Beyond SPY & QQQ: How Cycle Alignment Drives Best Performing ETFs for Diversification
- Jul 2
- 7 min read
There are over 6,000 stocks listed on U.S. exchanges. That's a massive universe to sort through—and honestly, too much for any one trader to manage. That's why we use ETFs. One share gives you built-in diversification across dozens or even hundreds of stocks. It's efficient. It's clean. And it keeps us focused on the bigger picture.
Let's go over a couple of new ETFs I just added to our Visualizer.
The Power of Strategic ETF Selection
Everyone knows QQQ. It's been the market leader for years, loaded with tech giants like Apple, Microsoft, Nvidia, and Amazon. When growth stocks are in charge, QQQ tends to lead the pack. And sure, just trading the QQQ and SPY can deliver incredible results, especially when you allocate a portion of a portfolio to their leveraged siblings—the TQQQ and SPXL.
But you don't always need leverage to boost returns. Some of the other ETFs we track can add power and diversification without the added volatility that comes with those.
Take MTUM—this one's built on momentum. It rotates into whatever stocks are showing strength at the moment, regardless of sector. It's fast to adapt and tends to get positioned ahead of the pack.
Then there's VOT, which focuses on mid-cap growth. We don't talk about mid-caps much, but in a market where large caps have hogged all the oxygen for the last couple of years, this is often where rotation starts to show up. VOT is broader, less concentrated in tech, and gives exposure to emerging leaders that haven't hit household name status yet. Check our post on Swing Trading ETFs with Cycle Timing: How to Avoid Late Entries Near Market Tops for more info.
Performance Analysis: The Numbers Tell the Story with Best Performing ETFs
Over the past year and a half, MTUM has crushed it—up over 73% (much more if traded). Its momentum-driven strategy didn't just keep up—it outpaced both QQQ and SPY by a wide margin. That kind of performance shows you don't need to chase extended valuations or use leverage to ride market leadership.
MTUM rotates into what's working, and lately, its chart shows that's been working very well.
The QQQ still delivered a solid 54% gain, which reinforces that large-cap tech continues to dominate. But compared to MTUM, it's clear there are other adaptive ways to capture upside—especially in rotational markets where leadership keeps shifting.
VOT came in just under QQQ at 50%, with less volatility and a broader mix of mid-cap growth names. It gives you exposure to the next wave of possible leadership—before they show up in headlines. That's exactly why it earns a spot here: it complements big-name ETFs without overlapping them.
The Cycle Alignment Advantage
Most important, both MTUM and VOT track the broad market cycles well. They stay in sync with the S&P and Nasdaq most of the time, which makes them ideal for cycle-based diversification. When the cycles shift, these ETFs respond. And that's what we're looking for—tools that allow us to move with market structure, not against it.
Bottom line: You don't have to stick with just SPY and QQQ to outperform or diversify. As long as an ETF follows the same cycles, let that structure do the heavy lifting. Momentum, mid-cap growth, and tech leadership—these are all valid paths, as long as you stay aligned with the market's lead.
Current Market Positioning and Risk Management
Right now, the broad indexes are in the early stages of an intermediate dip pullback that could stretch into mid-July. Make sure all long positions are protected with layered stops, and be ready to exit if those get hit. Then wait for the market to invite you back in with a reversal off the next cycle low, confirmed by rising short-term cycles and bullish crossovers.
This approach to risk management becomes even more critical when diversifying across multiple ETFs. Each position should be protected according to its own structural levels, while maintaining awareness of how the broader market cycles affect the entire portfolio. The key is maintaining discipline during pullbacks while staying positioned for the next advance when cycles align favorably. Check our post on How to Use the Collar Option Strategy to Manage Risk During Gap Downs for more info.
What People Also Ask About ETF Diversification and Cycle Timing
How do I choose ETFs that align with market cycles?
The key to selecting cycle-aligned best performing ETFs is understanding how they respond to broader market movements. Look for ETFs that track the major indexes during both advances and pullbacks, maintaining correlation with the overall market structure. ETFs like MTUM and VOT demonstrate this characteristic by moving in sync with the S&P and Nasdaq while providing their own unique exposure. The goal is finding funds that respect the same cyclical patterns you're following in the broader market, ensuring your diversification strategy works with market structure rather than against it.
What makes momentum ETFs like MTUM effective for cycle-based trading?
Momentum ETFs are particularly effective for cycle-based trading because they automatically rotate into whatever sectors and stocks are showing strength at any given time. This adaptive nature means they tend to be positioned ahead of major moves, capturing leadership as it emerges. MTUM's 73% performance over the past year and a half demonstrates how this strategy can outperform even strong benchmarks like QQQ. The key advantage is that momentum strategies naturally align with market cycles, as they follow the path of least resistance that cycles help identify.
How do mid-cap growth ETFs fit into a diversified portfolio?
