Should Invesco S&P SmallCap Momentum ETF (XSMO) Be on Your Investing Radar?

The Invesco S&P SmallCap Momentum ETF (XSMO) was launched on March 3, 2005, and is a passively managed exchange traded fund designed to offer broad exposure to the Small Cap Growth segment of the US equity market.

The fund is sponsored by Invesco. It has amassed assets over $2.29 billion, making it one of the larger ETFs attempting to match the Small Cap Growth segment of the US equity market.

Why Small Cap Growth

There's a lot of potential to investing in small cap companies, but with market capitalization below $2 billion, that high potential comes with even higher risk.

Growth stocks have higher than average sales and earnings growth rates. While these are expected to grow faster than the broader market, they also have higher valuations. Further, growth stocks have a higher level of volatility associated with them. Even though growth stocks are more likely to outperform their value counterparts in strong bull markets, value stocks have a record of delivering better returns in almost all markets than growth stocks.

Costs

Expense ratios are an important factor in the return of an ETF and in the long term, cheaper funds can significantly outperform their more expensive counterparts, other things remaining the same.

Annual operating expenses for this ETF are 0.36%, putting it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 0.71%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation to the Industrials sector -- about 28.2% of the portfolio. Information Technology and Financials round out the top three.

Looking at individual holdings, Interdigital Inc (IDCC) accounts for about 3.99% of total assets, followed by Brinker International Inc (EAT) and Armstrong World Industries Inc (AWI).

The top 10 holdings account for about 25.97% of total assets under management.

Performance and Risk

XSMO seeks to match the performance of the S&P SMALLCAP 600 MOMENTUM INDEX before fees and expenses. The S&P Smallcap 600 Momentum Index is composed of securities with strong growth characteristics selected from the Russell 2000 Index.

The ETF has added roughly 6.01% so far this year and was up about 23.8% in the last one year (as of 03/09/2026). In the past 52-week period, it has traded between $55.15 and $80.79.

The ETF has a beta of 1.05 and standard deviation of 20.77% for the trailing three-year period. With about 113 holdings, it effectively diversifies company-specific risk.

Alternatives

Invesco S&P SmallCap Momentum ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, XSMO is a reasonable option for those seeking exposure to the Style Box - Small Cap Growth area of the market. Investors might also want to consider some other ETF options in the space.

The iShares Russell 2000 Growth ETF (IWO) and the Vanguard Small-Cap Growth Index Fund ETF Shares (VBK) track a similar index. While iShares Russell 2000 Growth ETF has $12.46 billion in assets, Vanguard Small-Cap Growth Index Fund ETF Shares has $20.38 billion. IWO has an expense ratio of 0.24% and VBK charges 0.05%.

Bottom-Line

An increasingly popular option among retail and institutional investors, passively managed ETFs offer low costs, transparency, flexibility, and tax efficiency; they are also excellent vehicles for long term investors.

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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Invesco S&P SmallCap Momentum ETF (XSMO): ETF Research Reports

This article originally published on Zacks Investment Research (zacks.com).

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