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Hello everyone, welcome back to the channel. My name is Dave, and today I have an ETF riddle for you. Over the past 5 years, this ETF has outperformed the S&P 500, on which it is based, the NASDAQ, and even the technology sector . This is a momentum-based fund from Invesco called SPMO . And that doesn't quite fit with my analytical mindset.
So, why do we, investors, react so sharply when we see a trend starting to form? Let's find out. Let's explore SPMO. If this is what you are looking for, please stay with us. Oops. SPMO is the Invesco S&P 500 Momentum ETF. It has grown by almost 30% over the last year. It is quite cheap to maintain: only 13 basis points, or 0.13%, that is, $13 for every $10,000 invested.
It has been in existence since 2015, and assets under management now exceed $22 billion . It has almost no yield, only 0.71% currently, which is not great for those looking for passive income, but it makes up for it with rapid growth, right ? For those looking for tax- efficient growth. So, let's start with what SPMO actually does.
I guess the name can explain a lot , right? We start with the S&P 500, just 500, that's why we have this big SP at the beginning, and then this MO is added, right? For momentum, right? Hey, Mo. And now he can rank all the stocks. Each stock gets a momentum score based on its price change over the past 12 months, but we discard the last month because stocks that have skyrocketed often pull back a bit .
So we want to filter them out a little bit . Then he divides this by the stock's volatility. So, stable growth is valued better than something that took off rapidly and confused everyone along the way. And I'm so excited because we can whittle this pile of 500 stocks down to the 100 best performers.
It's like the Olympics for stocks, where we decide which medal each one gets, because the SPMO is not weighted by capitalization like the S&P 500. Instead, the weight is equal to market capitalization multiplied by a momentum indicator. So a stock with a very large market capitalization can, so to speak, get a double advantage.
There is a 9% limit, but only at the time of rebalancing. And then the weight of the shares just changes freely. So, that brings us to what the top 10 actually looks like. SPMO's largest assets are Micron, Nvidia, Broadcom, Alphabet , Johnson&Johnson, and so on. What don't you see here? You don't see Apple, you don't see Microsoft, right ?
None of them even made it into the top 10. And rebalancing occurs twice a year. The third Friday in March, the third Friday in September, and that's it. Everything else is market drift. Now let's look at the five-year chart on Seeking Alpha and consider why it has performed so well . We will compare this to VOO, which represents the S&P 500, QQQ, which represents the Nasdaq 100, and XLK, which represents the tech sector.
And it outperformed all of these indices over this period in terms of total return. So why did it work so well? And everyone will probably say, "I know, this is AI trading, right?" And I would say, "Yes, it's probably partly AI trading." But the main reason for me is right here, on the left side of the graph, not on the right.
Let's go back to 2022, the beginning of that period, and you'll see where we were, and then how we fell towards the end of 2022. So, SPML was down about 11% when I looked at it. The S&P fell about 18%. QQQ fell by over 30% overall. This decides everything. You know, at the beginning of 2022, the March rebalancing was loaded with 2021 winners, right?
Energy and defensive assets. So, time is everything. The momentum index has already exited the tech before the slump. So the timing worked well. So while everyone else was trying to get out of that 30 percent hole, SPMO was starting the recovery from a much higher position. Momentum is often presented as an attacking factor.
But in 2022, he played defense, right? Quite an interesting view, right? Defensive momentum. The second point is that the last 5 years have produced two long, clear trends in a row, right? Energy, and more recently, semiconductors. So, momentum only works when the trend lasts longer than the 6- month rebalancing period, and both of these trends have lasted.
Now, if you stretch that graph out over a 10-year period, XLK is still a big winner overall, and that's because XLK made one big bet, and it was the right one —technology. SPMO makes a new bid twice a year, and that has cost it dearly in a volatile decade. Oh, it kept it, you know, in that. By the way, all the information you see here, all those beautiful graphs and everything else—is from Seeking Alpha.
I am a Seeking Alpha affiliate, so if you are looking for a stock and ETF research tool, check out the discount links below. So, who might consider SPMO for their portfolio ? In my opinion, this is a good, reliable fund, but not necessarily as a primary position, rather as an additional one. If you look at the sectoral distribution, more than half of the fund is made up of technology.
Ten major assets account for more than 50% of capital. Seeking Alpha classifies this as a large- cap fund, but there's little that's balanced here right now . So I would say if you're accumulating, if you have a 10+ year stock and can wait out a big drop without touching your investments, that could be a good part of your growth portfolio, maybe 5, 10, 15% stocks, but it's worth thinking twice if you're nervous about volatility.
I mean, momentum can change quickly, especially within a 6-month timeframe. So consider this. You know, I was thinking about their stake in Micron, and how I owned it in May and June and then sold it. I came out of it . It wasn't necessarily the right decision, but I made a profit, took it, and left.
Right now Micron is still more expensive than my sale price, but it's not my nature to just hold on to such positions. In this case, you'll have to wait until September for the rebalancing to see what they do with the Micron stake. And also be sure to check for duplicate assets when considering something like this.
If you already own VOO, QQQ, and then add SPMO, you own Nvidia three times over, and you may think you are diversified, when in reality you are not . And finally, for complete transparency: I own a small amount of SPMO in my own account, but it is a very small fraction. So, that's my brief review of Invesco's SPMO.
Let us know in the comments what you think about this ETF and impulse investing in general . Also, like and subscribe if you like this kind of content. I am a licensed financial advisor, so I will leave my contact information below, if you need support - please contact me, let's chat. If you have a little more time, you can watch one of these videos and also explain what happened to my eye during this recording, because it seems to look like it exploded. See you next week. Have a nice day. Take care of yourself.
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