Vanguard Extended Market Index Fund Admiral Shares VEXAX

Vanguard Extended Market tracks a total market index that excludes S&P 500 stocks. It’s a misfit in the mid-cap blend category, but it pairs well with a fund that tracks the S&P 500 index to replicate the entire US stock market.

The fund replicates the S&P Completion Index, which removes all the S&P 500 stocks from the S&P Total Market Index and weights the remaining portfolio by market cap. The parent index holds all US stocks that pass its minimum requirements, ensuring they can be traded efficiently.

The S&P 500 requires companies to have positive GAAP earnings over the most recent quarter and the past four quarters combined. By excluding stocks that don’t meet its profitability screen, it avoids large unprofitable stocks. These unprofitable companies land in this fund, which gives them more weight than the smaller, profitable firms that fall outside the S&P 500’s size threshold. As a result, the portfolio tilts away from quality, making it riskier since stocks with low-quality earnings tend to fluctuate more and underperform those with high-quality earnings.

The portfolio diversifies well, mitigating risks from its low-quality bent. It stows around 9% in its top 10 holdings, or 6% less than peers in the mid-blend Morningstar Category as of May 2025. It also holds nearly 10 times as many stocks. It holds smaller companies than the average mid-blend fund, since its net scrapes the bottom of the tradable US stock market. Overall, smaller stocks have outperformed in the long run, but they’re more volatile, and there’s no guarantee they’ll outperform in the future.

The exchange-traded fund share class outperformed its average peer by 92 basis points annualized over the 10 years through June 2025. The fund’s performance swung wildly compared with peers over the past five years. Heavy stakes in technology in 2021 and 2022 pulled the fund’s performance lower than peers. Technology stocks have been a tailwind recently, though. They’ve helped the fund rebound over the three years through June 2025.

The fund complements the S&P 500 with low turnover and low fees. It earns an Above Average Process Pillar rating.

The S&P Completion Index removes all S&P 500 stocks from the S&P Total Market Index and weights the remaining portfolio by market capitalization. The parent index includes all US stocks that meet minimum liquidity requirements, ensuring efficient tradability. Pairing this portfolio with the S&P 500, in the right proportion, can approximate the total US stock market.

Market-cap weighting makes sense in the mid-cap blend category. Market-cap weighting relies on the market’s collective wisdom to determine the relative value of each holding. In addition, it can reduce transaction costs since holdings’ weights automatically adjust as their prices fluctuate. While not as efficient as the large-cap market, mid-cap stocks also generally reflect information quickly, meaning it’s harder for active managers to gain an edge. Actively managed strategies in the mid-blend category tend to underperform their passive peers in the long run.

The S&P 500 requires companies to report positive GAAP earnings for both the most recent quarter and the past four quarters combined. This profitability screen excludes large unprofitable stocks, which the completion index captures. That means the portfolio tilts away from quality. It introduces additional risk as stocks with low-quality earnings tend to exhibit greater volatility and underperform those with high-quality earnings.

The fund diversifies its portfolio more than its average peer in the mid-blend category. It held around 3,400 stocks at the end of May 2025, which is over 3,000 more than its average peer. It’s also less concentrated, holding around 9% in its top 10 holdings, compared with peers’ 15%. Additionally, the average market capitalization is approximately half that of its category average, landing between the average small- and mid-blend fund. That can add to the fund’s volatility, since small-cap stocks tend to fluctuate more than larger stocks.

Sector allocations within the index are in line with its mid-blend category peers. Deviations generally land within 5 percentage points of the category average. Technology held the most weight of any sector, comprising 20% of the portfolio as of May 2025. The portfolio has a slight growth tilt compared with peers, primarily due to its inclusion of high-growth, unprofitable companies excluded from the S&P 500.

Vanguard's equity index group earns an Above Average People Pillar rating for its well-supported and stable management team adept at leveraging Vanguard's comprehensive resources. Its portfolio managers benefit from the firm's global infrastructure and advanced portfolio-management technology, which facilitates cost-efficient trading around the globe. The infrequent turnover of managers, coupled with Vanguard's practice of rotating them across various funds, enhances their expertise and understanding of different market segments.

The fund's managers directly handle trading, providing them with deeper insights into the portfolio's operations than a stand-alone trader might have. They are backed by a global team of dedicated personnel and employ sophisticated, scalable technology to minimize their workload and enhance tracking accuracy. Vanguard's independent risk-management team plays a crucial role in ensuring its funds adhere to predetermined tracking tolerances. It collaborates closely with the managers to oversee trades and address potential issues proactively. Vanguard compensates managers based on tracking error and excess return metrics to foster a culture of accountability and ensure that the management team's interests are closely tied to investors'.

Vanguard maintains its High Parent Pillar rating as it continues to grow under new leadership.

CEO Salim Ramji has had a busy first year captaining Vanguard’s crew, and the ship remains pointed in the right direction. The firm made its largest round of fee cuts in early 2025, which came at an estimated cost of USD 350 million. It established a separate division dedicated to its advice and wealth management efforts, a sign that it wants to seriously compete within those lines of business. Asset growth has continued to be a huge success. Only BlackRock’s inflows rival the money Vanguard is taking in. Likewise, the number of clients it serves has more than doubled since 2015.

Despite that success, an ever-growing number of clients has presented a challenge: Vanguard can’t grow its services fast enough to keep up with demand. In some instances, it has had to curb certain services and capabilities or raise fees on others to cope, causing some loyal clients to criticize what they perceive as deteriorating services.

Vanguard has ambitions to bring its disruptive legacy to the bond market. It created roughly a dozen low-cost bond exchange-traded funds for US investors and several others abroad over the 12 months through June 2025. All have low fees in their respective categories, and the actively managed strategies align with Vanguard’s philosophy. They are relatively easy to understand and are conservatively managed.

Vanguard has another opportunity to prove that clients are still its priority. On the surface, its endeavor into the high-fee deal-making world of private assets alongside Wellington and Blackstone looks like a cultural mismatch. So far, the collaboration hasn’t produced anything that’s concerning.

The fund has had some unruly performance in recent years. The ETF share class outpaced the mid-blend category by 1.37 percentage points annualized from its inception in 2001 through June 2025. The fund clocked higher volatility than its peers due to its small-cap and low-quality tilts.

The fund’s largest holdings are stocks that would qualify for the S&P 500 based on size alone, but they didn’t make the cut due to a lack of profitability or committee decision. Those holdings tend to have higher volatility and can take the portfolio’s performance on wild rides. For instance, the fund held Tesla until it graduated to the S&P 500 in December 2020. Tesla skyrocketed when it was in the portfolio and helped it outperform peers by 20 percentage points in 2020.

Tesla blew air into the fund’s sails, but other large stocks acted as a headwind. The ETF share class underperformed peers by 11 and 12 percentage points in 2021 and 2022, respectively. Large tech holdings such as Uber and Block–formerly Square–were culprits, since they landed in the top five holdings and got crushed.

If investors pair this fund with an S&P 500 index fund, the fund’s intended use, volatility, and performance should resemble a total market fund. However, as a stand-alone fund, it can take wild swings and exhibit higher volatility than its peers.

Vanguard Extended Market Index Admiral's Prospectus Adjusted Expense Ratio is 0.05% per year. It places it in the cheapest quintile of the Morningstar US Fund Mid-Cap Blend Category, where the median fee is 0.83% per year. This cost positioning translates into a Medalist Rating Price Score of 2.23, which reflects its relative price positioning within the category. The Price Score ranges from -2.50 (most expensive) to +2.50 (cheapest), with higher scores indicating better cost competitiveness.