Vanguard U.S. Momentum ETF Beats S&P 500 in 4 of 7 Years

Q: Could a hidden 99 percent turnover rate quietly destroy your stock market returns if you place this ETF in the wrong account?

Yes — not because a 99.9% turnover rate automatically “destroys” returns, but because it can materially hurt after-tax returns if VFMO is held in a taxable brokerage account. VFMO’s turnover shows the portfolio is being almost completely reshuffled over a year. That creates more realized gains inside the fund and more trading costs than a plain S&P 500 ETF like Vanguard’s VOO. Momentum strategies can still outperform despite that friction, and VFMO has beaten the S&P 500 in four of the past seven years, including 2026 year to date. But the tax drag can quietly eat into whatever excess return the strategy generates. The key distinction is account type. In a tax-advantaged account such as an IRA or 401(k), frequent trading inside the ETF is far less damaging because taxes are deferred or sheltered. In a taxable account, investors are exposed to distributions and to the cumulative effect of gains being realized sooner, reducing compounding. That is why high-turnover factor funds are generally considered better fits for retirement accounts. ETF structure does help. ETFs are usually more tax-efficient than mutual funds because of in-kind creation and redemption, which often reduces capital gains distributions. But “more tax-efficient” does not mean “tax-free.” A high-turnover ETF is still usually less tax-friendly than a low-turnover broad index ETF. So the hidden risk is real: put VFMO in the wrong account, and taxes may significantly reduce the benefit of its momentum edge.

2 articles · Updated · Yahoo Finance · Aug 8

Four of the last seven years, including 2026 year to date, Vanguard U.S. Momentum Factor ETF posted higher total returns than the S&P 500, with another year roughly matching the index.
The fund uses a rules-based model to buy stocks showing strong 12-month momentum and still-solid six-month returns, aiming to capture sustained market leadership without individual stock picking.
Its broader reach beyond large caps may help over time: the portfolio’s median market value is $16.8 billion versus $455.6 billion for Vanguard’s S&P 500 ETF, and 1.9% of its 670 holdings are outside the U.S.
The strategy still carries trade-offs, including years of underperformance, potentially sharper drawdowns than the S&P 500, and a 99.9% turnover rate in fiscal 2025 that makes it better suited to tax-advantaged accounts.