SPMO Rebalancing: What's In, What's Out

The Invesco S&P 500 Momentum ETF (SPMO) underwent a significant September rebalancing, diverging from typical minor ETF adjustments, driven by its strict momentum-focused methodology. This rebalancing saw the addition of key stocks such as Oracle, Visa, Cisco, and CrowdStrike, while major holdings like Amazon, Tesla, Costco, Bank of America, and American Express were removed. The move underscores SPMO's strategy of outperformance with less tech concentration, and its process remains well-suited to the current market environment, despite the potential cyclicality of momentum strategies.

Analysis

The Invesco S&P 500 Momentum ETF (SPMO) executed a significant portfolio rebalancing in September, a stark contrast to the typically minor adjustments seen in broad-market funds like the SPDR S&P 500 ETF (SPY). This reconstitution is a direct function of the fund's strict, rules-based methodology, which isolates for momentum factors while ignoring company valuations. The turnover was substantial, with the fund divesting major holdings such as Amazon (AMZN), Tesla (TSLA), Costco (COST), Bank of America (BAC), and American Express (AXP), while adding new positions in Oracle (ORCL), Visa (V), Cisco (CSCO), and CrowdStrike (CRWD). This rotation reflects a shift in market leadership as identified by the fund's momentum screen. The article notes that SPMO has achieved strong outperformance with less technology concentration than the SPY or QQQ, a trend reinforced by these recent changes. While acknowledging that momentum as a factor can be cyclical and may eventually underperform, the author, who holds a long position in the fund, suggests its process remains well-suited to the current market environment, which has contributed to a surge in the ETF's popularity since 2024.

Key Decisions for Investors

• Investors seeking pure-play exposure to the momentum factor should note that SPMO's significant rebalancing confirms its strict adherence to its stated strategy, rotating out of weakening names and into those with strengthening price trends.
• The fund's rotation out of former market leaders like AMZN and TSLA and into more recent performers like ORCL and V can be viewed as a tactical indicator of a potential shift in large-cap market leadership.
• Given the fund's historical outperformance with lower tech concentration than SPY or QQQ, it may be considered as a satellite holding to diversify away from mega-cap tech dominance while maintaining large-cap equity exposure.
• Be mindful of the cyclicality of momentum investing; while the strategy is currently favored, a sharp reversal in market trends could lead to rapid underperformance, a key risk for a fund that is agnostic to valuation.