2025-09-09
The VXF unlocks America's growth potential by giving investors low-cost access to thousands of mid- and small-cap stocks beyond the S&P 500. capturing innovation and broader market expansion.
The S&P 500 is often seen as the gold standard for U.S. equities. It represents America's largest and most influential firms, shaping much of the global economy.
But stopping there means missing out on thousands of companies that drive innovation and competition.
The Vanguard Extended Market ETF (VXF) was created to fill this gap. Launched in 2001. it captures U.S. mid- and small-cap stocks excluded from the S&P 500.
By tracking the S&P Completion Index, VXF offers investors a fuller picture of the U.S. equity market. In short, it completes the puzzle.
VXF is built on the S&P Completion Index. This benchmark includes every U.S. stock not in the S&P 500. ensuring investors get coverage of the "rest of the market."
The ETF holds over 3.400 companies. Its structure is broad, with no single firm dominating the portfolio. The top ten holdings make up only about 10% of assets.
Sectors are well represented too. Technology and Financials lead, while Healthcare, Industrials, and Consumer Discretionary also carry weight.
With such scale and spread, VXF provides exposure to the true engine of U.S. economic growth.
VXF stands out for its very low cost. Its expense ratio is just 0.05%, meaning only £5 a year for every £10.000 invested.
Compare this with actively managed funds, which often charge more than 1% annually. Over time, the difference compounds into thousands of pounds.
By keeping fees low, VXF allows investors to keep more of their returns, maximising long-term growth potential.
VXF reflects the ups and downs of mid- and small-cap stocks. In bull markets, these companies often outperform as they grow quickly and adapt fast.
During downturns, however, they are more vulnerable. Smaller firms lack the financial strength of global giants, so VXF can lag behind the S&P 500.
Over long horizons, the picture is strong. Five- and ten-year returns have been in the double digits, showing that patient investors are rewarded.
The lesson is clear: VXF can be volatile in the short term, but it pays off over time.
VXF offers several key advantages:
Diversification across thousands of companies
Growth potential from smaller, innovative firms
Cost efficiency unmatched by most rivals
Perfect complement to the S&P 500 for near-total U.S. coverage
For many investors, these strengths make VXF a natural addition to a well-balanced portfolio.
Despite its appeal, VXF carries risks.
Volatility is the most obvious. Mid- and small-cap stocks can swing sharply in price.
Economic downturns also pose challenges. Smaller firms tend to struggle more than established large caps when conditions tighten.
Finally, there is the risk of tracking error. While usually small, the ETF may not perfectly mirror its benchmark.
Investors must be ready to accept these risks in exchange for growth potential.
VXF is best suited to specific groups of investors.
It works well for completers — those who already own an S&P 500 ETF and want to fill in the missing part of the market.
It also appeals to the cost-conscious — investors who value low fees and long-term efficiency.
Lastly, it suits the patient optimists — people willing to endure volatility for stronger long-term gains.
For these groups, VXF is more than optional. It is strategic.
| Feature / Metric | Vanguard Extended Market ETF (VXF) | S&P 500 ETF (e.g., SPY, VOO) |
| Objective | Track U.S. mid- and small-cap stocks not in S&P 500 | Track the 500 largest U.S. companies |
| Benchmark Index | S&P Completion Index | S&P 500 |
| Market Cap Focus | Mid-cap and small-cap only | Large-cap only |
| Number of Holdings | ~3,400 | ~500 |
| Sector Exposure | More balanced across Technology, Financials, Industrials, Consumer Discretionary, Health Care | Technology, Financials, Health Care dominant |
| Geographic Exposure | U.S. (~95%), small international exposure via global operations of U.S. companies | U.S. (~95–100%) |
| Expense Ratio | 0.05% | 0.03–0.09% |
| Volatility | Higher | Lower |
| Growth Potential | Higher due to mid/small-cap exposure | Moderate |
| Complementary Role | Complements S&P 500 for full U.S. market coverage | Core large-cap holding |
| Ideal For | Investors seeking growth and diversification beyond large caps | Conservative investors, core portfolio |
| Launch Year | 2001 | SPY: 1993, VOO: 2010 |
1. Is VXF enough to replace an S&P 500 ETF?
No. VXF is meant to complement, not replace, the S&P 500. Together they cover nearly the entire U.S. market.
2. What kinds of companies dominate VXF's holdings?
Mid- and small-cap firms across sectors such as Technology, Financials, Industrials, and Healthcare.
3. How does VXF compare with total market ETFs?
Total market ETFs offer similar breadth. But VXF lets investors pair it with the S&P 500 to control their large- vs small-cap balance.
4. What type of investor might find VXF unsuitable?
Those seeking low volatility. VXF can be turbulent, especially in downturns.
The Vanguard Extended Market ETF (VXF) captures thousands of U.S. firms often overlooked by investors. It offers diversification, growth potential, and rock-bottom fees.
Yes, it is more volatile than the S&P 500. But used alongside it, VXF provides near-complete exposure to the U.S. equity market.
For long-term, cost-conscious investors, VXF is not just a nice-to-have. It is the missing puzzle piece that makes the market whole.
Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
