XMMO: Riding the Momentum Wave in Volatile Markets—Beware the Tidal Pull!

The markets of 2023–2025 have been a rollercoaster, with AI mania, trade wars, and Federal Reserve uncertainty driving wild swings. For investors seeking to profit from momentum—stocks on fire due to recent price action—the Invesco S&P MidCap Momentum ETF (XMMO) has been a star performer. But here's the catch: momentum strategies are like surfing a shark-infested wave. You can ride it high, but one wrong move and you're lunch. Let's dive into whether XMMO is worth the risk—and how to play it smart.

What Makes XMMO Tick?

XMMO tracks the S&P MidCap 400 Momentum Index, which selects the top 80 mid-cap stocks based on momentum scores—essentially rewarding companies with the strongest recent price gains. Think of it as a portfolio of “hot” stocks, rebalanced twice a year to stay on the trend. This strategy thrives when markets are trending upward, but it's a disaster in sideways or down markets.

Performance in Volatile Markets: The Good, the Bad, and the Ugly

Let's crunch the numbers:

• 2023: XMMO delivered a 20.39% return, outpacing the S&P 500. But it wasn't smooth. In October alone, it dropped -5.33%, while November roared back with an 8.63% gain.
• 2024: A banner year! XMMO surged 38.03%, fueled by momentum-driven sectors like tech and regional banks. February's 14.49% jump was historic—but December's -8.61% crash reminded investors of the risks.
• 2025: As of June, XMMO's YTD return was 6.28%, but it's been a rollercoaster. January's 5.75% win gave way to February's -6.47% dive, proving momentum's fickle nature.

The Momentum Trap: Why Volatility is Built In

Momentum investing is all about buying high and selling higher—until the music stops. Here's why XMMO's volatility is inevitable:
1. Rebalancing Risks: Semi-annual shifts mean the ETF dumps laggards and buys winners, amplifying swings.
2. Sector Overconcentration: In 2024, tech and financials made up over half the portfolio. When those sectors falter, XMMO tanks.
3. Drawdowns Are Real: The worst dip from late 2021 to 2022 was a -27.91% loss, taking over a year to recover. As of June 2025, a -3.56% drawdown hints at ongoing turbulence.

The 2025 Momentum Reversal: Is the Tide Turning?

Here's the big question: After XMMO's +28% outperformance in 2024—a two-standard-deviation event—historical patterns warn of a potential crash. Momentum strategies often face a near-complete reversal in the year following such extremes.

• The Numbers: Historically, top-decile momentum runs see a +35% gain over 11 months, followed by a -25% drop over the next 10 months. XMMO's 2024 surge fits this mold.
• Reality Check: In early 2025, quality stocks like Nvidia (NVDA) and Alphabet (GOOGL)—once momentum darlings—cratered as valuations hit sky-high levels.

Should You Bet on XMMO?

If you're aggressive and can stomach volatility, XMMO has its moments:
- Bull Markets: When momentum is king (like 2023–2024), it's a top performer.
- Tech and Bank Plays: If you believe in AI's future or regional bank rebounds, XMMO gives you a diversified slice.

But beware:
- High Fees, High Risk: Its 0.33% expense ratio isn't terrible, but the Calmar ratio of 0.39 (vs. 0.78 for the S&P 500) means bigger swings per return.
- Don't Go All-In: Pair XMMO with low-volatility stocks (think Berkshire Hathaway (BRK.A) or Mastercard (MA)) to balance the chaos.

Final Verdict: Momentum is a Tool, Not a Lifeline

XMMO is a high-octane ETF for investors who can handle stomach-churning volatility. If you're chasing the next big thing, it's a ticket to the party. But remember:
- Stay Disciplined: Set stop-losses and rebalance regularly.
- Keep an Eye on Valuations: When XMMO's P/E ratio hits extremes (like the 18x seen in 2024), consider taking profits.

In a market where “this time is different” is always a lie, XMMO's performance proves momentum's timeless truth: Ride the wave, but never forget the undertow.

Investor takeaway: XMMO is a volatility magnet. Use it sparingly, pair it with stability, and never forget—momentum can make you rich… or break you.