FDMO's 39% Year Rides the AI Momentum Trade — and the June Volatility Tested It

The Fidelity Momentum Factor ETF, trading under the ticker FDMO, is one of the purest ways to own the market's winners, and in 2026 that has meant a concentrated bet on the same artificial-intelligence and mega-cap technology leadership that has driven — and occasionally convulsed — the entire market. The fund climbed to around $93 by early May, near the top of its 52-week range of $55.41 to roughly $93, having delivered a striking 39.13% total return over the trailing year. Then came the early-June turbulence: a sharp chip-sector rout and a broad rotation toward the record-setting SpaceX listing, exactly the kind of leadership shift that puts a momentum strategy to the test, followed by the risk-on rebound that has lifted markets back this week.

That arc captures what FDMO is and why it matters right now. With about 130 holdings, a top-10 concentration above 41%, and the five largest positions all being AI and technology giants, the fund is essentially a leveraged expression of whether the momentum trade — the tendency of recent winners to keep winning — continues to work. It carries a low 0.15% expense ratio, a top rating from one major fund-research firm, and a methodology designed to systematically harvest one of the best-documented premia in finance. The question for anyone evaluating it now is whether the AI-driven momentum that produced a 39% year has further to run, or whether the June volatility was an early warning of the kind of sharp reversal that momentum strategies are uniquely prone to.

What FDMO is: momentum in a single ticker

FDMO is an exchange-traded fund built on the Fidelity U.S. Momentum Factor Index, designed to reflect the performance of large- and mid-capitalization US companies that exhibit positive momentum signals. Launched in September 2016 and issued by Fidelity, it normally invests at least 80% of its assets in the securities of that index, using a physical replication method and a passive management style. It trades on the NYSE Arca exchange, distributes dividends quarterly at a yield around 0.6%, and currently holds roughly $800 million to $885 million in assets — a figure that has grown substantially over the past year as strong inflows and a rising price compounded.

The core idea is simple but powerful. Momentum is the well-documented tendency of stocks that have performed well recently to continue outperforming, and stocks that have lagged to continue underperforming. Rather than asking an analyst to pick winners, FDMO uses a rules-based system to systematically own the stocks displaying the strongest momentum characteristics, rebalancing periodically to refresh the lineup. For someone who believes the market's recent leaders will keep leading, the fund offers that exposure in a single, low-cost, diversified vehicle — more useful as a tilt layered on top of a core US allocation than as a standalone holding. With a five-year beta of 1.16, it is somewhat more volatile than the broad market, which is the expected trade-off for chasing the strongest performers.

The methodology: four signals and a quarterly rebalance

What separates FDMO from a simple "buy the winners" approach is the rigor of its selection process. The fund hunts among the 1,000 largest US stocks for those with positive price momentum, screening potential holdings using a scoring system built on four distinct metrics: high total return, high volatility-adjusted return, high positive earnings surprises, and low average short interest. The combination is more sophisticated than raw price performance alone — by incorporating volatility-adjusted returns, it favors steady climbers over erratic ones; by weighting earnings surprises, it captures fundamental momentum alongside price momentum; and by screening for low short interest, it avoids names that sophisticated sellers are betting against.

Two design choices shape the portfolio. First, factor scores are scaled by market capitalization, and within each sector, holdings are weighted by a combination of market cap and factor score — meaning the largest, highest-momentum names dominate the portfolio, which is why the top 10 holdings account for more than 41% of assets. Second, and crucially, the portfolio is constructed so that its sector exposure reflects a neutral market rather than letting momentum concentrate the fund in whatever sector is hottest. This sector-neutral design is a defining feature that distinguishes FDMO from some rivals. The fund is rebalanced quarterly, which refreshes the momentum signals but also means it can be slow to react to sudden shifts in leadership — a characteristic that becomes important in volatile periods.

The holdings: an AI and mega-cap tech bet

The portfolio is, in practice, a concentrated bet on the AI and technology leadership of 2026. The top holdings read like a roster of the market's dominant names: NVIDIA at 7.60%, Apple at 6.28%, Alphabet at 6.02%, Microsoft at 4.69%, and Amazon at 4.06%. These five positions alone account for nearly 29% of the fund, and they are precisely the companies that have driven the market's gains as the AI investment cycle has accelerated. The fund's strong trailing return is, in large part, a direct reflection of the performance of these mega-cap technology leaders.

Beyond the giants, the portfolio extends into the AI-adjacent and high-growth mid-cap space, with holdings including enterprise-software and cloud names like ServiceNow, Cloudflare, and HubSpot, AI-data company Innodata, energy-storage firms Fluence Energy and Eos Energy, content-delivery provider Akamai, and life-sciences company Caris. This composition tells you exactly what FDMO is betting on: the continuation of the AI infrastructure and software boom, plus the energy and computing themes that surround it. The 130-holding structure provides some diversification, but the heavy concentration in the top names means the fund's fortunes are tightly bound to the performance of the AI mega-caps. When they lead, FDMO leads; when they wobble, FDMO wobbles.

