The S&P 500 is one of the world's most widely followed equity indexes, but there are some interesting exchange-traded funds (ETFs) for investors looking for broad-based exposure to U.S. equities that do not reside in the S&P 500. Investors looking for exposure to a slew of U.S. stocks not found in the S&P 500 do not need to look much further than the Vanguard Extended Market ETF (VXF). The Vanguard Extended Market ETF certainly features an expansive lineup with over 3,200 holdings, but there are other advantages to this liquid approach to U.S. equities.
For example, VXF's more than 3,200 components have a median market value of $4 billion, meaning this is essentially a mid-cap ETF. While the S&P 500 does feature some exposure to smaller stocks, it is a cap-weighted index, meaning that large- and mega-cap stocks dominate the index. With VXF's emphasis on smaller stocks, the ETF can be used as a complement to traditional S&P 500 exposure. VXF follows the S&P Completion Index, which can be seen as a smaller alternative to the S&P 500. (See also: VXF: Vanguard Extended Market ETF.)
With its deep bench, VXF all but eliminates single-stock risk, as the ETF's top 10 holdings represent just 4.4 percent of the fund's lineup. "Indeed, small- and micro-cap stocks make up over 50 percent of its holdings by weight," said Morningstar in a recent note. "Because the index relies on others to accurately price its holdings, the fund is fully exposed to the potential excesses of the market. But it also reflects the collective views of active investors."
At the end of April, VXF allocated 34 percent of its combined weight to financial services and technology stocks. The consumer discretionary, industrial and healthcare sectors combined for nearly 40 percent of the ETF's weight, according to issuer data. Sectors that are typically dominated by large-cap stocks, such as energy, telecom and utilities, are lightly represented in VXF. (See also: The 3 Largest Extended Market ETFs.)
VXF "reduces transaction costs by sampling among the smallest, more illiquid stocks, but it still holds nearly every stock in the index," said Morningstar. "Relative to other indexes, the S&P 500 uses more restrictive criteria before adding a stock to the index, such as evidence of financial viability and that at least 50 percent of a company's shares float publicly." VXF is considered a mid-cap blend ETF. Its annual expense ratio is 0.08 percent, or $8 on a $10,000 stake, putting VXF among the least expensive mid-cap blend funds. (See also: Investing in the Overlooked SMid-Cap Space.)