If you follow r/ETFs or r/Bogleheads, you’ve seen the momentum ETF debate heat up. The main contenders:
- SPMO (Invesco S&P 500 Momentum) — 12-month lookback, semi-annual rebalance, 0.13% ER
- FMTM (Fidelity Momentum Factor) — 6-month lookback, monthly rebalance, equal-weight, 0.29% ER
- MTUM (iShares MSCI USA Momentum) — 6+12 month blend, semi-annual, 0.15% ER
- QMOM (Alpha Architect Quantitative Momentum) — quality-filtered momentum, 0.39% ER
These are all solid products. SPMO has had an incredible run recently — up 44% in 2024. But there’s a fundamental limitation baked into every momentum ETF that tactical momentum strategies don’t have.
The Problem: Momentum ETFs Are Always Long
A momentum ETF rotates within equities — it buys the winning stocks and drops the losers. But it never asks the question: should I be in equities at all right now?
In 2008, MTUM (or its backtest equivalent) dropped 40%+ alongside the rest of the market. The momentum factor couldn’t help because everything was going down. Tactical momentum strategies solve this by adding a crash protection layer. When broad market momentum turns negative, they rotate to bonds, gold, or cash.
Head-to-Head: The Numbers
Here’s how popular momentum ETFs compare to tactical momentum strategies over their common backtest periods.
| Strategy / ETF | CAGR | Max DD | Sharpe | Vol | Years |
|---|---|---|---|---|---|
| Momentum ETFs (buy & hold) | |||||
| SPY (S&P 500 benchmark) | 10.2% | -50.8% | 0.62 | 15.2% | 33 |
| SPMO (since 2015 live) | 14.8% | -31.5% | 0.82 | 16.1% | 11 |
| MTUM (since 2013 live) | 13.1% | -34.2% | 0.72 | 16.8% | 13 |
| FMTM (since 2016 live) SHORT TRACK RECORD | 12.4% | -29.1% | 0.76 | 15.8% | 9 |
| Tactical Momentum Strategies (backtested 28-39 years) | |||||
| ADM (Accelerating Dual Momentum) | 14.1% | -25.8% | 0.95 | 15.2% | 33 |
| HAA (Hybrid Asset Allocation) | 13.1% | -19.8% | 1.06 | 12.3% | 29 |
| VAA (Vigilant Asset Allocation) | 13.2% | -20.9% | 1.06 | 12.4% | 33 |
| GEM (Global Equities Momentum) FREE | 11.1% | -33.7% | 0.78 | 14.9% | 35 |
| BAA-G12 (Bold Asset Allocation) | 11.0% | -14.5% | 1.10 | 9.9% | 29 |
ETF returns are live total returns from inception. Strategy returns are backtested using total-return data with monthly rebalancing. Past performance does not guarantee future results.
The FMTM Wild Card
FMTM deserves a special mention. It’s the newest of the bunch (launched 2016) and doesn’t have a full-cycle track record yet — it hasn’t been through a 2008-style crash. But its design choices are interesting: monthly rebalancing (vs. semi-annual for SPMO/MTUM) and equal-weight construction mean it adapts faster and avoids concentration risk.
In 2025’s choppy, sideways market, FMTM is up roughly 9–10% YTD while SPY is down 4% and SPMO has been flat. That’s exactly the kind of regime where traditional momentum ETFs struggle — and where FMTM’s monthly rotation is supposed to shine. Too early to call it definitively better, but it’s off to a strong start in the hardest conditions for momentum.
Still, FMTM shares the same fundamental limitation as every other momentum ETF: it’s always long equities. When the next real crash hits, monthly rebalancing won’t save you if there’s nowhere to rotate within equities. That’s where tactical strategies have an unfair advantage.
What Stands Out
1. Drawdown protection is the real edge
SPMO and MTUM both suffered 30%+ drawdowns during COVID-2020 and the 2022 bear market. HAA limited its worst drawdown to -19.8% over 29 years. BAA-G12 kept it to just -14.5%. The crash protection mechanism is simple: when a breadth indicator drops below a threshold, the strategy rotates to safe havens.
2. Risk-adjusted returns are dramatically better
Sharpe ratio: SPMO 0.82 vs. HAA 1.06 vs. BAA-G12 1.10. BAA-G12 runs at 9.9% vol vs. SPMO at 16.1% — 40% less volatility for similar returns.
3. Rebalancing frequency matters — but not how you think
The real question isn’t how often you rebalance — it’s what you rebalance into. Tactical strategies rotate across entire asset classes (equities, bonds, gold, cash). A momentum ETF rotates within one asset class (US large-cap equities).
4. The blending opportunity
A blend of 3-4 tactical momentum strategies with low correlation produces a portfolio smoother than any individual component. HAA + ADM + BAA-G12 at equal weights produces ~12% CAGR, -12% max drawdown, and Sharpe above 1.2.
When Momentum ETFs Win
- Simplicity — buy and hold, no monthly rebalancing decisions
- Tax efficiency — lower turnover, long-term capital gains
- No tracking error — you get exactly what the index delivers
- Recent performance — SPMO’s 44% return in 2024 is hard to argue with
Explore Further
We track 86+ strategies on BestFolio — including all the tactical momentum strategies mentioned above with 30+ years of backtested data. Explore GEM (free) or browse all 38 strategies.
Important Disclaimer: This article is for educational and research purposes only. It is not investment advice. Backtested results are hypothetical, do not reflect actual trading, and do not guarantee future performance.