Chapter 9. A Momentum Strategy for Market Concentration: SPMO
Introduction: The Blind Spot of the Shield and the Evolution of Shareholder Returns
I built a relatively defensive core around VOO (an S&P 500 index fund) and SCHD. During the 2022 decline, that structure helped keep volatility within a range I could tolerate. From 2023 onward, however, the market also made the opportunity cost of that approach clear.
As gains became concentrated in Apple, Microsoft, Nvidia, Meta, and other members of the Magnificent 7 (M7), strategies with lower exposure to them fell further behind. SCHD, which I had expected to play a defensive role, also lagged during this period, making its opportunity cost visible. Why did the strategy I valued in Chapter 8 struggle in this environment?
The answer lay in the 'evolution of the shareholder return paradigm—a change in environment'.
- Evolution from Dividends to Buybacks: In past traditional industries, when a company reached maturity, it was natural to reduce investment and increase dividends. But modern Big Tech companies are different. Dividends create significant financial rigidity for a company because once raised, they are very hard to cut. On the other hand, 'Share Buybacks (and burning)' offer flexible decision-making while directly increasing EPS (Earnings Per Share) by reducing the number of outstanding shares. Big Techs chose to boost shareholder value through flexible and destructive share buybacks instead of rigid dividends.
- The AI Revolution and the Swamp of Infinite CapEx: To make matters worse, the AI revolution erupted. Even though the technology had matured, an era arrived where Big Techs had to pour astronomical Capital Expenditures (CapEx) into data centers and AI chipsets just to survive. As massive capital was sucked into reinvestment, the traditional 'dividend momentum' completely vanished.
As a result, in this new environment where the trend of shareholder returns evolved from dividends to share buybacks, SCHD's logic of strictly filtering companies solely based on 'dividend metrics' revealed a severe structural limitation (blind spot). SCHD's audition completely kicked out the great M7 companies that dominated the post-2023 era from my portfolio. From the perspective of evolutionary theory, the environment had rapidly changed, but by stubbornly sticking to the past survival laws (dividends), it was on the verge of being eliminated.
Yet, Why I Do Not Abandon SCHD
Then why do I continue to invest in SCHD without abandoning it, even though it stumbled in the changed environment? Market environments can cycle, and the relative performance of growth, value, and dividend stocks changes over time. I concluded that dividend cash flow might help me follow my rules through another recession or inflation shock. Dividends can still be cut, however, and they do not guarantee protection from losses.
A shield does not exist to stab the enemy to death in a war (to generate high returns), but to block critical hits and increase survivability so that I am not kicked out of the market.
However, holding only a shield (SCHD) was going to make me a pauper. While VOO (the market index) was flying into space riding Nvidia, my account, focused solely on defense, was hovering in place, forcing me to endure terrible FOMO (Fear Of Missing Out). "No matter how sturdy the shield is, in an era where enemies are flying around with spears, if I only play defense, my mentality will eventually dry up and die."
I had to painfully acknowledge this cruel reality through actual investing. However, I didn't simply intend to chase blind returns out of FOMO. What I truly needed was a chameleon-like weapon capable of adapting more swiftly than anyone else to unpredictably changing industry trends and new market environments.
This period was the key turning point where, to complement my purely defensive strategy, I began to combine an attacker (spear) that adapts most astutely to the evolving environment, completing my own earnest 'Factor Core' investment philosophy.
1. Riding on Greed: Unsealing the Spear of Attack, SPMO
Shedding tears of blood while fighting the market, I finally unsealed humanity's second nature found by Mark Carhart in past history: 'Momentum'. I incorporated Invesco's Alpha engine, SPMO (Invesco S&P 500 Momentum ETF), into my portfolio.
