Investing in exchange-traded funds, or ETFs, like SPMO and SPY can offer a straightforward and cost-effective way to invest in the U.S. stock market. While both funds are tied to the S&P 500 index, they offer different investment strategies with SPMO being designed for active investors who want greater growth and SPY catering to more passive investors. In this article, you’ll learn the basics of both ETFs, how they perform, and which is more ideal for your investment goals.
Why Invest In Funds Like SPMO And SPY?
ETFs like SPMO and SPY are cost-effective and convenient instruments to invest in stock portfolios. Rather than buying individual stocks to create a diversified U.S. stock portfolio, you can buy an ETF which tracks an index like SPY which tracks the S&P 500 index for a low expense. ETFs are also liquid and easy to sell during market hours, often have low expense ratios and are considered more tax efficient than mutual funds.
Investors are likely to buy SPMO or SPY shares for different reasons. SPMO is based on the S&P 500 Momentum Index which tracks S&P 500 stocks which have a high momentum score and have positive price performance. As mentioned, SPY tracks the S&P 500 and is more suitable for passive investors who wish to buy and hold, in contrast to SPMO which is more suitable for active investors who wish to trade this ETF.
The Basics Of SPMO And SPY At A Glance
SPMO and SPY are both ETFs which track S&P 500 indexes with SPY providing broad market exposure by tracking the S&P 500 index itself while SPMO tracks the Invesco S&P 500 Momentum Index which is a subset of stocks from the S&P 500 with recent positive price performance. In this section, you’ll learn the basics of both ETFs, their key benefits and considerations before choosing one to buy.
What Is SPMO?
The Invesco S&P 500 Momentum ETF (SPMO) is an ETF which tracks S&P 500 stocks which have a high momentum score and positive price trends. SPMO momentum indicators include significant price increases over a period, adjusted for volatility, ensuring chosen stocks are those with smoother price increases.
SPMO can deliver high short-term returns due to overperformance during long bull markets compared with SPY but also more volatility as stocks which have surged in price can experience corrections. SPMO is ideal for investors who wish to ride a wave of performance and not have performance knee-capped by low-performing sectors.
What Is SPY?
The SPDR S&P 500 ETF Trust (SPY) is a more simple ETF which tracks the S&P 500 index offering exposure to 500 large-cap U.S. stocks, weighted by market capitalization. SPY offers broad-market diversification across sectors of the U.S. economy with a low expense ratio and high liquidity.
SPY is not actively managed and doesn’t attempt to beat the market as it essentially tracks the market. This ETF is most suitable for investors who wish for consistent long-term growth with less volatility than SPMO. For those interested in actively investing in stocks, rather than SPY’s passive strategy, you should read about the best stocks for 2025.
Key Differences Between SPMO and SPY
Historical Performance Comparison
SPMO has historically outperformed SPY in bull markets, with a 45.81% return in 2024 compared to SPY’s 24.89%. Over the past 1, 3 and 5 years, SPMO consistently delivered higher returns (45.83%, 19.95% and 19.80%) than SPY (26.23%, 11.81% and 15.08%), benefiting from its momentum-based strategy.
However, SPMO’s performance can lag during market downturns, as seen in 2022, when it fell 10.46%, while SPY declined 18.17%. Unlike SPY, which has a 10-year track record with a 13.66% annualized return, SPMO lacks extensive bear market history, having launched in 2015. SPY remains a stable long-term investment, while SPMO offers higher growth potential with greater volatility. For investors interested in other growth-focused strategies, review this list of the best growth stocks in 2025.
Comparing SPMO And SPY Holdings
SPY and SPMO both hold large-cap U.S. stocks based on the S&P 500. SPY’s market-cap weightings lean towards large technology companies like Apple, Microsoft and NVIDIA. 31.97% of SPY is concentrated towards technology but also includes allocations from lower-performing industries.
SPMO holds more high-momentum stocks with a great weighting towards Amazon and NVIDIA and more exposure to financial firms than SPY (23.15% vs 13.65%). The top 10 holdings in SPMO make up almost 60% of the portfolio compared to SPY’s 36.18%. SPMO therefore is more suitable for growth while SPY is more ideal for stability as SPMO tilts its holdings more towards outperforming firms.
SPMO Vs. SPY Dividend Yields
SPY boasts a higher dividend yield of 1.17% compared to SPMO’s yield of 0.46%. SPY is therefore a better investment vehicle choice for investors focused on earning income from their investments. SPY holds more dividend-paying stocks versus growth-focused stocks held in SPMO.
SPMO’s momentum-focused stocks often reinvest earnings towards growth rather than distributing earnings as dividends to investors. Investors seeking dividend income should invest in SPY rather than SPMO. For investors interested in dividend investing specifically, review this list of dividend aristocrats, companies who have increased their dividend in each of the past 25 consecutive years.
