SPMO vs VUG

#What this plan actually returned

These are real results, not estimates. We ran $10,000 up front plus $500 a month from September 9, 2016 to September 9, 2026 (10.0 years), with dividends reinvested, against actual daily closing prices for each fund.

#Reading the result

SPMO finished about $50,000 ahead on identical contributions, an annualized gap of roughly three and a half percentage points. That is a substantial margin, and momentum as a factor has a long documented history across markets and decades, so this is not purely an artifact of one lucky window.

The drawdown column is where it gets more interesting, and it runs against intuition. SPMO’s worst decline was about 31 percent; VUG’s was about 36 percent. The momentum fund, which most people would guess is the riskier of the two, had the shallower worst case in this window.

#Why the momentum fund fell less

The explanation is in the rebalancing schedule rather than in anything about the underlying companies. SPMO reconstitutes periodically based on trailing risk-adjusted price performance. When a group of stocks stops performing, the next reconstitution reduces or removes them. That is a mechanical trend-following behavior, and in a decline that develops over months rather than days, it can move the portfolio out of the worst performers partway through.

The dates support that reading. VUG’s worst window ran from November 19, 2021 to November 3, 2022, roughly a year of repricing in long-duration growth stocks as rates rose. SPMO’s worst window was the February to March 2020 crash, a five-week collapse that was over before any rebalance could respond. Momentum strategies tend to handle slow trends reasonably and fast shocks poorly, which is exactly the pattern here.

#What each fund actually selects

SPMO(Invesco S&P 500 Momentum ETF) starts from the S&P 500 and keeps roughly the 100 stocks with the strongest risk-adjusted price momentum over a trailing lookback period, weighted by a combination of momentum score and market capitalization. The selection criterion is price behavior. It does not ask what a company earns or what it is worth.

VUG(Vanguard Growth ETF) tracks a large-cap growth index that classifies companies using fundamental measures: earnings growth, sales growth, and return on assets among them. It holds several hundred stocks and turns over far less, because a company’s fundamental classification changes slowly.

Their holdings overlap heavily at any given moment, since the largest US growth companies have also tended to have the strongest momentum. The difference is what happens when that stops being true: SPMO rotates out and VUG largely does not.

#The cost this backtest does not show

Momentum strategies trade far more than fundamental ones. Every reconstitution generates transactions, and transactions generate costs that are only partly captured in an expense ratio. More importantly for a taxable account, turnover inside a fund can generate capital gains distributions that you owe tax on in the year they occur, regardless of whether you sold anything.

This simulation is pre-tax and excludes brokerage commissions, which is stated in the methodology on How It Works. For a high-turnover strategy held in a taxable account, that omission favors SPMO in the table above by more than it favors VUG. In a tax-advantaged account the distinction largely disappears.

#What to test

• →Add VOO as a third ticker. Both of these funds should be measured against the plain index before being measured against each other.
• →Run a window ending in 2022 rather than today, so the period finishes in a drawdown instead of after a recovery. Factor strategies look very different depending on where you stop.
• →Note that SPMO's history is short. It launched in late 2015, so no window here includes 2008 or the dot-com period.
• →Compare the gains share versus contributions share for each, rather than only the ending balance.