Momentum can be hard to stop when it gets going. Right now, momentum is favoring ETF flows into equities. ETF investors can ride the wave beyond with the Invesco S&P 500 Momentum ETF (SPMO).

SPMO seeks to track the investment results (before fees and expenses) of the S&P 500 Momentum Index (the “underlying index”). The fund generally will invest at least 90% of its total assets in the securities that comprise the underlying index. The underlying index is designed to track the performance of approximately 100 stocks in the S&P 500® Index that have the highest “momentum score.”

In general, momentum is the tendency of an investment to exhibit persistence in its relative performance; a “momentum style” of investing emphasizes investing in securities that have had better recent performance compared to other securities.

SPMO has almost mirrored its 2019 performance gain of 25.93% with a 25.66% effort thus far in a pandemic-ridden 2020. In a strong November for equities, it’s teetering right around its 50-day moving average and hasn’t reached overbought territory in its relative strength index (RSI) indicator.

SPMO Chart

The Risk Is Back On

At the height of the pandemic, bonds became a prime safe haven choice, but it appears investors are feeling that penchant for risk again. Per a Bloomberg article, “Equity exchange-traded funds have overtaken their fixed-income peers for inflows this year thanks to November’s epic stock rally.”

“Investors are redeploying cash into stocks following a series of breakthroughs in the race for a Covid-19 vaccine and amid mounting optimism for growth,” the article said. “Beaten-down areas of the market have benefited the most, with small caps and energy shares posting their strongest months on record in November. Global equities notched their largest monthly gain since at least 1988, while multiple major benchmarks are at or near all-time highs.”

“The prospect of multiple Covid-19 vaccines on the horizon, combined with diminished uncertainty over the presidential transition, boosted investor appetite for stocks. Equity ETFs reflected that,” said Nate Geraci, president of investment-advisory firm the ETF Store. “Given that November was a historic month for stocks and with some investors questioning the risk/reward profile of bonds, it’s no surprise to see equity ETF inflows surpass bond ETFs.”

“Flows follow performance,” said Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors. “Investor confidence over the past couple months has also benefited greatly from positive vaccine news.”

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