Mid-cap growth ETFs like VOT provide exposure to companies that are beyond the startup phase but haven't yet reached large-cap status. This positioning often makes them early beneficiaries of market rotation, especially when large caps have dominated for extended periods. VOT's 50% return, achieved with less volatility than tech-heavy alternatives, shows how mid-caps can provide strong performance while reducing concentration risk. They complement large-cap holdings by capturing the next wave of leadership before these companies become household names.
Should I use leveraged ETFs for better performance?
While leveraged ETFs like TQQQ and SPXL can amplify returns during favorable market conditions, they're not necessary for strong performance. MTUM's 73% gain demonstrates that strategic selection and momentum-based approaches can deliver excellent results without the added volatility of leverage. The decision to use leverage should be based on your risk tolerance and position sizing strategy, not as a requirement for outperformance. Many successful strategies achieve superior results through smart selection and cycle timing rather than leverage.
How do I manage risk across multiple ETF positions?
Risk management across multiple ETF positions requires understanding both individual ETF characteristics and broader market cycles. Each position should have its own protective stops based on structural levels, while maintaining awareness of how market cycles affect the entire portfolio. The current environment, with an intermediate pullback potentially extending into mid-July, requires protective stops on all long positions. The key is being ready to exit if stops are hit, then waiting for cycle confirmation before re-entering. This disciplined approach protects capital while maintaining the ability to participate in the next advance.
Resolution to the Problem
The challenge many investors face is the overwhelming choice among thousands of individual stocks and hundreds of ETFs, often leading to either paralysis or poor selection based on recent performance alone. The solution lies in understanding that effective diversification isn't about spreading investments across as many different vehicles as possible, but rather about selecting ETFs that align with market cycles while providing complementary exposure to different market segments.
The key insight from this analysis is that cycle alignment trumps everything else when selecting ETFs for diversification. Whether it's momentum-based rotation like MTUM, mid-cap growth exposure through VOT, or large-cap tech leadership via QQQ, the common thread is how these funds respond to the same cyclical forces that drive the broader market. This alignment ensures that your diversification strategy works with market structure rather than fighting against it.
Practical implementation requires discipline in both selection and risk management. Rather than chasing the latest hot ETF or trying to time perfect entries, focus on building a portfolio of cycle-aligned funds that complement each other without excessive overlap. MTUM provides adaptive momentum exposure, VOT captures mid-cap growth opportunities, and QQQ maintains large-cap tech leadership—each serving a specific purpose within the broader cyclical framework.
The ultimate resolution involves embracing the efficiency that ETFs provide while maintaining the discipline that cycle-based analysis demands. This approach transforms the overwhelming universe of investment choices into a manageable selection of tools that work together to capture market opportunities while managing risk through proper positioning and protective stops. Check our post on Market Cycles Confirm: Staying with Bullish Trends Despite Imminent Short-Term Pullbacks for more info.
Join Market Turning Points
At Market Turning Points, we specialize in cutting through the noise of thousands of investment options to focus on what truly drives performance: cycle alignment and market structure. Our ETF Visualizer provides clear guidance on which funds are positioned to benefit from current market conditions, helping you build a diversified portfolio that works with market cycles rather than against them.
Our approach to ETF selection goes beyond simple performance metrics to understand how different funds respond to cyclical forces. We track momentum leaders like MTUM, mid-cap opportunities like VOT, and established performers like QQQ, showing you how to combine them effectively for both growth and diversification. This methodology has helped our members identify outperforming ETFs before they become obvious choices to the broader market.
The current market environment, with its intermediate pullback extending into mid-July, provides an excellent example of how our cycle-based approach helps navigate both opportunities and risks. Our members understand how to protect their ETF positions with proper stops while preparing for the next advance when cycles align favorably.
Visit our homepage today to learn more and join our community of informed investors who understand that successful ETF investing requires more than just diversification—it requires cycle alignment. Discover how to build a portfolio that captures market leadership while managing risk through disciplined, structure-based analysis.
Conclusion
The path to superior ETF performance lies not in complexity but in understanding how market cycles drive the success of different investment strategies. While the universe of 6,000 stocks and hundreds of ETFs can seem overwhelming, focusing on cycle alignment simplifies the selection process dramatically. MTUM's 73% performance, VOT's steady 50% gain, and QQQ's solid 54% return all demonstrate how different approaches can succeed when they align with underlying market structure.
The key insight is that diversification through ETFs becomes most effective when each fund serves a specific purpose within the broader cyclical framework. Momentum strategies capture leadership as it emerges, mid-cap growth provides exposure to the next wave of market leaders, and established large-cap funds maintain exposure to proven performers. This strategic approach to selection ensures that diversification enhances rather than dilutes performance potential.
As we navigate the current intermediate pullback that could extend into mid-July, the importance of proper risk management across all ETF positions becomes paramount. Protective stops, disciplined exit strategies, and patience for proper re-entry signals all contribute to long-term success. The goal is not just to participate in market advances but to do so in a way that preserves capital during inevitable pullbacks.
Author, Steve Swanson