SPMO's investment philosophy is the exact opposite of value investing (SCHD); it is extremely violent and intuitive. "I don't ask or care about fundamentals, financial statements, or dividend yields. I don't care if the public runs madly or a bot presses the button. I solely extract the top 100 companies within the S&P 500 that have been riding the craziest upward trend (Momentum) recently, and mechanically jump onto the back of that running horse!"
SPMO's Unrivaled Weapon Overcoming NASDAQ (QQQ): The Chameleon Strategy
If my only goal had been exposure to a Big Tech rally, the Nasdaq-100 (QQQ) was another option. I chose SPMO because selecting momentum stocks from the S&P 500 suited my purpose better than an exchange-listing rule. That does not make SPMO consistently superior to QQQ; the two indexes simply follow different construction rules.
- Transcending Foolish Exchange Bias: QQQ is not 'the top 100 best US companies', but merely the top 100 non-financial companies listed on the 'NASDAQ exchange'. Because of this administrative shackle, the momentum of great companies listed on the New York Stock Exchange (NYSE) like Visa, Johnson & Johnson, and Warren Buffett's Berkshire Hathaway is entirely excluded. On the other hand, SPMO, which uses the entire S&P 500 as its base, ignores the stupid partition of exchanges and snatches the true leading stocks where the money flocks, looking solely at the 'upward trend'.
- Only Riding the True Runners (Winner-Takes-All): The core of the M7 concentration post-2023 was not that money flocked to the 'entire NASDAQ tech sector', but that money was sucked specifically into 7 exceptional companies enjoying the AI boom. While NASDAQ unconditionally includes tech stocks whose growth has stopped and are moving sideways, SPMO does not make the mistake of buying the entire NASDAQ in bulk. It mechanically filters only the extreme upward momentum of the M7, sharpening the tip of the portfolio's spear to the extreme.
- The 'Chameleon' Survivability Avoiding Bubble Bursts: QQQ is completely trapped in being Tech-Heavy. If the tech bubble bursts and value stocks or energy stocks lead the market like in the dot-com era, QQQ is shackled to drown with the collapsing tech stocks. But SPMO is a 'Chameleon'. Right now, it's packed with IT because tech stocks are rising, but if market leadership shifts to energy or healthcare, SPMO ruthlessly dumps tech stocks and jumps onto the backs of the new winners. This structural smartness of parasitizing only on the surviving winners to avoid bubble bursts is the ultimate reason I chose SPMO over QQQ.
During a period when AI-related large-cap stocks kept rising, SPMO held many of them at substantial weights and benefited from the trend. The same rules can magnify losses when trends reverse abruptly. In my portfolio, I use that characteristic as a more aggressive tool with a different role from the defensive allocation.
2. SPMO's Ruthless Yet Sophisticated Risk Management Techniques
It's a mistake to think that SPMO is simply a dangerous casino that blindly buys skyrocketing stocks. If you dissect the internal algorithm of the S&P 500 Momentum Index that this ETF tracks, you will discover a surprisingly sophisticated risk management system.
① 12-Month Filtering to Avoid 'Short-term Reversal'
First, it selects the top 100 stocks (20%) out of the S&P 500 universe. Here, many people misunderstand and think, "It probably just buys the stocks that went up the most in the last year, right?" but in reality, it's different. It uses the 'recent 12-month return', but excludes the most recent '1 month' from the calculation. (i.e., it only looks at the return from 12 months ago to 1 month ago.) Why exclude the most recent month? Because stocks that suddenly spike due to short-term abnormal news often show a 'short-term reversal' (decline) right after. This is a mechanical safety net to avoid this noise.
② The Core is 'Risk-adjusted Momentum'
This is the most important part. It doesn't just blindly select a stock because its return is 100%.
- Momentum Score = (Recent 12-Month Return) ÷ (Volatility) Here, Volatility means the standard deviation of daily returns over the recent 252 trading days.
