Market Momentum and High-Beta Equity Factors Drive Dominant Performance This Year

Momentum Factor Maintains Dominance in 2025 market Rally

August 17, 2025

The Momentum investment strategy is continuing its impressive run, consistently outpacing broader market indexes throughout 2025. Initial assessments, finalized yesterday, August 13th, reveal this risk factor has consistently delivered superior performance when compared to overall stock market indicators.

Momentum and High-Beta ETFs Lead the Way

Leading the charge is the iShares MSCI USA Momentum Factor ETF (MTUM),boasting a remarkable year-to-date return of 19.6%. The Invesco S&P 500® High Beta ETF (SPHB) closely follows with gains of 18.7%. These funds are delivering substantial return premiums over the SPDR® S&P 500® ETF (SPY), which currently stands at a 10.7% increase for the year.

Recent gains in high-beta stocks have particularly bolstered the momentum factor’s standing, solidifying its position as a top performer.

Growth and Value Disparities

While Momentum and High-Beta strategies shine, other factor-based investments are experiencing varying degrees of success.High-cap growth, while respectable, hasn’t kept pace, with the iShares S&P 500 Growth ETF (IVW) registering a 14.2% total return this year as of late reports.

Conversely, the iShares S&P Small-Cap 600 Value ETF (IJS) is significantly underperforming, remaining flat for the year. This disappointing result raises concerns about the long-term viability of the small-cap value approach, especially given the wider market rally.

Factor Performance Comparison

Factor ETF	Ticker	Year-to-Date Return (%)
iShares MSCI USA Momentum Factor	MTUM	19.6
Invesco S&P 500 High Beta	SPHB	18.7
iShares S&P 500 Growth	IVW	14.2
iShares S&P Small-Cap 600 Value	IJS	0.0
SPDR S&P 500	SPY	10.7

Did You Know? Momentum investing capitalizes on the idea that stocks with strong recent performance will continue to outperform in the short to medium term.

high-Dividend Factor Signals Potential

Despite the overall landscape, certain factors are exhibiting renewed strength. The high-dividend factor,represented by the Vanguard High Dividend Yield ETF (VYM),has shown particular promise. yesterday, the fund reached a new record high, indicating growing investor interest in equities with substantial dividend payouts.

This trend may be linked to expectations that the Federal Reserve will begin lowering interest rates in the coming months. As bond yields become less competitive, dividend-paying stocks could become more attractive to investors seeking income.

Pro Tip: Diversifying your portfolio across various factor ETFs can help mitigate risk and possibly enhance returns. Consider your risk tolerance and investment goals when selecting these strategies.

Understanding Investment Factors

Investment factors, also known as smart beta, are characteristics that have historically been associated with higher returns. Common factors include momentum, value, size, quality, and low volatility. By targeting these factors, investors aim to outperform conventional market-cap-weighted indexes. Understanding these factors and their past performance can empower investors to make more informed decisions.

Frequently Asked Questions about Momentum Investing

• What is momentum investing? Momentum investing involves buying assets that have shown strong recent price recognition, based on the belief that this trend will continue.
• Is momentum investing risky? Yes, momentum investing can be volatile, as trends can reverse quickly. Diversification and proper risk management are crucial.
• What factors are currently outperforming? As of late 2025, momentum and high-beta factors are leading the market, while small-cap value is lagging.
• Why are high-dividend stocks attracting attention? expectations of falling interest rates are making dividend-paying stocks more appealing to income-seeking investors.
• How can I incorporate factor investing into my portfolio? Consider using factor-based ETFs to gain exposure to specific investment factors.
• What is the difference between momentum and high-beta? Momentum focuses on recent price trends, while high-beta measures a stock’s volatility relative to the market.
• Is now a good time to invest in momentum ETFs? Market conditions are always changing, so it’s crucial to research and determine if momentum aligns with your investment strategy.

What are your thoughts on the current market trends? Do you think momentum investing will continue to dominate? Share your insights in the comments below!

what are the risks associated with market momentum investing?

This year, we’ve witnessed a interesting interplay of market forces influencing investment returns. Two key equity factors, market momentum and high-beta stocks, have been particularly instrumental in driving dominant performance. Let’s delve into the specifics.

Understanding Market Momentum and Its Influence

Market momentum refers to the tendency of financial assets to continue trending in a certain direction. Stocks that have performed well recently tend to continue performing well, while those that have underperformed often continue to do so. This phenomenon plays a notable role in short-term and intermediate-term market movements.

Key Characteristics of Market Momentum:

Trend Following: Exploits existing trends.

Relative Strength: Focuses on stocks with superior recent performance.

Behavioral Finance: Often driven by investor psychology, such as herd behavior.

Volatility: Can be susceptible to swift reversals.

Strategies employed:

Momentum Investing: Buying assets that exhibit strong recent price appreciation.

Trend Following Systems: Using technical indicators to identify and exploit trends.

dynamic Asset Allocation: Adjusting portfolio exposure based on changing market momentum.

The Role of High-Beta Stocks

High-beta stocks are equity securities with a beta greater than 1. This means they’re generally more volatile than the broader market and tend to amplify market movements, offering higher potential rewards but also carrying greater risk. These securities are frequently enough highly sensitive to overall economic conditions,investor sentiment,and macroeconomic indicators.

Defining Beta: A measure of systematic risk, reflecting a stock’s sensitivity to market movements.

High-Beta Advantages:

higher Potential Returns: Can outperform during bull markets.

Growth-Oriented: Typically associated with growth stocks and sectors.

High-Beta Disadvantages:

Increased Volatility: Larger price swings.

Greater risk: Higher potential losses during downturns.

Economic Sensitivity: Highly impacted by evolving economic cycles.

How Momentum and High-Beta Stocks Have Combined This Year

This year,a confluence of factors has favored both market momentum and high-beta equities. Several factors have contributed:

1. Strong Economic Growth: A robust global economy, fueled by consumer spending and business investment, has been fertile ground for companies that benefit from economic expansion, which makes these instruments move, as an example, oil and gas companies.
2. Positive Investor Sentiment: overall bullish sentiment and increased risk appetite have boosted the performance of high-beta stocks, which is also based in part on global events that push investors to seek growth-oriented markets.
3. Sector Rotation: The continued rotation from defensive stocks to cyclical and growth-oriented sectors has played a key factor in the market,for example: technology and energy.
4. The Impact of LSI Keywords:

Economic Indicators: GDP growth, unemployment rates, and inflation rates all influence momentum and high-beta performance.

Investor Sentiment: Risk appetite, market volatility, and fear and greed indices.

Market Cycles: Bull markets, bear markets, and economic cycles.

Practical Tips for Investors

Diversification: Implement different industries and sectors for the diversification of the instruments in your portfolio.

Risk Management: Use stop-loss orders and position sizing to minimize losses.

Due Diligence: Do extensive research on companies to better understand their future prospects.

Stay Informed: Keep track of market events and economic news.

* Consider a multi-Factor Approach: Combining both momentum and high-beta strategies can potentially lead to better risk-adjusted performance.