Sector tilt and the sector-neutral design

Despite its sector-neutral construction, FDMO carries a pronounced technology tilt that reflects where momentum has concentrated. Technology makes up roughly 33% of the portfolio, with communication services adding another 9% and consumer cyclical around 10% — meaning the broad technology-and-internet complex accounts for well over 40% of the fund. Financial services represent about 12.6%, healthcare around 10%, and industrials about 9.3%, with smaller allocations to consumer defensive, energy, utilities, real estate, and basic materials rounding out the portfolio.

The sector-neutral design is more nuanced than it first appears. The methodology aims to keep sector exposures roughly in line with a neutral market rather than letting momentum pile the fund entirely into one sector, which provides a meaningful risk control. But because momentum names cluster in technology in the current environment, and because the index weights by market cap and factor score, the fund still ends up heavily tech-tilted. The benefit of this approach is that FDMO avoids the extreme single-sector concentration that can plague less-disciplined momentum strategies, giving it some ballast when the dominant theme reverses. The drawback is that in a market where one sector is overwhelmingly leading, the sector-neutral constraint can cause the fund to slightly underweight the very names driving the gains relative to a pure-momentum competitor.

Performance: a 39% year and the momentum premium

The fund's recent track record has been impressive, validating the momentum thesis in the current environment. FDMO delivered a total return of 39.13% over the trailing year, including dividends — a powerful result that reflects the strength of the AI and technology leadership it holds. Since its inception in September 2016, the fund has compounded at an average annual return of 15.04%, a solid long-run figure that demonstrates the momentum factor's ability to generate returns across multiple market cycles, not just the current AI boom.

This performance is the practical evidence behind the momentum premium. Momentum is one of the most robust and best-documented factors in financial research, persisting across decades, geographies, and asset classes. FDMO's strong trailing return shows the factor working as intended: by systematically owning the market's strongest performers and refreshing that lineup quarterly, the fund rode the AI wave that lifted its mega-cap holdings. The 15% annualized return since inception, spanning the volatile years since 2016, suggests the strategy has durability beyond any single theme. That said, trailing returns are backward-looking, and the central question for momentum is always whether the recent leaders will keep leading — which is precisely where the strategy's risk lies.

Flows and assets: the money chasing winners

The flow data reflects the strong demand for momentum exposure during a period when the strategy has been working. Over the trailing year, the fund attracted roughly $253.89 million in net inflows, with about $217.08 million arriving in the most recent six months — a clear sign that allocators were piling into the momentum trade as the AI rally accelerated. The longer-term picture shows steady accumulation, with cumulative inflows building the fund's asset base toward the $800 million-to-$885 million range from a much smaller starting point.

The most recent flow data hints at the June caution, however. While the one-month figure remained positive at around $14.16 million and the three-month at $16.9 million, the five-day reading turned slightly negative at about -$3.84 million — a small outflow that coincided with the early-June market volatility. This pattern is instructive: momentum funds tend to attract money when the strategy is performing and shed it when leadership wobbles, which can amplify the very reversals the strategy is exposed to. The slight recent outflow is far from alarming given the strong longer-term inflows, but it reflects the sensitivity of momentum demand to short-term market swings.

The momentum risk: reversals and the June test

The defining risk of any momentum strategy, and the most important thing to understand about FDMO, is its vulnerability to sharp reversals. Momentum works beautifully when market leadership is stable and trends persist, but it can suffer severe drawdowns — sometimes called momentum crashes — when leadership rotates abruptly. Because the fund holds the recent winners and rebalances only quarterly, it can be caught holding last quarter's leaders precisely as the market rotates away from them, magnifying losses during turning points.

The early June period was a textbook test of this risk. A sharp chip-sector rout, which saw major semiconductor names tumble double digits in a single session, and a broad rotation toward the record-setting SpaceX listing represented exactly the kind of leadership shift that pressures a momentum fund concentrated in AI and technology. With its heavy weighting in the names that led the market higher, FDMO would have felt that volatility acutely, pulling back from its early-May high near $93. The subsequent risk-on rebound this week, which lifted technology and chips back up, would have helped it recover. But the episode is a reminder that the same concentration that produced a 39% year also exposes the fund to outsized swings when the AI trade stumbles. The quarterly rebalance means the fund cannot quickly pivot away from a deteriorating theme, which is the structural price of the momentum approach.

FDMO versus its rivals

The momentum-factor space has become crowded, and FDMO competes against several established alternatives, each with a distinct approach. The largest rival is the iShares momentum fund, which tracks a different momentum index and is not sector-neutral, meaning it can take larger sector bets that amplify both gains and losses relative to FDMO's more balanced construction. Other competitors include a SPDR momentum-tilt product and an Invesco fund that uses a relative-strength methodology, while Vanguard offers an actively managed momentum option.

FDMO's differentiators are its sector-neutral design, its low 0.15% expense ratio, and its four-metric scoring system that incorporates earnings surprises and short interest alongside price momentum. The sector-neutral approach makes it somewhat more conservative than the pure-momentum rivals — it sacrifices some upside when one sector dominates in exchange for reduced concentration risk when that sector reverses. For allocators choosing among momentum funds, the decision often comes down to whether they want the maximum momentum exposure of a non-sector-neutral fund or the more balanced, risk-controlled approach that FDMO offers. The fund's competitive expense ratio and its strong trailing performance have made it a credible choice in the category.