VFMO: U.S. Momentum Factor ETF Offers Good Diversification But With High Turnover (VFMO)

The Vanguard U.S. Momentum Factor ETF (VFMO) holds ~700 stocks selected by recent price performance. The premise behind momentum investing: what’s climbed recently will keep climbing for a while. VFMO is the only momentum ETF that’s actively managed and holds companies small, medium, and large.

This overview covers how Vanguard selects and screens stocks, what’s currently in the portfolio, portfolio fit, VFMO’s track record, how it might respond in different conditions, and peers.

How Is The Vanguard U.S. Momentum Factor ETF Structured?

The Russell 3000 Index is VFMO’s benchmark. Vanguard scores every U.S. large-, mid-, and small-cap stock in its universe on momentum, defined three ways. Two are price returns over fixed windows: from twelve months ago to one month ago and from seven months ago to one month ago. Stopping a month short of the present is standard in momentum research. The third compares a stock’s return vs. what the market’s move would predict for it. A stock that usually matches the market would be expected to gain 20% in a year. The market rose 20%, so a 30% return is 10 points above expectation. The more a stock normally swings, the higher the bar. The fact sheet calls this the intercept from a one-year regression.

The investment literature contains nothing about market cap floor, volume minimum, sector limit, position cap, or weighting method. Vanguard only says the scores feed a rules-based screen designed to promote diversification and limit exposure to less liquid stocks.

At least 80% of net assets must be in securities issued by U.S. companies. There’s no rebalance calendar—the managers can trade whenever the model calls for it. Turnover was 99.9% in the most recent fiscal year.

VFMO launched in February 2018 and holds just under $2B in assets. The expense ratio is 0.13%.

What’s in the VFMO Portfolio?

The top ten are just under 9% of assets:

All positions are small, with the average being just 0.14%. The top five are two memory and storage companies and three oil refiners.

In terms of sector exposure, technology leads the way:

This is just a snapshot in time—the order has been highly varied. Financials and information technology were the two largest sectors in October 2025; industrials took over by April 2026, and health care has added several points this year. Individual holdings are just as variable. Vanguard’s June 30 top ten had only five in common with Seeking Alpha’s August 31 list above.

Still at each reporting date since March, the top ten have been between ~9% and ~11% of assets with no holding over 1.3% and an overall portfolio count of ~670-710. Large caps have been under 1/3 of the fund, with small caps the largest share at over 40%.

VFMO’s median market cap is ~$16B vs. ~$337B for the Russell 3000.

How Might VFMO Fit in a Portfolio?

There’s little reason to own VFMO and another broad U.S. fund. The overlap would be substantial. Also, VFMO’s expense ratio is higher than a total-market ETF like Vanguard Morningstar Total Stock Market ETF (VTI). So it’s best to think of VFMO as a subset of the Russell: companies that clear the momentum screen and are not weighted by market cap.

Capture ratios are 127 on the upside and 150 on the downside vs. category averages of 88 and 119. VFMO has lost more in down markets than it has gained in up ones. That’s the tradeoff for owning it instead of a broad fund.

The high turnover might suggest taxes are a concern, but the prospectus shows a since-inception return of ~13.7% before tax and ~13.4% after taxes on distributions. The gap is basically what taxes on a sub-1% dividend yield alone would cost. A taxable brokerage account would be fine.

VFMO’s Performance Since Inception

Total return since the fund launched is ~214% through mid-September 2026. The iShares Russell 3000 ETF (IWV) returned a nearly identical ~211% over the same period. Both come out to just over 14% annualized.

VFMO beat the index in 2020, 2022, 2024, and 2025 and trailed it in 2019, 2021, and 2023. The maximum gap over that period was +/- 10%.

2026 has been more interesting: as of June 30 VFMO was up ~28.5% on the year vs. ~10.4% for IWV. The biggest separation in performance in the fund’s history. This had to do with memory and storage stocks, which the momentum screen picked up in stages as they climbed—Micron Technology (MU) and Western Digital Corporation (WDC) in late 2025 and Sandisk Corporation (SNDK) in early 2026. Returns from June 2025-June 2026 were over 800% for Micron, 900% for Western Digital, and a ridiculous 4,900% for SanDisk (though VFMO only owned them for part of that time). The group sold off starting in early July, and VFMO gave back much of its lead over the following ten weeks. After all that, it’s back to nearly even with IWV since inception.

