This Under-the-Radar Vanguard ETF Is Up 24% in 2026 and Beating the S&P 500

VFMO's 24% Start Is the Hook; Its Role Is the Real Story

VFMO looks more like a satellite holding than a set-it-and-forget-it core ETF, but its 2026 start is hard to overlook. This under-the-radar, actively managed ETF from Vanguard has returned 24% in 2026, more than twice the S&P 500's gain. The attraction is not mystery stock-picking. It is a systematic momentum strategy built to own stocks with strong recent trends.

The process is straightforward. Vanguard measures momentum over seven- and 12-month periods and applies higher weightings to those stocks demonstrating stronger momentum. That is why this fund is different from a standard low-cost index fund: you are paying a premium for a factor-driven engine, not for cheaper beta. The fee is 0.13%, versus 0.03% for Vanguard's core S&P 500 fund.

How VFMO's System Differs From Typical Vanguard Funds

A rules-based momentum process, not a manager showcase

VFMO uses a rules-based quantitative model that defines momentum using benchmark-relative returns over the past seven- and 12-month periods. That two-window setup is designed to catch durable strength rather than react to a single hot month. The fund then applies a scored weighting approach, giving more weight to stocks showing stronger momentum.

That is a deliberate break from the usual Vanguard cap-weighted model. Instead of letting company size drive the portfolio, VFMO is built to emphasize the momentum factor.

Broader exposure than VOO, and a process Morningstar flags as systematic

VFMO also does not look like a stealth replica of the Vanguard S&P 500 ETF. It holds 652 stocks and carries 29% small-cap allocation, versus Less than 1% for VOO. The fee is still higher at 0.13%, compared with 0.03% for VOO.

That fits the fund's objective. VFMO is not trying to be a cheaper version of the market; it is trying to execute a repeatable momentum process. Morningstar's Process Pillar rated that process on how sensible, clearly defined, and repeatable it is.

Why VFMO Stands Out Now

VFMO's longer-term record is part of the case, but the current appeal is about how its strategy fits a market with broad leadership. Since 2018, the fund has beaten the market on average every year since its 2018 launch. It also appears in coverage noting that it is outshining broader indices by more than 100%. The point is not that VFMO is a perfect all-weather holding. It is that the strategy has shown it can differ materially from broad-market benchmarks.

The holdings suggest breadth, not a single crowded trade

The portfolio also looks broader than a simple mega-cap growth proxy. Current positions include 1.14% in GE Vernova, along with other holdings such as Lam Research, Johnson & Johnson, and AMD. That spread fits a momentum process that rotates toward whichever stocks are showing sustained strength.

That matters in a market where leadership has been wider than the headline mega-cap crowd. When leadership is broad, a rules-based momentum system has more places to find outperformers. When leadership narrows sharply, the advantage can compress as well.

Watchpoints

• Diverse leadership helps the case. If top holdings keep reflecting strength across sectors, the breadth argument remains intact.
• Outperformance has to justify the fee. A 0.13% expense ratio is manageable, but it matters more when momentum cools.
• Momentum can whipsaw. If leadership shifts quickly, the strategy can give back gains faster than a buy-and-hold index fund.

Best Use: A Momentum Sleeve, Not a Core Holding

The cleanest takeaway is practical: VFMO works best as a satellite momentum sleeve, not as your entire equity allocation. It exclusively backs winners through a rules-based process that emphasizes sustained uptrends over the last 12 months. Paired with a 0.13% expense ratio versus 0.03% for VOO, it is better suited to investors who want intentional factor exposure on top of a broader base portfolio.