Investors whose portfolios are built around an S&P 500 index fund may have more riding on just 10 stocks than they realize.
Those 10 names now control a share of the index that would have been unrecognizable a decade ago, VanEck reported in its July 2026 analysis.
One exchange-traded fund has turned that imbalance into an edge. The outperformance has sparked renewed interest in momentum-based alternatives to traditional index funds.
Invesco S&P 500 Momentum ETF (SPMO) posted annualized returns of an average of 37% over three years and roughly 20% over both five- and 10-year windows, the Motley Fool report noted.
This figure leaves both the S&P 500 and the Nasdaq-100 well behind over the same three- and five-year periods. Over a full decade, SPMO roughly matched the Invesco QQQ ETF (QQQ), which tracks the Nasdaq-100, according to the report.
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The fund holds about 100 large-cap stocks ranked by price momentum over the trailing 12 months. It skips the most recent month to filter out short-term reversals and rebalances every March and September.
That rotation drives SPMO's edge. Stocks losing price strength get dropped, and momentum scores are adjusted for volatility to favor smoother price trends, according to S&P Dow Jones Indices methodology.
The S&P 500 index fund is not as diversified as its name suggests. A decade ago, the 10 largest S&P 500 stocks held about 18% of the index's total weight.
Tyler Frawley, portfolio advisor at RBC Wealth Management, described the result as a passive concentration trap. More than $40 of every $100 invested now flows into just 10 companies, reinforcing their dominance, RBC's analysis noted.
John Patrick Lee, senior product manager at VanEck, wrote in the firm's July 2026 analysis that a small number of mega-cap stocks now drive most of the S&P 500's returns and, in a downturn, most of its losses.
A passive S&P 500 allocation is now effectively an active sector bet, whether the investor intended it or not.
That structural lopsidedness explains why momentum-based ETFs are gaining traction.
The same concentration that has turned the S&P 500 into a top-heavy benchmark has also left its cap-weighted construction vulnerable to a mega-cap rotation.
SPMO's track record is compelling, but momentum strategies carry a well-documented vulnerability: sudden, violent reversals that academics call momentum crashes.
Momentum strategies can suffer "infrequent and persistent strings of negative returns," researchers Kent Daniel and Tobias Moskowitz reported in the Journal of Financial Economics. Those crashes cluster around market panics and sharp rebounds, they found.
The academic momentum factor lost roughly 88% over two months in mid-1932, the worst single episode documented in the 2016 study. Modern momentum ETFs have not experienced anything near that severity, but the risk is real.
SPMO's worst peak-to-trough decline was about 31% since its October 2015 launch, a StressTest.pro analysis showed.
The S&P 500 dropped roughly 34% over the same span. However, the Alpha Architect Quantitative Momentum ETF (QMOM) suffered a roughly 39% maximum drawdown, the analysis found.
The pattern across market cycles is consistent: Momentum funds thrive in trending markets and struggle in choppy, fast-rotating ones, the analysis noted.
Pairing SPMO with a broad index fund and a value or quality tilt can reduce crash correlation while preserving the momentum premium, the report found.
SPMO turned over roughly 44% of its holdings in its most recent annual reporting period, according to Invesco fund filings, compared with roughly 3% for the SPDR S&P 500 ETF (SPY), according to AAII.
That gap creates more capital gains distributions in taxable accounts, a drag that disappears inside a tax-advantaged account. The expense ratio sits at 0.13%, above VOO's 0.03% but low relative to the broader large-blend category.
Treating SPMO as a satellite position keeps the momentum premium in play while limiting damage when the factor reverses, the analysis concluded.
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This story was originally published by TheStreet on Sep 9, 2026, where it first appeared in the Investing section. Add TheStreet as a Preferred Source by clicking here.