Extend Market Exposure With This ETF

Many of the largest exchange-traded funds focus on U.S. large-cap stocks. For example, the two largest ETFs, and three of the five biggest, track the S&P 500. While the S&P 500 is the benchmark U.S. equity gauge, it holds just over 500 stocks and because of its cap-weighted methodology, heavily tilts toward large-caps.

An array of ETFs provide exposure to larger numbers of stocks with total market or extended market strategies. A familiar name from this group includes the Vanguard Extended Market ETF VXF.

VXF is a mid-cap blend ETF that attempts to provide “a convenient way to match the performance of virtually all regularly traded U.S. stocks except those in the S&P 500 Index,” according to Vanguard. The ETF holds over 3,200 stocks, or about six times as many that reside in the S&P 500.

You Complete Me

Well, that is probably a stretch, but the aim of ETF's such as VXF to complete equity exposure that is not emphasized in traditional large-cap strategies, such as S&P 500 ETFs and index funds. VXF tracks the S&P Completion Index.

“Furthermore, and in a point that illustrates exactly where the value of the S&P Completion Index may lay in the context of overall index investing,” said Street One Financial Vice President Paul Weisbruch in a recent note. “This is an important point in that S&P and Vanguard are isolating “regularly traded stocks” as opposed to containing potentially illiquid names, but ones that are not S&P 500 names.” 

The median market cap of VXF's holdings is $4.1 billion, well below the comparable metric on the S&P 500 and a figure that cements the Vanguard fund's status as a mid-cap offering. With a price-to-earnings ratio of 19.7, VXF essentially trades inline with the S&P 500, but at a noticeable discount the small-cap Russell 2000 Index.

VXF History

“Like many Vanguard ETFs, VXF has its roots in a mutual fund strategy, ticker VEXMX (Vanguard Extended Market Index Fund, Expense Ratio 0.21%, $57.2 billion in AUM) that launched way back in late December of 1987,” said Weisbruch. “During Vanguard’s foray into the ETF business, Vanguard debuted VXF into the marketplace years later in late December of 2001 hoping to mimic the asset gathering success of the mutual fund.”

And like so many Vanguard ETFs, VXF has proven successful ... and inexpensive. As of the end of the second quarter, VXF had $4.9 billion in assets under management. The ETF charges 0.08 percent annually, or $8 on a $10,000 investment, making it cheaper than 93 percent of competing funds, according to Vanguard data.

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