Forget the Plain S&P 500. The Momentum Version Captured the Run and Beat It by 15% This Year

The post Forget the Plain S&P 500. The Momentum Version Captured the Run and Beat It by 15% This Year appeared first on 24/7 Wall St..

For most index investors, the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) is the default core holding: cheap, liquid, and broadly representative of U.S. large caps. SPY tracks the S&P 500 Index at a 0.0945% expense ratio, which is why it has functioned as the bedrock allocation for retail and institutional portfolios alike. SPY’s role as a core holding is well established. The question worth asking in 2026 is whether a closely related factor ETF that owns most of the same names in different proportions, has done a better job of capturing the run the S&P 500 has actually delivered.

That cousin is the iShares MSCI USA Momentum Factor ETF (NYSEARCA:MTUM). Through June 16, 2026, MTUM is up 30.52% year-to-date, compared with SPY’s 10.34%, a gap of roughly 20 percentage points. The fund’s structure explains most of that lead.

What SPY Is Actually Holding Right Now

SPY’s weighting is mechanical: market cap decides. That has produced a portfolio where Information Technology is 32.91% of assets, and the top three names, NVIDIA at 7.81%, Apple at 6.69%, and Microsoft at 4.54%, combine for roughly 19% of the fund. That concentration is the source of SPY’s gains over the past two years, but it is also the ceiling on its upside. SPY weights leaders in proportion to their market cap, rather than trend strength.

How MTUM Selects Differently

MTUM is designed to do exactly that latter thing. The fund tracks the MSCI USA Momentum SR Variant Index, which screens U.S. large- and mid-cap stocks for relatively higher price momentum using risk-adjusted six- and twelve-month returns. The index is reconstituted semiannually, in May and November, so the holdings rotate into whichever cohort of large caps has been compounding the strongest into the rebalance date. In a year when AI-linked semiconductors, hyperscalers, and a handful of platform names have led, MTUM ends up overweighting those winners and underweighting the laggards that still drag on a cap-weighted index. SPY owns the laggards too, while MTUM excludes them by design.

The Edge, Quantified

The current-year gap is the headline, but the longer windows matter more for a core swap decision. Over the trailing one-year window, MTUM returned 42.90% versus SPY’s 27.13%. Over five years, MTUM is up 104% against SPY’s 89%, a lead of about 15 percentage points. And over ten years, the spread widens to MTUM’s 391% versus SPY’s 325%. In every measured window from one to ten years, the momentum tilt is ahead.

The fee differential takes some of that back, but not much. MTUM charges 0.15% against SPY’s 0.0945%, a gap of roughly 5.5 basis points. On a $50,000 position, that is about $28 a year in extra fees, a trivial cost relative to the historical return spread.

The Tradeoffs Are Real

Momentum’s weakness is the flip side of its strength. The strategy buys what has been working, meaning it buys late in rallies and sells late in corrections. At inflection points, when leadership rotates from growth to value or from large-cap to small-cap, MTUM can lag SPY sharply for several quarters before the next semiannual rebalance catches up. The portfolio also turns over more frequently than SPY, which has near-zero turnover, making MTUM less tax-efficient in a taxable account. Distributions of short-term capital gains are possible in years of heavy rotation.

How to Think About the Swap

For investors holding SPY in a tax-advantaged account, the mechanics of switching are simple: sell SPY, buy MTUM, no tax consequence. In a taxable account, the embedded gains in a long-held SPY position can make a full swap expensive. A partial allocation, moving a portion of new contributions or rebalancing flows into MTUM rather than liquidating SPY, lets an investor add the momentum tilt without realizing the existing gain.

The Decision in Front of You

SPY remains a defensible core position. The question is whether the cap-weighted index is the most efficient way to own the names already driving the market. In 2026, the cap-weighted index was not the most efficient way. MTUM owns the same broad universe of U.S. large caps, weights them by what is actually trending, and charges roughly 5 basis points more for the privilege. Whether that tradeoff fits depends on time horizon, account type, and tolerance for the whipsaw risk that comes with any momentum strategy.

The post Forget the Plain S&P 500. The Momentum Version Captured the Run and Beat It by 15% This Year appeared first on 24/7 Wall St..