Should You Ride the Momentum With this S&P ETF?

Investing in the S&P 500 can be tricky these days because a few top stocks can account for a big chunk of many exchange-traded funds (ETFs) that track the index due to their significant market caps. But one fund which invests in the index in an alternative way is the Invesco S&P 500 Momentum ETF (NYSE Arca:SPMO). As its name suggests, it relies on a momentum index to determine which stocks to invest in. There are 100 holdings in the ETF and the top three stocks right now are Amazon (NASDAQ:AMZN), Nvidia (NASDAQ:NVDA), and Meta Platforms (NASDAQ:META), which collectively make up more than 26% of fund’s total weight. Over the past 12 months, the momentum fund has outperformed the S&P 500, achieving gains of 29% while the broad index has risen by around 18% over the same time frame. And if you stretch the period out to five years, then the gap is even wider, with the momentum ETF climbing by 128%, dwarfing the S&P 500’s gains of 85%. While it may seem like a potentially volatile fund, it is only reconstituted and rebalanced twice a year. And with an expense ratio of 0.13%, the ETF’s fees aren’t all that high, either. If you want to invest in the top stocks in the S&P 500, this may potentially be a better option to consider than funds which simply base their weightings on market cap. By focusing on momentum and having a smaller group of holdings, investors may continue to generate market-beating returns with this ETF.