Momentum exchange-traded funds, which follow strategies aimed at riding hot stocks higher, have been tripped by the collapse of the bull market’s bigger winners. These ETFs invest in the market’s recent leaders, which paid off big last year. They were big holders of stocks like Nvidia NVDA and Meta Platforms META, which were at the center of the AI boom that began in 2023 and continued to dominate the market throughout 2024. As these funds rode hot stocks higher, their returns made them among the top performers in their categories.
At first, it looked like 2025 might follow the same path, but the landscape shifted abruptly. Electric car maker Tesla TSLA stock has fallen 29% in 2025 after rising more than 100% in 2024. Semiconductor company Broadcom AVGO has fallen 19% this year after gaining 45% last year. It’s not limited to tech, with retailer Walmart WMT having fallen by 6% this year after rising 34% in 2024.
As a result of this sudden reversal, momentum ETFs have cooled significantly. Among the nine large- or all-cap momentum stock ETFs with assets of more than $100 million, all but one outperformed their Morningstar categories in 2024. Six of the nine were in the top decile. This year, only two are ranked in the top decile, while three underperformed their categories.
The $146 million SPDR S&P 1500 Momentum Tilt ETF MMTM saw the biggest change. The fund ranked in the 3rd percentile of the large blend category based on its 2024 returns, but it’s in the 91st percentile so far this year.
“Many of last year’s top dogs—the Magnificent 7 and other fast-growing, techy companies—have fared the worst during the recent market selloff,” says Morningstar senior analyst Ryan Jackson. “Meanwhile, the more defensive stocks that have held up best are scarce in momentum portfolios because they didn’t keep up last year.”
We screened diversified US stock ETFs with “momentum” in their name. Funds with less than $100 million in assets under management were excluded, as were those focused on small or midcap stocks.
What is Momentum Investing?
Momentum investing is a strategy of picking the stocks that have risen the most over a trailing period—usually the previous six or 12 months, sometimes excluding the most recent month or two. One challenge is that the stocks on the biggest runs can quickly reverse course and inflict large losses. By definition, momentum strategies tend to do best when outperforming stocks continue to lead the market. A major change in what stocks are dominating will hurt these funds.
Momentum investing is distinct from growth investing, which focuses on stocks that investors expect to substantially increase their revenue or profits. Still, growth stocks often dominate momentum strategies. Most recently, growth stocks trounced value names in 2023 and 2024 amid the AI boom. However, with their focus on stocks with rising prices, many momentum ETFs have held value-tilting or core names, such as AT&T T and Berkshire Hathaway BRK.B.
2024 to 2025: Momentum Strategies Lose Momentum
Taking a closer look at the biggest momentum ETFs, 18 stocks appear among the top 10 holdings in two or more of them. The average return of these stocks was 74.8% in 2023 and 72.7% in 2024. This year, however, they’ve lost an average of 4.3%.
AI darling Nvidia is a prime example. It rose over 200% in 2023 and 170% in 2024, but has fallen by 10% in 2025. Looking at the stocks with the biggest difference between their 2025 and 2024 returns, the top three—Palantir PLTR, Tesla, and Broadcom—are all tech or tech-adjacent names.
This has hammered momentum investing, with the nine funds going from an average category rank of 18 (in the top fifth of funds) to 33 (worse than average). This turn echoes what happened to these funds in 2023, when stocks that excelled in the down market of 2022 underperformed during the tech boom. All nine momentum ETFs underperformed their categories, with the majority in the bottom 10%.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
