ETF Multi-Asset Allocation Strategy: A Five-Year Backtest Centered on the SPMO Momentum Factor
Replacing QQQ with SPMO as the core holding, paired with PAVE, AVDV, and DIVO to build a five-asset portfolio. With a $50,000 initial principal plus $500 monthly contributions, the Aggressive version reaches $205,736 after five years, and the Balanced version reaches $155,847. Full backtest data and risk analysis included.
ETF Multi-Asset Allocation Strategy
A five-year backtest and forward-looking allocation centered on the SPMO momentum factor
Chapter 1 Core Holding: The SPMO Momentum-Factor ETF
What Is SPMO?
The Invesco S&P 500 Momentum ETF (SPMO) tracks the S&P 500 Momentum Index, screening the S&P 500 for the roughly 100 stocks with the highest "momentum scores." The momentum score is calculated as the price change over the trailing 12 months (excluding the most recent month), divided by the standard deviation of daily returns as a volatility adjustment. This means SPMO doesn't just pick the biggest gainers — it picks the stocks that are rising "most steadily."
| Metric | Value |
|---|---|
| Tracked Index | S&P 500 Momentum Index |
| Number of Holdings | ~100 |
| Expense Ratio | 0.13% |
| AUM | ~$13 billion |
| Yield | ~0.8-1.0% |
| 5-Year Annualized Return | ~19.02% |
SPMO vs. QQQ: Why Choose Momentum Over Tech?
| Year | SPMO | QQQ | Difference |
|---|---|---|---|
| 2021 | +22.65% | +27.42% | -4.77% |
| 2022 | -10.46% | -32.58% | +22.12% |
| 2023 | +17.55% | +54.86% | -37.31% |
| 2024 | +45.81% | +26.72% | +19.09% |
| 2025 | +26.57% | +20.77% | +5.80% |
2022 was the decisive turning point. QQQ suffered a -32.58% drawdown as tech stocks collectively crashed, requiring a +48.3% gain to recover. SPMO, by contrast, drew down only -10.46%, requiring just +11.7% to recover. The key to this gap is SPMO's volatility-adjustment mechanism — it doesn't concentrate indefinitely in the hottest but most fragile tech names.
In 2024, SPMO led QQQ by a wide margin, +45.81% versus +26.72%, showing that the momentum factor can generate substantial excess returns in markets with clear trends.
Chapter 2 Satellite Holdings
PAVE: An Infrastructure-Growth Substitute Engine
Global X U.S. Infrastructure Development ETF (expense ratio 0.47%, ~100 holdings)
Invests in companies across the U.S. infrastructure supply chain, spanning construction and engineering, raw materials, industrial transportation, and heavy equipment. It benefits from a long-term policy tailwind from nearly $1 trillion in federal infrastructure legislation. It fell only -7.18% in 2022, but gained +36.42% in 2021 and +31.01% in 2023 — growth potential rivaling tech, with lower volatility.
AVDV: International Factor Diversification Hedge
Avantis International Small Cap Value ETF (expense ratio 0.36%, ~1,580 holdings)
An actively managed international developed-market small-cap value ETF that is simultaneously exposed to the small-cap premium, value premium, and quality-screening factors. Its correlation with U.S. large-cap growth is extremely low (estimated 0.45-0.55), making it a genuine diversification tool. It surged +49.37% in 2025, proving that international value stocks can pick up the baton when U.S. equities slow down.
DIVO: A Bear-Market Stabilizer and Monthly Income Generator
Amplify CWP Enhanced Dividend Income ETF (expense ratio 0.56%, ~25 holdings)
Holds 20-25 high-quality, large-cap dividend-paying stocks and tactically writes covered calls on individual names. It fell only -1.49% in 2022, making it the strongest defensive tool in the entire portfolio. Its monthly-paid yield of roughly 4.8% provides steady cash flow.
USD: 2x Leveraged Semiconductors (The Conviction Position)
ProShares Ultra Semiconductors ETF (expense ratio 0.95%, 2x leverage)
Tracks 2x the daily return of the Dow Jones U.S. Semiconductors Index. An extremely aggressive instrument — +228.80% in 2023, +139.63% in 2024, but -68.56% in 2022. Suitable only for a small allocation (5-10%) as a "conviction position" that uses a very small weight to pursue asymmetric returns.
SGOV: A Cash Equivalent and Optionality Reserve
iShares 0-3 Month Treasury Bond ETF (expense ratio 0.07%, yield ~4.2%)
Invests in short-term U.S. Treasuries with 0-3 months to maturity, with near-zero volatility and stable annual returns of 4-5%. It plays the role of "optionality" in the account — cash on hand to deploy when markets crash, rather than being forced into action.
Chapter 3 Annual Returns Across All ETFs (2021-2025)
| Year | SPMO | PAVE | AVDV | DIVO | USD | SGOV |
|---|---|---|---|---|---|---|
| 2021 | +22.65% | +36.42% | +15.79% | +22.90% | +104.27% | +0.04% |
| 2022 | -10.46% | -7.18% | -11.46% | -1.49% | -68.56% | +1.58% |
| 2023 | +17.55% | +31.01% | +16.87% | +6.96% | +228.80% | +5.12% |
| 2024 | +45.81% | +17.93% | +8.67% | +16.22% | +139.63% | +5.27% |
| 2025 | +26.57% | +19.37% | +49.37% | +17.41% | +62.08% | +4.24% |
2022 is highlighted in yellow as the only year with across-the-board negative returns.
