Market Overview

Round Out Equity Exposure With This ETF

Round Out Equity Exposure With This ETF

Total market index funds and exchange traded funds are popular with investors because many feature low fees while offering exposure to massive numbers of stocks.

For example, the S&P Total Market Index holds more 3,400 stocks. The rub with many total market funds is that while the rosters are substantial, these products are biased toward large-cap equities.

What Happened

The Vanguard Extended Market ETF (NYSE: VXF) helps investors solve some of the large-cap-related issues associated with traditional total market funds. The ETF tracks the S&P Completion Index, a benchmark providing exposure to domestic stocks residing outside the S&P 500.

Market-cap weighting skews the fund toward the largest names outside of the S&P 500, but it reaches further down the market-cap spectrum than most mid-blend Morningstar Category peers and straddles the mid- and small-cap size segment breakpoint.

"Indeed, its average market capitalization is about half that of the category average,” Morningstar said in a recent note. “The fund’s broad reach and market-cap weighting should help it effectively diversify firm-specific risk.”

VXF's nearly 3,300 holdings have a median market value of $4.6 billion, putting the fund in mid-cap territory.

Why It's Important

Often overlooked among total market ETFs, VXF is not a small fund. The ETF has over $6.5 billion in assets under management and, as is par for the course with Vanguard ETFs, is inexpensive. VXF's annual fee is 0.08 percent, or $8 on a $10,000 investment, making it less expensive than 92 percent of competing strategies, according to Vanguard data.

“The fund further reduces its turnover by using representative sampling to effectively track its underlying index,” said Morningstar.

“Smaller, less-liquid stocks are usually more expensive to trade than large-cap stocks. The fund keeps costs down by sampling among the smallest stocks in the index while accurately maintaining an accurate representation of its characteristics.”

Technology is VXF's largest sector weight at 18.8 percent. Financial services and consumer discretionary names combine for nearly 31 percent of the fund's weight.

What's Next

Over the long haul, VXF's performance has been solid.

“During the trailing decade through July 2018, the fund has performed well, topping the mid-cap blend category average by 2.4 percentage points each year with slightly more volatility. Its cost advantage and greater exposure to small- and micro-cap stocks were the biggest contributors to its outperformance,” according to Morningstar.

The research firm has a Gold rating on VXF.

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Posted-In: Analyst Color Long Ideas News Broad U.S. Equity ETFs Analyst Ratings Trading Ideas ETFs Best of Benzinga


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