This Vanguard ETF Is Up 22% This Year and Still Worth Buying for the Long Term

The Vanguard U.S. Momentum Factor ETF (VFMO) returned 22% year to date and averaged a 29% annualized return over the past three years, outperforming the S&P 500 over that period. It holds 695 stocks, with no single position above 1.1%, and declined 14% in 2022 versus a 19% loss for the S&P 500 and 33% for the Nasdaq Composite. The article favors the fund for the long term, while noting strategists expect challenging conditions for large-cap and growth stocks over the next decade.

Analysis

The key exposure is not durable downside protection but a systematic bet that recent winners keep winning. Broad holdings and small single-name weights may limit idiosyncratic risk; they do not prevent a sharp drawdown if momentum reverses across the market. The 2022 comparison is one episode, not evidence that the strategy reliably cushions bear markets. The article also omits fees, turnover, live performance across full cycles, and risk-adjusted comparisons—important checks before extrapolating three strong years.

There is a useful tension in the long-term case: forecasts favoring value and smaller companies do not automatically undermine momentum, since the strategy can rotate toward those groups if they become leaders. But abrupt leadership changes can leave a momentum portfolio owning yesterday’s winners while selling into reversal. AMD, Marathon Petroleum, and Valero therefore should not be read as a coherent company-specific signal: their sector drivers differ, and the reported portfolio weights do not establish meaningful issuer-level demand from ETF flows.

Over days to weeks, performance-chasing flows could support recent winners, but crowded positioning raises reversal risk. Over 1–3 months, monitor relative returns, breadth, and whether leadership is broadening beyond a narrow set of large growth stocks. Over 6–18 months, the test is whether the strategy captures new leadership without suffering repeated whipsaws. The contrarian point: a momentum fund may adapt to a value/small-cap rotation, but the article offers no evidence it will do so quickly or cheaply.

Key Decisions for Investors

• No immediate trade based solely on the trailing return or the single 2022 comparison. Before considering VFMO, verify expense ratio, turnover, drawdown history, and performance across prior momentum reversals.
• If seeking a tactical momentum allocation, add only after relative strength versus a broad U.S. equity benchmark persists and market breadth is not narrowing; size it as a satellite rather than treating it as a defensive core holding.
• Falsify the tactical thesis if VFMO’s relative performance and market breadth deteriorate together over a sustained 1–3 month period, or if leadership reverses sharply; reassess rather than assuming the model will avoid losses.
• Watch ETF flows and holdings changes as secondary signals, not proof of fundamental improvement at AMD, Marathon Petroleum, or Valero. The article provides no basis for standalone trades in those companies.