Chapter 4 Allocation Design
🔥 Aggressive Version: SPMO 40 / PAVE 15 / AVDV 10 / DIVO 25 / USD 10
2022 Stress Test Breakdown:
| ETF | Allocation | 2022 Return | Contribution |
|---|---|---|---|
| SPMO | 40% | -10.46% | -4.18% |
| PAVE | 15% | -7.18% | -1.08% |
| AVDV | 10% | -11.46% | -1.15% |
| DIVO | 25% | -1.49% | -0.37% |
| USD | 10% | -68.56% | -6.86% |
| Total | 100% | -13.64% |
🛡️ Balanced Version: SPMO 45 / PAVE 15 / AVDV 15 / DIVO 15 / SGOV 10
| ETF | Allocation | 2022 Return | Contribution |
|---|---|---|---|
| SPMO | 45% | -10.46% | -4.71% |
| PAVE | 15% | -7.18% | -1.08% |
| AVDV | 15% | -11.46% | -1.72% |
| DIVO | 15% | -1.49% | -0.22% |
| SGOV | 10% | +1.58% | +0.16% |
| Total | 100% | -7.57% |
Chapter 5 Five-Year Backtest Results (2021-2025)
Starting conditions: a $50,000 initial principal plus $500 monthly contributions over 60 months. Total contributions: $80,000.
Year-by-Year NAV Trajectory
| Year-End | Aggressive NAV | Balanced NAV | 100% SPMO |
|---|---|---|---|
| 2020 (Start) | $50,000 | $50,000 | $50,000 |
| 2021 | $72,849 | $72,299 | $73,175 |
| 2022 | $69,418 | $73,327 | $72,145 |
| 2023 | $109,671 | $93,432 | $92,062 |
| 2024 | $157,020 | $119,508 | $140,424 |
| 2025 | $205,736 | $155,847 | $176,756 |
Chapter 6 Risk Analysis and Drawdown Geometry
Drawdowns and Recovery Requirements
| Portfolio | 2022 Drawdown | Recovery Needed | 2023 Return | Recovered Within a Year? |
|---|---|---|---|---|
| 100% QQQ | -32.58% | +48.3% | +54.86% | Barely |
| 100% SPMO | -10.46% | +11.7% | +17.55% | ✓ Fully Recovered |
| Aggressive | -13.64% | +15.8% | +35.2% | ✓ Fully Recovered |
| Balanced | -7.57% | +8.2% | +17.5% | ✓ Fully Recovered |
The USD Conviction Question
A 10% allocation to USD is a "conviction question." You must pass a three-layer absorption test:
Financial absorption: A total loss of the 10% USD position (roughly -6.9% of the account) must not disrupt core operations.
Structural absorption: You should not need to sell other positions to cover the gap.
Psychological absorption: Can you watch a 10% position get cut by 70% without breaking your own rules?
If you pass all three, the Aggressive version is a reasonable choice. If any one fails, the Balanced version is the correct answer.
Chapter 7 The Role of Each of the Five Assets
| ETF | Account Role | Bull-Market Role | Bear-Market Role | Allocation Logic |
|---|---|---|---|---|
| SPMO | Core Engine | Momentum trend-follower | Volatility adjustment naturally reduces exposure | Core 40-45% |
| PAVE | Secondary Growth Engine | Infrastructure policy tailwind | Drawdown only 1/5 of QQQ's | Substitutes for part of QQQ weight |
| AVDV | Factor Hedge | International factor rotation breakout | Low-correlation buffer vs. U.S. equities | A genuine source of diversification |
| DIVO | Cash-Flow Stabilizer | Monthly cash flow | Barely declines in bear markets | Reduces account volatility |
| USD/SGOV | Conviction/Optionality | Rocket fuel/stable interest | Extreme loss protection/positive-return buffer | 5-10% satellite allocation |
Chapter 8 Conclusion and Execution Recommendations
Core Conclusions
First, SPMO is better suited than QQQ as a core holding. The momentum factor's volatility-adjustment mechanism gives SPMO a bear-market drawdown only one-third the size of QQQ's, while its bull-market returns are comparable or even stronger.
Second, PAVE is the best substitute for diversifying away from concentrated tech risk. Shifting 15% from core tech holdings into the infrastructure theme meaningfully lowers drawdown while sacrificing almost no growth.
Third, AVDV provides genuine, uncorrelated diversification. International small-cap value stocks have extremely low correlation with U.S. large-cap growth, and the +49.37% return in 2025 proves it can carry the portfolio when U.S. equities slow down.
Fourth, DIVO is the account's "airbag." A mere -1.49% drawdown in 2022 combined with a monthly-paid 4.8% yield keeps cash flowing into the portfolio even during stress periods.
Fifth, the choice between USD and SGOV is a "personality test." Those who can tolerate -68% extreme volatility should use the Aggressive version; those who cannot should use the Balanced version. Both are reasonable choices.
Execution Recommendations
Do not deploy the full allocation all at once. A three-stage build is recommended:
Stage One (Months 1-2): Build 60% of the position, focused on SPMO and DIVO.
Stage Two (Months 3-4): Add PAVE and AVDV, and observe your psychological reaction during drawdowns.
Stage Three (Months 5-6): Complete the position with USD or SGOV to finish the full structure.
Review allocation drift quarterly. If any asset drifts more than ±5% from its target, rebalance.
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Disclaimer: This article is for educational and research purposes only and does not constitute investment advice. Past performance does not guarantee future returns. Investing involves risk; please evaluate carefully based on your own financial situation.