How Might VFMO Perform in Different Markets?

Momentum ETFs do best when whatever’s doing well keeps doing well. H1 2026 is an example. NAND pricing spiked, and Ukrainian strikes cut Russian refinery output to a two-decade low. VFMO already held memory and refining stocks at much larger weights than the Russell. A year from now the screen will favor whatever has climbed (or continued to climb), which may have nothing to do with memory or energy.

The speed a cycle turns is quite important. 2022 was gradual enough for repositioning—VFMO fell ~12.8% vs. the Russell’s ~19.2%. Q1 2020 was the opposite. VFMO lost ~21.4% vs. ~20.9% for the Russell. A fast decline like that leaves no window to reposition.

A recession would hurt the fund’s current holdings three ways. Refining margins depend on fuel demand, which drops with freight volume and miles driven. Memory demand follows data center capex, which may be an early target for cuts. The third is market cap, since smaller companies usually refinance at worse terms than big companies. Defensive positions are minimal: as of August 31, there were no utilities or real estate, consumer defensive was 2.65%, and cash was 0.16%.

Higher rates compress equity multiples, and VFMO’s P/E has been similar to the Russell 3000’s. So they would start from roughly the same place. Market cap is the difference. Smaller companies carry more floating-rate and near-term debt. Rate increases hit their earnings faster, and VFMO holds far more of them than IWV.

How Does VFMO Compare to Peers?

There’s no other actively managed U.S. momentum ETF that covers the full market cap spectrum. Other funds use the same factor with a narrower universe or have different construction rules.

Same universe, different weighting

State Street’s SPDR S&P 1500 Momentum TILT ETF (MMTM) is the best match on mandate, selecting from the S&P Composite 1500 across all three size segments. It begins with the cap-weighted S&P 1500 and then overweights strong momentum names and underweights weak ones, which preserves the shape of a cap-weighted index. The top ten is ~30% of assets vs. VFMO’s 9% even though MMTM holds 2x as many stocks. It also scores momentum one way rather than three.

Momentum in large and mid-caps

JPMorgan’s U.S. Momentum Factor ETF (JMOM) applies sector-level diversification rules, then weights by market cap within each sector. It selects only from large- and mid-cap stocks. The iShares MSCI USA Momentum Factor ETF (MTUM) defines momentum as a blend of six- and twelve-month returns, both adjusted for volatility. Its index resets twice a year. A stock that loses momentum in MTUM stays in the portfolio until the next scheduled reset, which can be six months out. VFMO can sell the same week.

One segment at a time

Invesco has the S&P MidCap Momentum ETF (XMMO) and the Invesco S&P SmallCap Momentum ETF (XSMO). Both rank by price performance from twelve months ago to one month ago and reset semiannually. There’s no overlap between them. VFMO holds mostly mid- and small caps despite its all-cap mandate, which is what makes the Invesco ETFs comparable. But they’re far more concentrated—XMMO’s largest position is ~4% of assets, almost quadruple anything VFMO holds.

Several others are tangentially related. Invesco’s S&P 500 Momentum ETF (SPMO) and the SEI QiM U.S. Large Cap Momentum Active ETF (SEIM) are limited to large caps. Fidelity Momentum Factor ETF (FDMO) scores each stock on several measures at once, including price performance, earnings surprise history, and short interest. The U.S. Quantitative Momentum ETF (QMOM) from Alpha Architect and the MarketDesk Focused U.S. Momentum ETF (FMTM) hold fewer than 50 stocks. Invesco Dorsey Wright Momentum ETF (PDP) and Invesco Dorsey Wright SmallCap Momentum ETF (DWAS) rank each stock against the others in its universe rather than measuring its own return. Vanguard also offers the U.S. Multifactor ETF (VFMF), which is actively managed like VFMO but combines momentum with value and quality.

Summary

Vanguard’s VFMO is actively managed and screens U.S. large, mid, and small caps on recent price performance. It’s highly diversified, with individual positions sizes rarely exceeding ~1.3%. Sector mix has been fluid, and volatility has been above the mid-cap blend category. Returns since 2018 have roughly matched the Russell 3000.

This article answered the following questions about VFMO:

• How is VFMO structured, and what does it hold?
• Where might VFMO fit in an investor’s portfolio?
• How has VFMO performed and how might it in the future?
• How does VFMO compare with similar ETFs?

Author’s Note: This analysis reflects data and information available as of September 23, 2026.