How do you tell the story of the last decade in the stock market? You could look at a chart of the S&P 500, but that only gives you the headline. To understand the chapters of the story—the heroes, the villains, and the plot twists—you need to look at what was winning. A momentum-based ETF acts as a market historian, chronicling the shifts in leadership and sentiment in near real-time.
By observing what a momentum strategy holds, we can see a reflection of the market’s biggest trends, from the post-GFC recovery to the AI boom. Let’s take a journey through the past decade, using the ever-changing portfolio of a momentum ETF as our guide.
The Early-to-Mid 2010s: A Cyclical Recovery
As the market found its footing after the Great Financial Crisis, leadership was not what it is today. In the early years of the last decade, momentum was driven by a mix of sectors. Healthcare, benefiting from the Affordable Care Act, and Consumer Discretionary, riding a wave of renewed consumer spending, often took center stage. The portfolio was more balanced, reflecting a market where leadership was broader and not yet concentrated in a single theme.
The Mid-to-Late 2010s: The Unambiguous Rise of Big Tech
Around the middle of the decade, the narrative began to consolidate. The era of “FANG” took hold, and the outperformance of large-cap technology stocks became the defining market trend. A momentum strategy, by its very nature, followed the winners.
This chart of a momentum ETF’s historical sector allocations clearly shows Information Technology’s creeping dominance, eventually making the fund look like a dedicated tech portfolio. Consequently, as these high-growth stocks took over, the ETF’s valuation expanded. The forward P/E ratio drifted higher, mirroring the market’s growing willingness to pay a premium for tech-driven growth. For a period, “momentum” and “tech” became nearly synonymous.
2020-2022: The Great Whiplash and the Return of Value
The COVID-19 pandemic and its aftermath triggered one of the most violent and rapid rotations in market history. The initial crash gave way to a “stay-at-home” stock boom, further cementing tech’s leadership. However, as the world reopened and inflation began to surge, the tide turned.
For the first time in years, value stocks had their day in the sun. Energy, Financials, and other cyclical sectors, which had been market laggards for years, suddenly exhibited powerful momentum. A momentum ETF had to adapt or die. It shed its expensive tech darlings and rotated into these previously unloved areas. This dramatic shift is visible in the sector chart, and the P/E chart shows the result: a sharp contraction in the portfolio’s valuation as cheaper, value-oriented stocks took the helm.
2023-Present: The AI Boom and a Return to Tech Supremacy
Just as quickly as it had arrived, the value rotation faded. The narrative shifted to Artificial Intelligence, and a new cohort of mega-cap tech leaders—the “Magnificent Seven”—began to drive nearly all of the market’s gains. Once again, momentum followed the trend. Technology and Communication Services roared back to the top of the portfolio, and the ETF’s composition began to resemble its late-2010s profile.
The Story Continues
Looking at a momentum ETF over the past decade reveals its nature as a market chameleon. It has been a Healthcare fund, a Tech fund, a Value fund, and back again. It tells a dynamic story of shifting economic conditions, investor sentiment, and technological revolutions. It’s a powerful reminder that leadership is never permanent and the market is always evolving.
Want to explore these market shifts for yourself? The analysis in this post was powered by the extensive data and visualization tools on the ETF Action platform. Our tools allow you to move beyond the point-in-time snapshot and see the evolution of any fund’s sector allocations, valuation metrics, and performance attribution over time. Dive deeper and see the full story for your portfolio with ETF Action’s suite of institutional-grade tools.
Disclosures
This material is for informational purposes only and should not be considered investment advice. All investments, including ETFs, involve risk, including the possible loss of principal. Investors should consider their investment objectives, risks, charges, and expenses carefully before investing.
This analysis was developed by the team at ETF Action. We leverage advanced AI tools to assist in the drafting and refinement of our content, based on our expert prompts, direction, and final review.