For example:
- Stock A: Return 120% / Volatility 60% = Score 2.0
- Stock B: Return 90% / Volatility 20% = Score 4.5 Looking only at returns, Stock A is 1st, but SPMO's algorithm selects Stock B, which rose steadily with less risk. Rather than messy stocks that repeatedly plunge and surge, it prefers stocks drawing a "clean upward trend". This is almost identical to the Sharpe Ratio concept that I emphasized so much in Chapter 1, which measures 'return per unit of risk'. (It's just missing the risk-free rate in the numerator.) It's a solid financial approach that mechanically evaluates the 'quality' of returns, not just the 'size'.
③ Exquisite Weight Control via Market Cap and Capping
Another common misconception in the final weight calculation is thinking, "It probably gives high weights in the order of momentum scores." Weight is not just based on the momentum score ranking, but is based on [Market Cap × Momentum Score]. On top of this, a Capping rule is applied to prevent specific mega-cap companies from swallowing the index whole.
Because of this complex formula, a very interesting result occurred in 2026. If we look simply at market cap or absolute return, NVIDIA should have been overwhelmingly 1st. So why did Micron rise to 1st place with the maximum weight (around 11%)? NVIDIA was affected by both its market capitalization and the index cap. At the time, Micron appears to have received a higher momentum score because its past return was high relative to measured volatility. Index weights depend on the formula and rebalance date, so this example should not be read as a current holding snapshot.
At this point, value investors will ask: "Wait, Micron already went up 180%, and you're adding 11% more at the very top? Are you crazy?" Exactly. This is the very philosophy of momentum investing.
- Value Investing: "A stock that went up a lot is expensive."
- Momentum Investing: "A stock that went up a lot has a high probability of continuing its upward trend." (Law of Inertia)
The index reconstructs its portfolio twice a year (March and September). Rule-based replacement may reduce attachment driven by break-even psychology, but it can also create turnover, taxes, and losses when trends reverse; it is not complete risk management.
3. A Chameleon-like Shift: Portfolio Changes from 2021 to 2026
The result of this mechanical rebalancing is the 'Chameleon-like' survivability mentioned earlier. In fact, if you look at the changes in the Top 5 companies by year to see how SPMO shed its skin and switched to new market leaders amidst the extreme macroeconomic waves over the past few years, it's enough to give you goosebumps.
| Year | Market Theme | SPMO Top 5 Holdings | Exchange | Weight |
|---|---|---|---|---|
| 2021 | Liquidity & Reopening | 1. Tesla 2. NVIDIA 3. JPMorgan Chase 4. Alphabet 5. Target | NASDAQ NASDAQ NYSE NASDAQ NYSE | 7.5% 6.2% 5.1% 4.8% 4.0% |
| 2022 | Inflation & Rate Hikes | 1. ExxonMobil 2. Chevron 3. UnitedHealth 4. Eli Lilly 5. Merck | NYSE NYSE NYSE NYSE NYSE | 8.1% 7.5% 6.4% 5.2% 4.5% |
| 2023 | Dawn of AI (ChatGPT) | 1. NVIDIA 2. Meta Platforms 3. Broadcom 4. Eli Lilly 5. Alphabet | NASDAQ NASDAQ NASDAQ NYSE NASDAQ | 9.2% 8.5% 6.1% 5.5% 5.0% |
| 2024 | Magnificent 7 Monopoly | 1. NVIDIA 2. Microsoft 3. Meta Platforms 4. Amazon 5. Eli Lilly | NASDAQ NASDAQ NASDAQ NASDAQ NYSE | 11.5% 8.2% 7.8% 6.5% 5.5% |
| 2025 | AI Infra & Platforms | 1. NVIDIA 2. Broadcom 3. Apple 4. Eli Lilly 5. Netflix | NASDAQ NASDAQ NASDAQ NYSE NASDAQ | 10.5% 8.5% 7.2% 6.5% 5.2% |
| 2026 | HBM & Semi Supercycle | 1. Micron 2. NVIDIA 3. Broadcom 4. Eli Lilly 5. Alphabet | NASDAQ NASDAQ NASDAQ NYSE NASDAQ | 11.2% 9.8% 7.5% 6.0% 5.5% |
Note: The table above shows the core leading trend based on representative holdings and estimated weights around the regular March rebalancing in each year. You can confirm the extreme aggressiveness of pouring around 10% weight into the leading stocks.
