This ETF Owns 3,500 Stocks, Is It Better Than the S&P 500?

Vanguard’s Extended Market ETF (VXF) is a broad fund made up of thousands of stocks across essentially every part of the American business landscape. Like many ETFs, VXF attempts to give investors access to a broad selection of stocks without the difficulty and risk involved in picking individual companies.

Today, let’s take a deeper look at VXF to see if the fund is a good investment at the moment.

Key Points

• VXF holds 3,500 small and mid-cap stocks, reducing reliance on mega-cap tech.

• VXF adds diversification but is more volatile than large-cap-focused funds.

What Does VXF Track?

VXF is comprised of stocks in small and mid-sized American companies, making it a useful fund for capturing the returns of American stocks outside of the S&P 500.

The fund tracks an index of nearly 3,500 stocks, giving it a high degree of diversification both among individual companies and sectors.

The top 10 holdings in the fund at the time of this writing are as follows:

• Marvell Technology (NASDAQ:MRVL)
• AppLovin (NASDAQ:APP)
• CRH (NYSE:CRH)
• MicroStrategy (NASDAQ:MSTR)
• DoorDash (NASDAQ:DASH)
• Snowflake (NYSE:SNOW)
• Coinbase Global (NASDAQ:COIN)
• Trade Desk (NASDAQ:TTD)
• Square (NYSE:XYZ)
• Cheniere Energy (NYSE:LNG)

VXF is also quite diversified in terms of the sectors over which its holdings are spread. information technology and financials make up the two largest chunks of the ETF at 18.3 and 18.2 percent, respectively. Industrials, consumer discretionary and healthcare also make up decently large parts of VXF’s portfolio.

VXF Expense Ratio

Like most Vanguard funds, one of VXF’s positives is its low expense ratio. In the case of VXF, the ratio is just 0.05%.

Though slightly higher than some other Vanguard funds, VXF’s expense ratio is far lower than what investors might find associated with more actively managed funds tracking similar groups of assets.

VXF Vs S&P 500

One of the best ways to measure a fund’s trailing performance is to compare it to a benchmark S&P 500 fund like Vanguard’s popular VOO fund. Over the last 10 years, VOO has increased at an annualized rate of 12.9%. VXF has performed quite a bit lower at 8.9%.

The difference becomes starker in the past three years, during which time the S&P has moved upward quickly as the AI boom has delivered large returns to come of its top performers.

On a trailing 3-year basis, VXF has delivered annualized returns of 5.9 percent to VOO’s 12.5%.

How Does VXF Compare on Dividend Yield?

At 1.1%, VXF runs slightly under what investors could expect to see from other Vanguard funds but still produces at least a respectable stream of dividend income.

Vanguard’s Total Market fund (VTI), which tracks all American stocks, yields 1.2%, which the S&P 500 as a whole matches almost exactly. As such, VXF isn’t too far below the yields offered by other extremely broad funds.

It does, however, fall far below the income investors can expect from high-yield funds like VYM, which yields 2.5 percent.

VXF’s Valuation

Because it lacks the highly-valued mega-cap stocks that dominate the top of the S&P, VXF carries a somewhat more reasonable valuation. The overall P/E ratio for the fund is 21.0, while its price-to-book ratio is 2.7. Both of these metrics compare favorably to VOO’s 27.5 P/E ratio and 5.0 price-to-book ratio.

These differences, however, are largely made up for by the disparity in the earnings growth rate between the two funds. The stocks making up VXF have seen their earnings rise at a compounded rate of 13.9% over the last five years, while stocks in VOO have averaged 18.9 percent.

One area where VXF significantly undershoots VOO is in return on equity. Overall, VXF’s return on equity is a modest but respectable 8.6 percent.

VOO, however, offers a vastly superior ROE of 25.5%. With higher returns on equity typically associated positively with higher stock returns, this difference could go a long way toward making VOO worth the premium it commands relative to VXF.

Is VXF a Good ETF to Buy?

While an S&P 500 ETF like VOO is considered the gold standard of investing, a small and mid-sized stock fund like VXF can have its place as a tool for providing greater diversification in a portfolio.

Because it captures essentially the entire spectrum of small and mid-sized publicly traded companies, VXF allows investors to buy a larger slice of American businesses beyond the large-cap companies that make up the S&P.

It’s also worth noting that VXF could help investors hedge against a possible correction among the S&P 500’s mega-cap tech stocks. The Magnificent Seven now account for over 35% of the S&P 500, suggesting that the index has become extremely top-heavy.

With these top stocks mostly trading at high valuations on the estimated future growth made possible by AI, it’s far from impossible that a price correction could occur if something happens that reduces those growth estimates. To some extent, such a reaction has already been seen this year when many top AI stocks sold off in response to the news that China’s DeepSeek had developed a cheaper, more efficient way to train AI algorithms.

VXF does, however, also carry some possible risks of its own. Historically, investing in large-cap companies of the type found in the S&P 500 has been the most stable and predictable way to build wealth over long periods of time. Smaller companies can produce outsized returns, but they can also be more subject to volatility and macroeconomic conditions. For this reason, Vanguard classifies VXF as an aggressive fund.

At the end of the day, VXF may not be a massive growth driver. What the fund does offer, however, is a well-diversified approach to investing in thousands of American businesses. With the ability to compound decently over time and a dividend yield close to that of an S&P 500 fund like VOO, though, VXF could be a good choice for reducing concentration risk and increasing diversity in a portfolio made up of multiple funds.

On its own, however, VXF stands a fairly good chance of continuing to moderately underperform benchmarks like the S&P 500 index over long periods of time.