The Case for Momentum Investing: Why SPMO Outperforms the Market Over the Long Term

Momentum investing has long been a cornerstone of strategic asset allocation, leveraging the tendency of stocks with strong recent performance to continue outperforming. The Invesco S&P 500® Momentum ETF (SPMO) embodies this approach, offering investors exposure to high-momentum large-cap U.S. equities. This article examines why SPMO has historically outperformed broader market benchmarks like the S&P 500, focusing on compounded returns and its role in long-term strategic ETF allocations.

Historical Performance: SPMO vs. the S&P 500

SPMO's momentum-driven strategy has delivered notable outperformance during key market cycles. During the 2020 market crash, SPMO recorded a maximum drawdown of 30.95% on March 23, 2020, but recovered in 74 trading sessions, outpacing the S&P 500's recovery timeline. In contrast, the 2023 rally saw SPMO return 17.56%, significantly exceeding the S&P 500's growth. Over the past decade, SPMO's annualized return of 18.12% has surpassed the S&P 500's 12.95% average. These results highlight the fund's ability to capitalize on trending markets, even as it occasionally underperforms in shorter, volatile periods.

The fund's semi-annual rebalancing and focus on approximately 100 high-momentum stocks-selected based on 12-month relative strength- allow it to adapt to shifting market dynamics. While this concentration increases risk, it also amplifies returns in environments where momentum stocks dominate. For instance, SPMO's 1-year return of 25.27% as of late 2025 outpaced the S&P 500's 17.60%, underscoring its effectiveness in capturing growth during favorable conditions.

Academic Backtest: Momentum and Compounded Returns

Academic research underscores the robustness of momentum strategies. A long-short momentum approach-buying past winners and selling losers- has historically generated compounded returns of 8–9% annually, with $1 growing to over $10,000 over 150 years. These results are statistically significant and resilient across portfolio construction methods, including value-weighted and equal-weighted returns.

Recent studies emphasize diversifying momentum signals to enhance risk-adjusted returns. By integrating price momentum with fundamental, residual, and anchor-based momentum, investors can mitigate drawdowns while maintaining growth potential. For example, SPMO's semi-annual rebalancing inherently incorporates a form of volatility scaling, reducing exposure to underperforming stocks and reinforcing its alignment with trending assets.

Strategic ETF Allocation: SPMO in Long-Term Portfolios

Strategic ETF frameworks for 2020–2025 increasingly incorporate momentum-based allocations like SPMO. As of late 2025, SPMO managed $10.5 billion in assets, driven by its focus on large-cap companies such as Amazon and Nvidia. While critics highlight its concentration in top holdings, similar critiques apply to broader ETFs like XLG or QQQ.

For long-term investors, SPMO serves as a tactical tilt toward momentum stocks rather than a buy-and-hold solution. LPL Research's STAAC recommended reducing exposure to overvalued growth stocks in 2025, favoring value equities and emerging markets. In this context, SPMO complements diversified portfolios by capturing growth in trending sectors while balancing risk through fixed income and alternative assets.

State Street's Strategic Asset Allocation ETF Portfolios further illustrate this approach, using SPMO alongside core bonds and TIPS to balance risk and return. These frameworks adapt to macroeconomic shifts, such as "higher-for-longer" interest rates, by emphasizing liquidity and low-cost solutions. SPMO's role in such portfolios reflects its ability to enhance returns in trending markets while mitigating downside risks through strategic diversification.

Risks and Considerations

Despite its strengths, SPMO is not without risks. Its concentrated portfolio and semi-annual rebalancing can lead to underperformance during market reversals or high volatility. For instance, SPMO lagged the S&P 500 by 2.56% in a 3-month period as of late 2025. Additionally, its 0.13% expense ratio, while competitive for momentum ETFs, is higher than the 0.03% of broad-market ETFs like VOO.

Investors must also consider behavioral biases, such as overconfidence in trending stocks, which can amplify losses during corrections. Strategies that incorporate volatility scaling and multidimensional momentum signals-such as those discussed in academic literature-can mitigate these risks while preserving long-term growth potential.

Conclusion

The Invesco S&P 500 Momentum ETF (SPMO) offers a compelling case for momentum investing, combining historical outperformance with academic validation of its strategy. Its ability to adapt to market trends, coupled with strategic allocation frameworks that balance risk and return, positions it as a valuable tool for long-term growth. While risks such as concentration and volatility exist, SPMO's disciplined rebalancing and alignment with trending sectors make it a resilient choice for investors seeking to harness the power of compounded returns in a dynamic market environment.