XSMO: September Reconstitution Restores Small-Cap Momentum, But Quality Suffers

The Invesco S&P SmallCap Momentum ETF is rated a "hold" following its September reconstitution. While momentum exposure was restored, this analysis explains its slightly weaker quality and GARP features. Historically, XSMO has beat S&P SmallCap 600 Index ETFs like IJR with similar downside risk and the odd period of significant outperformance, making its long-term appeal compelling. Still, XSMO's quality features took a measurable hit this week, as measured by margins and capital efficiency. The percentage of companies with negative margins also increased from 15% to 20%. Even so, XSMO's fundamentals are competitive with IJR, and I am still comfortable with the way S&P Momentum Indices work.

I last reviewed the Invesco S&P SmallCap Momentum ETF ( XSMO ) on February 20, 2026, when I rated it a "buy" ahead of its scheduled March reconstitution. I missed providing a reconstitution update, but for a while, XSMO was doing well.