Market Sentiment And Trends
Market sentiment shows that analysts are bullish on both SPMO and SPY but with different average expectations for growth. According to TipRanks, 100 analysts have set the price target for SPMO to $115.03, an 11.60% increase from its current price of $103.07. Meanwhile, 1,007 analysts have set the price target for SPY to $763.91, a 24.93% increase from the current price of $611.49.
Christopher Lange, Head of Investments at Cache, a modern brokerage for large stock positions, shares that “if we continue to see strong market returns like we have over the last 12-24 months, we would expect strategies like SPMO to continue to provide strong returns. Momentum strategies like SPMO offer attractive return opportunities in these environments.
That said, investors should be cautious, SPMO and other similar strategies are likely to experience challenges when the market falls, especially if it is a sharp move down. These strategies often perform well when the existing market conditions prevail, and struggle when there is a change in market conditions. I would advise investors to be cautious about allocating too much to SPMO — or related strategies — at these elevated market levels.”
SPMO And SPY Risk Comparisons
SPY offers broad market exposure to large-cap U.S. stocks with lower risk and volatility than SPMO through diversification across sectors and the passive nature of the index. SPY has performed consistently delivering the standard for returns over decades making it a more ideal option for risk-averse investors.
SPMO has delivered higher returns than SPY historically since its inception in 2015 but it has not been tested during an extended bear market. Its outperformance of SPY could also lead to worse performance in bear markets as well as greater price swings during volatile periods. For investors seeking greater performance, who are also tolerant to risk, SPMO could be a superior option.
Tax Considerations
As discussed, SPMO follows a momentum strategy which has higher turnover, meaning there is more frequent buying and selling of stocks. This can lead to more realized capital gains which can result in investors being subject to more short-term capital gains taxes. If investors are considering holding their SPMO shares in a taxable account, they should consider how taxable distributions could result in higher taxes and how holding SPMO in a retirement account like an IRA would be more optimal.
SPY, in contrast, has lower turnover and fewer taxable events for investors. SPY is a more tax-efficient option for long-term investors because of fewer capital gains distributions.
SPMO vs. SPY: Pros and Cons
SPMO and SPY offer different advances depending on your strategy. SPMO delivers higher return potential through its momentum investing strategy while SPY delivers more stable and broader market exposure. Below are the key pros and cons of each ETF.
SPMO Pros
- Higher Return Potential: SPMO has outperformed SPY historically in bull markets due to its momentum-based prioritization of stocks with strong price trends.
- Strong Performer Focus: SPMO excludes worse-performing companies from the S&P 500 in its index, reducing the drag of their low performance.
- Higher Short and Mid-Term Returns: Over 1, 3 and 5-year periods, SPMO has greater annual total returns than SPY.
SPMO Cons
- Greater Volatility: Momentum ETFs like SPMO can experience greater downturns when a concentrated sector or the market declines.
- More Turnover: SPMO replaces stocks more aggressively during rebalances which can lead to higher transaction costs and inefficiencies with taxes compared with SPY.
- No Long-Term Data: SPMO’s performance during extended bear markets is uncertain because it was created less than 10 years ago.
SPY Pros
- Broad-Market Diversification: SPY offers more diversification across sectors and offers less concentration risk.
- Lower Volatility: SPY has less extreme price swings than SPMO.
- Dependable Long-Term Growth: SPY has a longer track record than SPMO and has compounded returns over decades.
SPY Cons
- Worse Short-Term Growth Potential : SPY includes underperforming stocks which can stunt returns.
- No Active Selection: SPY doesn’t rotate out of weaker stocks which slows returns during volatile market periods.
- Market-Dependant Performance: As SPY mirrors the S&P 500, there is less of an attempt to mitigate losses during market downturns.
Investor Suitability
SPMO is more ideal for active investors who believe in momentum investing and are able to tolerate greater volatility in their portfolio for potential higher returns. SPMO is also ideal for short-term trading opportunities, for example, taking advantage of a short-term bull run. SPMO is also ideal for investors who are comfortable with less historical data on SPMO returns during an extended bear market.
SPY is more ideal for long-term investors seeking broad market exposure and U.S. stock diversification. SPY is also more ideal for retirement portfolios and investors less comfortable with cutting-edge strategies like momentum investing with less of a track record during different types of markets. SPY is also ideal for investors who want a higher dividend yield and lower-expense ratio.
Bottom Line
SPY and SPMO offer distinct investment opportunities to investors with SPMO being more focused on momentum-based growth with higher returns in bull markets while SPY delivers consistent growth with less volatility. Depending on your investment goals, whether you’re seeking higher short-term growth or long-term sustainable growth, each ETF has its advantages.
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