Launched on March 3, 2005, the Invesco S&P SmallCap Momentum ETF (XSMO) is a passively managed exchange traded fund designed to provide a broad exposure to the Small Cap Growth segment of the US equity market.
The fund is sponsored by Invesco. It has amassed assets over $2.10 billion, making it one of the larger ETFs attempting to match the Small Cap Growth segment of the US equity market.
Why Small Cap Growth
Sitting at a market capitalization below $2 billion, small cap companies tend to be high-potential stocks compared to its large and mid cap counterparts, but come with higher risk.
Qualities of growth stocks include faster growth rates compared to the broader market, as well as higher valuations and higher than average sales and earnings growth rates. Something to keep in mind is the higher level of volatility that is affiliated with growth stocks. They are likely to outperform value stocks in strong bull markets but over the longer-term, value stocks have delivered better returns than growth stocks in almost all markets.
Costs
Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.
Annual operating expenses for this ETF are 0.36%, putting it on par with most peer products in the space.
It has a 12-month trailing dividend yield of 0.73%.
Sector Exposure and Top Holdings
While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
This ETF has heaviest allocation to the Industrials sector -- about 29.3% of the portfolio. Information Technology and Financials round out the top three.
Looking at individual holdings, Interdigital Inc (IDCC) accounts for about 3.76% of total assets, followed by Ttm Technologies Inc (TTMI) and Armstrong World Industries Inc (AWI).
The top 10 holdings account for about 25.89% of total assets under management.
Performance and Risk
XSMO seeks to match the performance of the S&P SMALLCAP 600 MOMENTUM INDEX before fees and expenses. The S&P Smallcap 600 Momentum Index is composed of securities with strong growth characteristics selected from the Russell 2000 Index.
The ETF has added roughly 2.35% so far this year and it's up approximately 10.84% in the last one year (as of 01/06/2026). In the past 52-week period, it has traded between $55.15 and $75.85.
The ETF has a beta of 1.05 and standard deviation of 20.77% for the trailing three-year period. With about 116 holdings, it effectively diversifies company-specific risk.
Alternatives
Invesco S&P SmallCap Momentum ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, XSMO is a good option for those seeking exposure to the Style Box - Small Cap Growth area of the market. Investors might also want to consider some other ETF options in the space.
The iShares Russell 2000 Growth ETF (IWO) and the Vanguard Small-Cap Growth ETF (VBK) track a similar index. While iShares Russell 2000 Growth ETF has $13.65 billion in assets, Vanguard Small-Cap Growth ETF has $21.35 billion. IWO has an expense ratio of 0.24% and VBK charges 0.07%.
Bottom-Line
Retail and institutional investors increasingly turn to passively managed ETFs because they offer low costs, transparency, flexibility, and tax efficiency; these kind of funds are also excellent vehicles for long term investors.
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
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Invesco S&P SmallCap Momentum ETF (XSMO): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).
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