Invesco’s Dorsey Wright SmallCap Momentum ETF (NASDAQ: DWAS) has been a darling of aggressive growth investors for years. 

Built around a simple but powerful concept—buying the strongest stocks and letting the winners ride—the fund has often delivered strong returns in risk-on environments.

But lately? It’s been underwhelming. And that’s putting it nicely.

The Fund That Loves a Rally—But Isn’t Getting One

Momentum investing is a game of survival. Funds like (NASDAQ: DWAS) don’t just bet on stocks; they bet on trends. The idea is that stocks already moving higher will continue to do so, making them attractive short-term holds. When market conditions favor growth and risk-taking, this kind of strategy can produce stellar results.

But here’s the problem—this market isn’t playing along.

Despite a rebound in broader indexes, the types of companies (NASDAQ: DWAS) leans on just aren’t delivering the same firepower. The fund’s performance has lagged its peers, underperforming the Russell 2000 Growth Index over the past year. And while momentum strategies should thrive when sentiment is bullish, (NASDAQ: DWAS) is struggling to keep pace.

What’s Holding (NASDAQ: DWAS) Back?

A few key factors explain why this fund isn’t delivering the kind of outperformance investors expect.

First, interest rates are still biting. High-growth stocks tend to rely on borrowing for expansion, and while the Federal Reserve has slowed its pace of rate hikes, borrowing costs remain elevated. 

Many smaller growth-oriented companies—especially those in technology and industrials, which make up a major portion of DWAS’s holdings—are feeling the squeeze.

Second, sector rotation is working against it. Momentum investing works best when clear sector leadership emerges, but the current market environment has been defined by erratic leadership. One quarter, energy is in favor. 

The next, it’s defensive plays like utilities and consumer staples. This kind of choppy market action makes it harder for momentum-based funds to find and ride sustainable trends.

The Numbers Tell the Story

(NASDAQ: DWAS) has been running at a disadvantage compared to its benchmarks.

• Over the past 12 months, the fund is up just 3.2%, while the Russell 2000 Growth Index has returned 6.8%.

• Since the start of 2025, (NASDAQ: DWAS) has underperformed the S&P 500 by more than 5 percentage points.

• While the fund typically benefits from high-volatility environments, its annualized volatility is now over 20%, which has made it difficult for investors to stomach the recent swings.

Is There Still a Case for DWAS?

Despite the rough stretch, there’s a reason some investors are sticking with this fund. Historically, momentum strategies like this have come roaring back when conditions shift in their favor.

If the Federal Reserve signals an easing cycle later in 2025, expect riskier corners of the market—including funds like DWAS—to benefit. Lower borrowing costs would provide relief for growth-heavy companies, particularly in tech and industrials, helping (NASDAQ: DWAS) regain its footing.

There’s also the potential for consolidation among smaller companies, which could inject fresh momentum into the fund’s holdings. When deal-making picks up, investors tend to bid up stocks in anticipation of acquisitions, which could give (NASDAQ: DWAS) the kind of tailwind it desperately needs.

For now, (NASDAQ: DWAS) remains a high-risk, high-reward play that isn’t quite working as intended. The fund thrives in strong bull markets but has struggled in today’s uncertain environment. Interest rates, sector rotations, and market volatility have all been headwinds, and unless conditions shift, (NASDAQ: DWAS) may continue to underperform.

Still, for investors who believe in momentum as a long-term strategy, history suggests that tough periods like this don’t last forever. The real question is whether you have the patience to wait for the rebound—or if it’s time to find better opportunities elsewhere.