Invesco Ltd.'s S&P 500 Momentum ETF (NYSEARCA:SPMO) has maintained a commanding performance lead over the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) in 2026, but a recent four-day stretch of losses has trimmed the gap, signaling potential headwinds for momentum-focused strategies. As of Friday, July 17, SPMO posted a year-to-date total return of 21.11%, while SPY advanced 9.58%, according to data from Yahoo Finance. The 11.53-percentage-point edge, however, represents a narrowing from the 15.59-point lead recorded just four sessions earlier on July 13.
Performance Gap Shrinks
Over the four trading days ending July 17, SPMO's performance advantage contracted by 4.05 percentage points. This rapid compression reflects a 3.90% decline in SPMO's price during that period, compared to a more modest 0.78% drop in SPY. The narrowing equates to roughly 114 years of the annual fee differential between the two funds, underscoring the magnitude of the shift. However, momentum resumed on Monday, July 20, with SPMO rising approximately 1.2% to $145.66, while SPY gained about 0.2% to $744.89 as of 11:07 a.m. EDT.
Concentration in Top Holdings
SPMO's portfolio is heavily concentrated, with its top 10 holdings accounting for approximately 51.1% of assets, compared to SPY's 37.5% for its top 10. Nearly a quarter of SPMO is invested in just three semiconductor stocks: Micron Technology Inc. (NASDAQ:MU), Nvidia Corp. (NASDAQ:NVDA), and Broadcom Inc. (NASDAQ:AVGO). The fund's technology allocation stands at roughly 52%, making it highly sensitive to shifts in the chip sector. The Philadelphia semiconductor index has surged 65% year-to-date but experienced an 18% decline in July, contributing to SPMO's recent underperformance.
Rebalancing and Timing Risks
SPMO undergoes semiannual rebalancing, which introduces timing risk. If market leadership shifts between rebalancing dates, the fund may be slow to adjust, potentially locking in losses or missing gains. In contrast, SPY's market-cap-weighted approach provides broader diversification across all 504 S&P 500 constituents. Rick Meckler, partner at Cherry Lane Investments, noted, "The daily moves for companies this big are just shocking," highlighting the volatility in mega-cap tech names. Analysts expect chipmakers to account for approximately 44% of the S&P 500's earnings growth in the second quarter, according to Reuters.
Fee Differential Negligible
Expense ratios are minimal and unlikely to sway investor decisions. SPMO carries an annual fee of 0.13%, or about $13 per $10,000 invested, while SPY charges 0.0945%, or $9.45. The yearly gap of just $3.55 is largely negligible in the context of performance differences.
Outlook and Risks
Despite the recent pullback, SPMO's year-to-date lead remains substantial. However, the narrowing gap and high concentration in semiconductors expose the fund to risks from shifting momentum trends, potential earnings disappointments, and fluctuations in AI-related demand. Investors should also consider tax implications when rotating out of SPY. As of Monday's uptick, the nature of the trade remains unchanged: investors continue to favor focused leadership over seeking an additional four basis points in cost savings.
