Momentum, High-Beta Stocks Have Dominated 2025 Performance — Evening Brief – 08.27.25
Equity markets in 2025 continue to advance despite headwinds ranging from tariffs to geopolitical uncertainty. Rather than retreating, investors are concentrating on relative performance across equity factors, where momentum and high-beta exposures are emerging as the clear leaders. This bifurcation highlights a market environment where investors are rewarding growth and risk appetite while punishing traditional value segments that have yet to show sustained recovery.
Momentum stocks remain the standout performers. The iShares Momentum Factor ETF (MTUM) has climbed 19.6% year-to-date, propelled by strength in mega-cap technology, consumer discretionary, and select industrial names that continue to deliver earnings beats and robust revenue growth. Momentum’s durability underscores investors’ willingness to chase winners, even amid stretched valuations, a trend reminiscent of prior late-cycle rallies.
Close behind, the Invesco S&P 500 High Beta ETF (SPHB) has surged 18.7% in 2025, benefiting from a revival in cyclical and more volatile equities. With volatility expectations easing, investors are comfortable taking on higher-risk exposures. This move suggests confidence in the underlying resilience of the U.S. economy and reflects rotation into more aggressive positioning after last year’s more defensive tilt.
Large-cap growth has also delivered solid, if more measured, results. The iShares S&P 500 Growth ETF (IVW) has returned 14.2% year-to-date, a respectable showing but notably behind momentum and high-beta. Growth’s gains remain concentrated in technology and communication services, but unlike momentum, growth strategies carry broader diversification across defensive growth areas such as healthcare, keeping returns slightly more muted.
By contrast, small-cap value continues to disappoint. The iShares S&P SmallCap 600 Value ETF (IJS) is flat on the year, reflecting persistent headwinds in economically sensitive, lower-quality names. Rising financing costs, uneven earnings, and weaker balance sheets continue to plague small-cap value firms, which have failed to capture the benefits of the broader market rally. The long-running underperformance of this factor raises questions about its role as a strategic allocation, with some investors reconsidering its value in multi-factor portfolios.
One area showing renewed strength is dividend-focused equities. The Vanguard High Dividend Yield ETF (VYM) recently reached a record high, as demand for yield strategies picks up. Anticipation of a potential Federal Reserve rate cut in the coming months is fueling interest in dividends, which become more attractive relative to declining bond yields. This resurgence suggests that investors are hedging growth-oriented bets with income-generating equities, positioning for a potential shift in monetary policy.
Taken together, the factor landscape in 2025 has been increasingly polarized. On one side, high-momentum and high-beta exposures are driving performance and embodying investors’ risk appetite. On the other, dividend strategies are benefiting from macro expectations tied to interest rates, while small-cap value remains mired in weakness. For allocators, the challenge is balancing exposure to leadership factors without being overexposed to crowded trades that could unwind quickly if sentiment shifts.