Markets may be fretting over Federal Reserve policy and economic soft landings, but a handful of momentum ETFs have quietly been stealing the show. Across the array of factor funds, momentum has performed best this year. More than $1 billion flowed into momentum ETFs in May alone, making it the category with the highest organic growth — roughly 5% month-over-month. These funds, designed to ride out the market’s hottest trends, have racked up impressive returns in 2025 — leaving the S&P 500 in the dust. But what’s driving this surge, and can the momentum trade sustain its edge?
Note: The exhibit above shows several factor baskets Goldman Sachs uses to track returns since the beginning of 2024. The exact systematic approaches ETF issuers use will differ from these baskets, but the chart highlights how momentum investing can deliver competitive returns, even when matched up against growth. On the other hand, it also shows the additional volatility that comes with the territory.
Momentum ETFs are meant to be disciplined plays on persistent market trends. Many investors may not feel they have the mental fortitude to stay in stocks that may appear to have run their course or whose valuations are floating around lofty territory. These strategies tend to perform best when the market is oversold, allowing investors to ride the reversal in a meaningful way. However, in the long run, they still offer competitive returns.
Money Chasing Momentum Names
Flows into momentum funds seemingly stalled out earlier this year. However, the tide has turned for them ever since global equities snapped back in early May. The iShares MSCI USA Momentum Factor ETF (MTUM) has been a standout performer among factor ETFs, consistently outpacing the broader market going back to its inception in 2013. The $17 billion fund rose to an historic intraday high last week, now up more than 13% for the year on a total return basis. That compares to the S&P 500’s gain of 1.5%. Flows have followed suit — with north of $2 billion in net inflows pouring into the fund year-to-date.
MTUM tracks a custom index that uses a rules-based, quantitative strategy to select and weight mid- and large-cap U.S. stocks with high momentum scores. Right now, top holdings include big tech and consumer discretionary names (Broadcom, Meta Platforms, Netflix and Tesla), financials (Berkshire Hathaway, JPMorgan and Visa) and consumer staples (Walmart, Costco and Coca-Cola). Nvidia is absent from the list, but strong earnings guidance around AI is certainly powering the broader chip space higher. The fund rebalances on a quarterly basis. Financial services are getting a boost from persistent inflation fears and expanding margins. Meanwhile, consumer staples are benefiting from defensive positioning and concerns about economic growth. Nvidia is absent from the list, but strong earnings guidance around AI is certainly powering the broader chip space higher. The fund rebalances on a quarterly basis.
Jay Jacobs, U.S. Head of Equity ETFs at BlackRock, said that right now, momentum at the single-stock level is working.
“Even despite some of the uncertainty and some of the wavering in the markets in April, those strong momentum names have really carried through in their performance throughout the year,” he said. “And that’s really helped drive performance for the product.”
Less Concentration Risk
Similarly, Invesco’s S&P 500 Momentum ETF (SPMO) has seen great success this year. The fund has accrued $3.5 billion in net inflows and is up 12% on a total return basis. SPMO tracks high-momentum stocks within the S&P 500 and rebalances on a biannual basis. Holdings are given a momentum score and weighted by market capitalization. Right now, the fund’s top three holdings are Nvidia, Meta and Amazon.
Nick Kalivas, Head of Factor and Equity ETF strategy at Invesco, told me that, to some degree, investors have been chasing performance.
“SPMO has been able to own the market leaders and exploit the secular and cyclical trends present in the market,” he said. “It is picking up the companies which have been able to rise to the top in a profit-starved market, are benefiting from the AI boom and can navigate economic uncertainty linked to tariff and macro policy.”
He added that unlike some factor strategies, the fund does not grapple with extreme concentration risks and is overall underweight the so-called Magnificent Seven names.
Emphasizing Value
Finally, VictoryShares offers the U.S. Small Mid Cap Value Momentum ETF (USVM), with a strong emphasis on value and favorable price momentum traits. The fund has seen total assets triple since launching in 2017. Additionally, it has attracted $650 million in net inflows year-to-date, making it the third most popular momentum ETF out there.
Momentum ETFs effectively harness the upward momentum of high-performing stocks. They often outperform broader indices and traditional strategies during favorable market conditions. But investors should remain mindful of the heightened volatility tied to momentum investing and the need for disciplined portfolio management. Still, it’s a convenient way to invest if you believe the trend is your friend.
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