The truth this table proves is clear. In 2022, when NASDAQ tech stocks were crushed by interest rate hikes, QQQ investors had to endure tears of blood. But SPMO mercilessly dumped tech stocks and completely overhauled its portfolio with energy and healthcare (all NYSE-listed) that benefited from inflation, enjoying a bull market all by itself.
And when the AI era arrived in 2023, it hopped right back onto NASDAQ's NVIDIA and Meta as if nothing happened, sucking in profits. At the same time, it shows the meticulousness of never letting go of Eli Lilly (NYSE), the pharmaceutical stock with the highest momentum. This is a true survival chameleon system that transcends exchanges and sectors, something a frog in the well like QQQ can never imitate.
4. The Spear's Weaknesses: Why I Combine Three Cores
SPMO can change as market leadership changes, but it has two important weaknesses.
First is the 'Momentum Crash'. SPMO rebalances only twice a year (March, September). If a sudden market crash or an abrupt regime shift completely flips the market paradigm right after a rebalancing, this suddenly dumbed-down chameleon is forced to hold onto the already-broken past leading stocks and take a brutal beating for up to six months until the next rebalance. At inflection points where trends change sharply, it is a double-edged sword that can melt your account at a terrifying speed.
Second is 'Portfolio Overlap'. As of 2026, the top holdings of VOO (S&P 500) and the top holdings of SPMO (Big Tech) are almost identical. Outwardly, it looks like you are holding two different weapons, but in reality, you are just holding an 'S&P 500 with a freakishly high Big Tech weighting' while paying higher fees.
Paradoxically, it is exactly because of this fatal imperfection that my '3-Core' system is complete. When a momentum crash shakes both SPMO and VOO, I hope SCHD (Value/Dividend) may behave differently. All three can still decline together, and the combination does not prevent losses. Diversifying across different index rules is the reason I combined these three pillars.
Conclusion & Next Chapter Preview: How to Bind Them into a Single System?
Over the past 9 chapters, I have studied 60 years of financial history, experienced bitter failures from 2010 to 2011, and the awakening of the 2020s, ultimately obtaining all three great weapons for survival. In particular, I have confirmed the amazing factor synergy between SCHD (defense) and SPMO (offense), where when one struggles, the other runs wildly.
- VOO (Market Beta): The eternal basecamp covering my shallow market predictions (ignorance).
- SCHD (Value Alpha): The titanium shield defending against public fear and collapse with cash flows.
- SPMO (Momentum): A more aggressive tool that follows recent strength through index rules.
These weapons are the blood and sweat of Nobel laureates, and a great legacy forged by decades of crashes, the dot-com bubble, and the financial crisis.
Now, only one final task remains for me. How can I combine these three pillars into one portfolio while reducing emotional decisions?
In [Chapter 10. Evolution Continues: Building My 3-Core Survival Portfolio], I present the combination I currently use, based on this research and my own experience. It is a case study tailored to my risk tolerance, not a universal answer.
📚 [Evolution of Investment Series]
- Prologue: The Ultimate Survival Formula
- Chapter 1: The Great Awakening
- Chapter 2: Birth of the Index Fund
- Chapter 3: Behavioral Finance
- Chapter 4: The 3-Factor Model
- Chapter 5: Birth of the ETF
- Chapter 6: Discovery of Momentum
- Chapter 7: Madness and Mentality (Smart Beta)
- Chapter 8: Birth of SCHD
- Chapter 9: Big Tech and SPMOCurrent
- Chapter 10: Evolution Continues
- Epilogue: Investing is a System