Stop Chasing AI Stocks: Focus On Momentum Instead
The biggest mechanical buyer in the market rebalances in seven weeks. Here is how to position your portfolio for it today.
A Rotation Is Happening
I think my call was right last week because capital has finally begun to rotate out of technology and investors are taking gains off the table. For instance, Micron MU 0.00%↑ dropped 8% in a single session this month while capital rotated out of the chipmakers like ASML Holding ASML 0.00%↑. Even companies like Alphabet GOOG 0.00%↑ fell 7% after raising its AI capital spending forecast.
The trend is clear. The markets are fatigue around AI. Investors are sick of hearing about capex spending and now the growth momentum has effectively ended.
The keyword for this article will be: Momentum.
For a dividend investor this rotation is familiar territory. The sectors catching the bid are the ones we already own for the income: the oil majors, the staples, the utilities, the banks. You can use this volatility to your benefit with the 4 ETFs listed in the article below.
I think we’ll likely see this rotation continue through the remainder of 2026. I want to propose a way for investors to navigate these uncertainty markets by focusing on the stocks with the highest momentum scores.
Looking at all the sector ETFs, we can get a quick glimpse of which sectors are out of favor.
👉 By the end of this article, you will have the knowledge and tools on how to limit downside risk, while participating in a greater level of upside movement.
The process is simple and back tests prove its success.
The Strategy: Momentum Investing
Momentum investing is one rule: stocks that have been going up tend to keep going up for a while. The same works in the other direction: one something trends lower, it usually needs a positive catalyst to reverse it. It is one of the only return factors that has survived a century of scrutiny, and it persists because investors underreact to new information and then chase it. Similarly to how investors are currently chasing the AI and memory hype.
I want to share a fund that captures this momentum and has a history of rewarding shareholders. It holds the 100 stocks in the S&P 500 with the strongest volatility-adjusted price performance over the trailing 12 months, excluding the most recent month. The fund is incredibly cost-efficient as it only charges 0.13% of assets per year. The fund effectively screens for whatever stock is winning and then buys it.
The fund I want to highlight today has massively outperformed against the S&P 500 Index SPY 0.00%↑, as we can see on the purple line in the graph below.
Going forward, I think this fund will continue to outperform.
Sentiment and momentum go together and we’ve already seen how power this can be. The same screen that allowed this fund to load up on AI chipmakers when they were the trade will sell them without hesitation the moment the trailing numbers say something else is working.
The point of this article is for me to walk through exactly how its September rescore works to out advantage, show what it owns today, and why that portfolio is about to be forced toward the dividend sectors that can benefit the rest of out portfolio. Additionally, this fund can be the growth engine within a diversified income generating portfolio. I plan to replace my index tracking positions with this fund at some point in the near-term.
For instance, $10,000 invested in this momentum fund has grown to $53k over the last ten years. This significantly outpaces the growth of the S&P 500 over the same time frame.
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The Fund We Can Utilize
The fund is the..
