Investors Rotate $43 Million Out of Momentum ETFs Into Quality

Investors pulled $43 million from the $22 billion Invesco S&P 500 Momentum ETF (SPMO) in September while quietly adding $3.4 million to the $19 billion Invesco S&P 500 Quality ETF (SPHQ) — a small swing with a loud message, according to flow data confirmed by Rene Reyna, Invesco's head of ETF strategy.

The shift marks a reversal from August, when $680 million flowed out of SPHQ and $714 million into SPMO. Reyna told MarketWatch that money has moved into the quality fund every month this year except August. The pattern suggests investors are now choosing to lower risk rather than chase reward.

What does quality mean here?

SPHQ holds the 100 S&P 500 stocks with the highest quality score — a blend of return on equity, debt-to-book value and an accruals ratio of operating assets to total assets. The index rebalances twice a year, and each stock is weighted by its quality score multiplied by market cap.

SPMO takes the opposite bet. It ranks S&P 500 companies by 12-month price gains, adjusts for volatility, and holds the top 20%, weighted by momentum score and market cap. It is the aggressive option in Invesco's factor lineup.

The performance gap this year has been dramatic:

• SPMO returned 36% in the first half of 2026, but has fallen sharply since June 30.
• SPHQ returned 20.8% over the same first half.
• RSP, the $99 billion Invesco Equal Weight S&P 500 ETF, gained 12%, beating the S&P 500's 10.2%.
• Over five years, SPMO is up 137%, versus 83% for the S&P 500 and 75% for SPHQ.

Why the rotation is happening now

Reyna pointed to three pressures. First, skepticism about AI spending. Asked how SPHQ might help investors questioning whether trillions of dollars on AI infrastructure buildout will be justified by profits, he said that based on client meetings, "the challenge appears to be beyond AI."

Second, inflation. Before the latest U.S. consumer-price index report showed inflation at a seasonally adjusted annual rate of 3.7%, Reyna said, "we were looking at a low probability for another rate increase" at next week's Federal Reserve meeting.

Third, bond yields. The 10-year U.S. Treasury note yielded 5.02% early Thursday. A 6% yield would represent a "challenge," he said, because investors "might want to take a 6% return rather than the risk in the stock market." That's a concrete threshold worth marking: 6% on Treasurys starts competing directly with equity risk premiums.

What does this change for portfolio construction?

The numbers Reyna cited on capture ratios explain the tradeoff. Over the past year, SPMO captured 142.48% of the S&P 500's upside but also 106.4% of its downside. SPHQ captured only 86.05% of the upside — but just 61.1% of the downside. In plain terms, quality gives up roughly a seventh of the gains in rising markets but avoids nearly 40% of the losses in falling ones.

That asymmetry matters if you think a correction is coming but don't want to go to cash. Even the plain-vanilla $818 billion State Street SPDR S&P 500 ETF Trust (SPY) concentrates risk: its top five holdings — Nvidia, Apple, Microsoft, Amazon and both Alphabet share classes — account for 30.6% of the portfolio.

For practitioners, the takeaway is straightforward. Momentum still owns the five-year scoreboard, but the flow data says the marginal dollar is now paying up for downside protection. If the 10-year yield keeps climbing toward that 6% line Reyna flagged, expect the quality bid to strengthen, not fade.