2 Vanguard ETFs Beating the S&P 500 With a Momentum-Driven Strategy

The article highlights that Vanguard’s momentum-factor ETFs (VFMO and VFMF) have outperformed the S&P 500 over multiple periods, including YTD total returns of 22.6% (VFMO) vs 9.9% for VOO and 17.9% (VFMF). Over five years, VFMO and VFMF delivered 90.8% and 94.4% total returns, respectively, with the lower expense ratios of 0.13% and 0.18% (vs 0.03% for VOO). The key pitch is that these momentum/ multifactor approaches achieved this without heavy mega-cap tech concentration.

Analysis

This is less a fundamental thesis than a flow thesis: factor products can extend relative strength by mechanically allocating to names that are already winning, which is especially supportive for high-beta semis and AI-adjacent leaders like NVDA, AMD, MU, and AMAT. The second-order effect is that the market may keep rewarding the same narrow supply chain even after valuations look full, because incremental ETF demand does not care about absolute P/E; it cares about trailing returns and composite scores. That can prolong leadership in chips and related equipment, while laggards with better fundamentals but weaker price action remain out of favor.

The risk is that momentum is fast until it isn’t. The key catalyst window is 1-3 months around earnings and estimate revisions, but the true unwind risk is a sudden breadth rotation or rates shock that breaks the prior 6-11 month lookback window used by these strategies. If market leadership broadens into value/defensives or the AI complex stumbles, the same rules that bought the winners can force selling on the way down, making the drawdown sharper than the headline volatility suggests.

Contrarian view: the crowd may be mistaking a cyclical AI/semiconductor tape for durable factor alpha. These funds look diversified on paper, but their edge can decay once enough assets chase the same signal and implementation costs rise. The tradeable signal is not the ETF itself so much as the persistence of relative strength in the underlying basket; if that fades, the momentum premium could disappear quickly.

Key Decisions for Investors

• Tactically overweight NVDA/AMD/MU/AMAT on pullbacks for a 3-6 week momentum continuation trade; use a tight stop if SMH underperforms SPY for two consecutive weeks.
• If you want a relative-value expression, go long a semiconductor momentum basket (NVDA/AMD/MU/AMAT) vs short SPY for 1-3 months; thesis is ETF-style flow reinforcement into winners rather than broad market beta.
• Reduce enthusiasm for AAPL and GOOGL as momentum vehicles unless price action re-accelerates; they are higher-quality businesses, but the flow signal here favors names with stronger trailing returns and more torque.
• Watch for a reversal trigger: if semis fail to hold post-earnings gains or the relative strength of NVDA/AMD vs the S&P 500 rolls over below the 50-day trend, cut momentum exposure quickly; this is a regime trade, not a valuation trade.