Momentum ETFs Lead in 2025, as High-Beta Strategies Gain Visibility

In what’s been a whirlwind year for economic shifts and market volatility, one investment factor has proven remarkably resilient: momentum. Year-to-date, thru July 9th, the momentum factor continues to lead the pack, outperforming not only its peers but also the broader U.S. stock market, according to ETF performance data.

The iShares MSCI USA Momentum Factor ETF (MTUM) has posted an impressive 15.5% gain so far in 2025. To put that in viewpoint, its more than double the return of the SPDR S&P 500 ETF Trust (SPY), which represents the market as a whole.

While MTUM, like the rest of the market, felt the sting during the tariff-related sell-off in April, its recovery has been notably swift. It not only rebounded but surged ahead, capitalizing on that momentum to secure its leading position for the year.

Emerging from the same April downturn is another contender making a strong comeback: the Invesco S&P 500 High Beta ETF (SPHB). This ETF is now the second-best performing factor fund,with a 13.9% advance. Previously, SPHB had been mirroring or even trailing the broader market. However, its performance has accelerated substantially in recent weeks. In fact, over the past month, SPHB has outpaced MTUM considerably, climbing 9.2% compared to MTUM’s 3.0%. This sharp uptick could signal a leadership rotation, perhaps setting the stage for high beta to lead in the latter half of the year.

Invesco describes its “high beta” strategy as tracking the S&P 500 High Beta Index.This index comprises stocks exhibiting the highest sensitivity to market movements, or beta, over the preceding 12 months. Beta, a key measure of relative risk, essentially quantifies how much a security’s price is expected to change in relation to the overall market. The fund and its benchmark index undergo quarterly rebalancing and reconstitution in February, May, August, and November.

If past trends hold true, SPHB might just be the new frontrunner in this dynamic race for factor performance in 2025.

What potential impact could the projected sector rotation in late 2025 (Healthcare and Financials) have on the performance of the listed momentum ETFs?

The Rise of Momentum Investing in 2025

Momentum investing, a strategy focused on capitalizing on the continuation of existing price trends, is experiencing a significant resurgence in 2025. This is largely driven by the performance of momentum ETFs, which have consistently outperformed broader market indices year-to-date. This outperformance is coinciding with increased investor appetite for high-beta strategies, those that exhibit greater volatility than the overall market, but also the potential for higher returns.

Understanding Momentum and Beta

Before diving into the specifics of ETFs,it’s crucial to understand the core concepts:

Momentum: The idea that stocks that have performed well recently will continue to perform well,and vice versa. This isn’t about essential value; it’s about price action.

Beta: A measure of a stock or portfolio’s volatility relative to the market. A beta of 1 indicates the security moves with the market. A beta greater than 1 suggests higher volatility (and perhaps higher returns), while a beta less than 1 indicates lower volatility.

High-Beta Stocks: These are stocks with a beta significantly above 1,making them more sensitive to market fluctuations. They often represent growth companies or those in rapidly changing sectors.

Why Momentum ETFs are Thriving

Several factors are contributing to the success of momentum etfs in 2025:

Market Regime: The current market environment favors momentum. Periods of strong economic growth and low interest rates tend to benefit companies with strong growth trajectories, which are often the focus of momentum strategies.

Quantitative Tightening & Rate Hikes: Despite initial concerns, the market has adapted to the Federal Reserve’s tightening policies. Momentum strategies, by their nature, are agile and can quickly adjust to changing conditions.

technological Innovation: Rapid advancements in technology, particularly in areas like artificial intelligence and renewable energy, are creating sustained upward trends in specific sectors, providing fertile ground for momentum investing.

Increased Accessibility: The proliferation of low-cost momentum ETFs has made this strategy accessible to a wider range of investors.

Top Performing Momentum ETFs of 2025 (YTD)

(Data as of july 11, 2025. Performance figures are subject to change.)

| ETF Ticker | ETF Name | YTD Return | Expense Ratio |

| :——— | :————————————- | :——— | :———— |

| MTUM | iShares MSCI USA Momentum Factor ETF | 18.5% | 0.35% |

| QMOM | Invesco DWA Momentum ETF | 16.2% | 0.59% |

| SPYM | Invesco S&P 500 Momentum ETF | 14.8% | 0.35% |

| MOMO | Alpha Architect U.S. Quantitative Momentum ETF | 15.7% | 0.45% |

Note: Past performance is not indicative of future results.

Diving Deeper: Sector Rotation and Momentum

A key aspect of successful momentum investing in 2025 is understanding sector rotation. Momentum isn’t static; it shifts between sectors as economic conditions evolve.

Early 2025: Technology and consumer discretionary sectors led the charge, fueled by strong earnings growth and optimistic consumer sentiment.

Mid-2025: Energy and materials sectors gained traction as commodity prices rose due to geopolitical factors and increased demand.

Late 2025 (Projected): Healthcare and financials are anticipated to benefit from demographic trends and potential interest rate stabilization, respectively.

Momentum ETFs frequently enough dynamically adjust their holdings to capitalize on these shifting trends, providing investors with exposure to the sectors with the strongest upward momentum.

Risks and Considerations for momentum Investing

While momentum strategies have performed well in 20