industry forecasts calling for annual growth rates near 30%.
If those projections prove even partially accurate, companies enabling AI infrastructure, semiconductors, cloud computing, and data-center expansion could continue generating outsized earnings growth.
Because SPMO focuses on momentum rather than static sector weights, the fund is uniquely positioned to capture those opportunities as they emerge.
As long as AI remains the dominant investment theme, momentum investing should remain a powerful tailwind.
The Biggest Risk ⚠️
No investment is without risk, and SPMO certainly has several.
The ETF currently trades at a premium valuation relative to broader market benchmarks, reflecting both strong performance and heavy exposure to growth-oriented technology companies.
That creates vulnerability if inflation reaccelerates or if long-term Treasury yields move significantly higher.
Higher interest rates generally place pressure on growth stocks, particularly those whose valuations depend heavily on future earnings expectations.
A sharp rise in yields could trigger a correction across many of SPMO’s largest holdings and lead to a period of underperformance.
However, while I acknowledge that possibility, I believe the more likely outcome is continued economic moderation and a Federal Reserve that remains patient rather than aggressively tightening policy further.
Final Thoughts ✅
SPMO is not designed for conservative income investors.
The fund offers a relatively modest yield, carries a higher turnover rate than traditional index funds, and will likely experience greater volatility during market corrections.
However, for investors seeking long-term capital appreciation and meaningful exposure to the companies driving the AI revolution, I believe SPMO remains one of the most compelling ETF options available today.
Its momentum-based approach provides exposure to market leaders while automatically adapting to changing trends and leadership cycles.
That combination has produced strong results historically, and given the continued expansion of artificial intelligence, I believe the fund remains well-positioned to outperform over the long term.
RATING: BUY
How does SPMO stack up against your ETF holding(s)? Let me know in the comments.
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