Invesco S&P 500 Momentum ETF (SPMO) is an exchange-traded fund that focuses on investing in momentum stocks across various sectors. Momentum refers to the consistency in relative performance exhibited by investments. While momentum funds historically have higher volatility compared to other types of funds, SPMO has managed to generate strong total returns over the long run.
With an asset under management of $206 million and an expense ratio of 0.13 percent, SPMO consists of the best 100 momentum stocks. This results in a high turnover ratio of 124 percent, as momentum changes frequently. The fund pays quarterly dividends, typically ranging between 1 to 2 percent in yield.
Launched in October 2015 by Invesco Capital Management LLC, SPMO seeks to track the performance of the S&P 500 Momentum Index using full replication techniques. The index measures the performance of 100 stocks with the highest momentum scores, calculated based on 12-month price growth and volatility. The index is redesigned and rebalanced semi-annually.
Despite a low annual average yield of 1.12 percent, SPMO has achieved an annual average total return of over 18.5 percent between 2016 and 2021. However, the fund has suffered in the past 20 months, with a year-to-date total return of only 2.87 percent compared to the S&P 500’s 13.9 percent return during the same period.
SPMO’s investment strategy focuses on high-growth potential sectors, including information & communication technology (ICT), industrial, and healthcare. The fund allocates 70 percent of its net assets to these sectors. In healthcare, investments are mainly made in medical equipment manufacturers and biotechnology firms. ICT investments include semiconductor developers, cybersecurity providers, ERP developers, and digital media companies.
The list of momentum stocks differs from the most demanded giant-cap technology stocks, as SPMO gives preference to stocks with certain x-factors, such as being a semiconductor firm or cybersecurity provider. Giant-cap system software and application software companies do not make the cut for momentum stocks.
Industrial stocks in SPMO’s portfolio operate in niche industry segments and are market leaders in their respective sub-segments. These companies also have a focus on new-age and modern technologies.
Considering the fund’s focus on momentum stocks and the potential biases it may produce, as well as the higher volatility typically associated with momentum funds, a hold rating is appropriate. Despite the poor price growth in recent months, SPMO’s long-term potential for generating strong total returns remains promising. However, investors should consider the relatively low yield and marginal premium at which the fund is currently trading before making any investment decisions.