Momentum Investing in 2025: Assessing FDMO's Strategic Value Amid Market Shifts

Momentum investing has long been a double-edged sword for equity markets. In 2024, the strategy thrived as momentum stocks surged 58%, far outpacing the S&P 500's 23% gainFDMO ETF Stock Price & Overview^[3]. However, as 2025 unfolds, the sustainability of this momentum is under scrutiny. The Fidelity Momentum Factor ETF (FDMO), a key player in this space, offers a lens through which to evaluate the factor's current strategic value. With its latest quarterly dividend of $0.1490—announced on February 6, 2025, and paid on September 23, 2025—investors are left to decipher whether this payout signals growing confidence in momentum or reflects a defensive posture amid shifting market dynamics.

FDMO's Performance: A Tale of Two Halves

FDMO has demonstrated robust returns in recent months, with a year-to-date total return of 20.02% and a 12-month total return of 27.91%FDMO ETF Stock Price & Overview^[3]. These figures outpace many broad-market benchmarks, including the S&P 500, which saw its 2024 gains driven largely by a narrow cohort of high-flying tech stocks. The ETF's focus on large and mid-cap U.S. equities with positive momentum—via the Fidelity U.S. Momentum Factor Index—has allowed it to capitalize on short-term trends while maintaining a sector-neutral approachFDMO – Fund Analysis – Fidelity Momentum Factor ETF^[1].

Yet, the ETF's performance is not without caveats. FDMO's high turnover ratio of 119%—a measure of portfolio churning—suggests a strategy that prioritizes agility over stabilityFDMO ETF Stock Price & Overview^[3]. This can amplify transaction costs and erode long-term returns, particularly during market corrections. For instance, during the December 2024 downturn, momentum-driven stocks underperformed the broader market as tightening financial conditions curtailed speculative flowsFDMO ETF Stock Price & Overview^[3]. Analysts at Morgan Stanley caution that such volatility underscores the inherent risks of momentum investing, especially in an environment where earnings growth has lagged price appreciationMomentum in Stock Market: Will It Last 2025? | Morgan Stanley^[2].

Dividend Dynamics: Confidence or Caution?

The September 2025 dividend of $0.1490 marks a 29% increase from the previous quarter's $0.119 payoutThe 2025 Market Outlook and ETFs to Watch^[4]. On the surface, this suggests growing confidence in the ETF's ability to generate consistent income for shareholders. However, a deeper look reveals a more nuanced picture. FDMO's trailing twelve-month (TTM) dividend yield of 0.778% has been marred by a steep -61.24% decline in its one-year dividend growth rateThe 2025 Market Outlook and ETFs to Watch^[4]. This volatility reflects the ETF's exposure to a portfolio of stocks where earnings and cash flows can swing dramatically, particularly in sectors like technology and consumer discretionary.

The timing of the dividend also raises questions. With the ex-dividend date falling on September 19, 2025—the same day FDMO closed at $83.29—investors may interpret this as a strategic move to reward shareholders during a period of relative stability. Yet, the ETF's price history over the preceding week (ranging from $81.31 to $83.29) highlights the inherent volatility of momentum-driven assetsFDMO ETF Stock Price & Overview^[3]. This volatility, coupled with the ETF's 0.16% expense ratio, positions FDMO as a short-term play rather than a long-term holding for income-focused investorsFDMO – Fund Analysis – Fidelity Momentum Factor ETF^[1].

Historical data reveals that a simple buy-and-hold strategy aligned with FDMO's ex-dividend dates since 2022 yielded a modest ~7.7% cumulative gain, albeit with a maximum drawdown of -11.9%The 2025 Market Outlook and ETFs to Watch^[4]. The low Sharpe ratio of ~0.30 further underscores the inefficiency of this approach, suggesting that the ex-dividend date has not historically served as a reliable signal for alpha generation. These findings reinforce the ETF's volatility profile and highlight the risks of relying on dividend timing as a standalone investment strategy.

Market Environment: Momentum's Crossroads

The broader market environment in 2025 is a mixed bag for momentum strategies. On one hand, global central banks are expected to ease monetary policy, creating a tailwind for equitiesThe 2025 Market Outlook and ETFs to Watch^[4]. On the other, Morgan Stanley's Global Investment Committee warns of “stretched valuations” and a potential shift toward earnings-driven investingMomentum in Stock Market: Will It Last 2025? | Morgan Stanley^[2]. This transition—from a “dream” phase of speculative optimism to a “show me” phase of fundamental scrutiny—could undermine momentum's effectiveness.

FDMO's strategic positioning within this landscape is both a strength and a vulnerability. Its focus on large-cap stocks with positive momentum aligns with the Russell 1000's growth profile, offering disciplined exposure to a factor that has historically outperformed during bull marketsFDMO ETF Stock Price & Overview^[3]. However, the ETF's underperformance during market reversals—such as the December 2024 correction—highlights its susceptibility to systemic risksFDMO ETF Stock Price & Overview^[3]. Morningstar's analysis further notes that FDMO's high turnover and expense ratio may erode its long-term appeal compared to passive alternativesMomentum in Stock Market: Will It Last 2025? | Morgan Stanley^[2].

Is Now a Compelling Time to Position for Outperformance?

The answer hinges on an investor's risk tolerance and time horizon. For those seeking short-term gains in a market still buoyed by liquidity-driven trends, FDMO's recent performance and dividend increase could justify a tactical allocation. Its 0.78% yield, while modest, provides a buffer against the ETF's volatilityFDMO ETF Stock Price & Overview^[3].

However, for long-term investors, the risks are more pronounced. The ETF's historical underperformance during downturns, coupled with its high turnover, suggests that it may struggle to preserve capital during a market shift. Morgan Stanley and BlackRock both advocate for a pivot toward active stock-picking and value-oriented sectors like financials and energy in 2025Momentum in Stock Market: Will It Last 2025? | Morgan Stanley^[2]. This aligns with the idea that momentum's dominance may wane as investors prioritize earnings resilience over trend-chasing.

Conclusion: Momentum as a Strategic Tool, Not a Panacea

FDMO's recent dividend and performance underscore the enduring appeal of momentum investing in a market still reeling from 2024's gains. Yet, the ETF's strategic value is contingent on the broader economic narrative. As central banks pivot and valuations come under pressure, investors must weigh FDMO's potential for outperformance against its susceptibility to volatility.

For now, the ETF remains a compelling option for those with a short-term outlook and a tolerance for risk. But in a market increasingly defined by fundamentals, momentum may prove to be a fleeting ally rather than a lasting solution.