How Active Traders Look Beyond the S&P 500

Many retail investors and media stations alike often lock their focus onto the well-known companies that comprise the S&P 500. The large- and mega-cap nature of the companies in that group make them household names as well as some of the most stable investments in the world.

In some scenarios, active traders find themselves wanting to branch out beyond the top 500 and look to gain exposure to the rest of the commonly traded companies in the market. In this article, we'll look at how some traders put this idea into action and consider a couple of ideas that are likely to catch the attention of many traders over the weeks ahead.

Key Takeaways

  • Active traders looking for exposure outside of the S&P 500 may want to consider exchange-traded funds (ETFs) such as the Vanguard Extended Market ETF (VXF).
  • Nearby support levels on the chart of VXF and its top holdings make this group of stocks one to watch over the final months of 2020.

Vanguard Extended Market ETF (VXF)

Active traders who are most interested in gaining exposure to virtually all of the U.S. stocks with the exception of those included in the S&P 500 Index should consider checking out exchange-traded products such as the Vanguard Extended Market ETF. Looking at the chart below, you will notice that price action on retracements toward the support of the dotted trendlines and long-term moving averages have been in the favor of the bulls.

The strong bounces from the identified support levels are technical indications that the long-term uptrend is still well in place. The risk/reward setups could make current levels an interesting buying opportunity, depending on risk tolerance and investment outlook.

Chart showing the share price performance of the Vanguard Extended Market ETF (VXF)

Tesla, Inc. (TSLA)

There was no shortage of talk about Tesla, Inc. (TSLA) joining the S&P 500 index back in September, which did not end up coming to fruition. The exact timing of when it will be added to the index is not really important here, but what should be noted is that the strong growth characteristics of many of the top holdings of VXF could be worthy of closer attention since they are likely to be added at some point in the future due to their growth trajectories.

Looking at the chart below, you'll note how Tesla stock has been one of the top performers of 2020 and looks well positioned for a move higher over the weeks and months to come. Followers of technical analysis will most likely look to buy near current levels and protect against a shift in sentiment of underlying fundamentals by placing stop-loss orders below $422.61 or the ascending trendlines, depending on risk tolerance and outlook.

Chart showing the share price performance of Tesla, Inc. (TSLA)

Zoom Video Communications, Inc. (ZM)

Another top holding of the VXF ETF that could be worth a closer look is Zoom Video Communications, Inc. (ZM). As people around the world find themselves working from home and looking for new ways to communicate with family and friends, Zoom Video Communications has been one of the benefactors of this dominant theme and has realized levels of astonishing growth.

Taking a look at the chart, you'll notice that the stock price has been trading along a well-defined ascending trendline. Trend traders will most likely look to buy near current levels in anticipation of a bounce back toward the swing high of $588.84. Stop-loss orders will most likely be placed below the dotted trendline to protect against a move toward longer-term support levels.

Chart showing the share price performance of Zoom Video Communications, Inc. (ZM)

Investing in thematic ETFs carries higher risks and, potentially, more lucrative rewards than the broader ETF space. Investors should be aware of the pitfalls to participating in these niche ETFs, but at the same time, if done carefully, thematic ETF investment can provide excellent returns. 

The Bottom Line

For many traders, the focus remains fixed on the largest companies in the economy, which in the majority of cases are components of the S&P 500. However, for those looking to broaden their lens on the markets, it could be worth looking to the VXF ETF and its top holdings.

At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.

Take the Next Step to Invest
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.