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Key Points
Renowned investors Paul Tudor Jones and Peter Lynch emphasize disciplined portfolio management, advising investors to “let winners run and cut losers.” Lynch famously warns against “pulling up the flowers to water the weeds” — avoiding the temptation to hold underperformers while shedding winners. Their philosophy aligns with the core principle of the Vanguard U.S. Momentum Factor ETF (NYSEMKT: VFMO), which systematically capitalizes on market trends.
This ETF employs a quantitative, rules-based model that identifies stocks with consistent upward momentum over the past 12 months, prioritizing those with sustained rally patterns. Its methodology isolates genuine momentum from broader market movements, ensuring selections reflect intrinsic strength rather than sector-wide gains or losses.
The ETF’s performance speaks volumes: 2026 has seen returns of 24%, significantly outperforming the S&P 500’s ~10% gain during the same period. Since its 2018 launch, it has consistently beaten the broader index, achieving a compound annual return of 15.7% versus the S&P 500’s 12.7%. Its 99.9% annual turnover rate underscores the volatile nature of momentum investing, though long-holding stocks like Micron Technology (+764% YTD) and Advanced Micro Devices (+312%) demonstrate the rewards of staying aligned with winning equities.
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A Diversified Portfolio of High-Performing Stocks
Vanguard’s Momentum Factor ETF evaluates performance across two timeframes — 12-month trends and six-month developments — to refine its focus on high-conviction momentum leaders. As of May 31, its portfolio of 710 stocks is evenly distributed across 11 sectors, though certain industries dominate:
- Technology: 22.1%
- Industrials: 20.3%
- Healthcare: 18.6%
- Energy: 14.4%
- Consumer discretionary: 7.9%
Within technology, semiconductor leaders Micron Technology and Advanced Micro Devices exemplify the trend. Their meteoric rises — fueled by AI demand — make them poster children for the ETF’s strategy. Similarly, Caterpillar and GE Vernova (Industrials) have surged 200%+ as AI-driven data centers expand energy infrastructure.
The Vanguard ETF’s Edge in Market Beating
Since its inception, the fund has maintained a 3% annual return advantage over the S&P 500. While its 0.13% expense ratio is higher than Vanguard’s passive index offerings (as low as 0.03%), the outperformance more than compensates for the cost. Turnover concerns are offset by the strategy’s focus on sustained trends, avoiding short-term volatility unless data signals a reversal.
Is It a Buy?
The Motley Fool’s Stock Advisor team recently highlighted 10 high-potential stocks that don’t include Vanguard Wellington Fund (VFMO), but the ETF’s long-term track record remains compelling. For context: Netflix’s recommendation in 2004 yielded $415K on a $1K investment by 2026; Nvidia’s 2005 recommendation netted $1.25M.
Anthony Di Pizio has no position in any stocks mentioned. The Motley Fool holds positions in Advanced Micro Devices, Caterpillar, GE Aerospace, and Micron Technology.
*» indicates tenfold returns. The Motley Fool has a disclosure policy. Data reflects performance through June 2026. Views expressed do not constitute investment advice.
