The Vanguard Extended Market Index Fund (VEXAX) and its ETF counterpart VXF are widely used products with nearly $100 billion in combined assets. Both are market cap–weighted and track the S&P Completion Index.
At first glance, the S&P Completion Index looks appealing: it represents every U.S. stock in the S&P Total Market Index (TMI) except those in the S&P 500. In theory, this gives investors exposure to mid-cap, small-cap, and micro-cap companies across all sectors.
But just as the Russell 2000 was created as a benchmark and later became a investable fund with structural flaws, the S&P Completion Index suffers from design issues that limits it usefulness as an investable fund.
Issues With the S&P Completion Index
No Profitability Screen
Unlike the S&P 500, which only includes companies that have been profitable for at least a year, the Completion Index has no profitability requirement. That leaves it populated with lower-quality firms, distressed businesses, and speculative names.
The most striking example today: the largest holding in the index currently is Strategy (formerly MicroStrategy, ticker MSTR), essentially a leveraged Bitcoin holding company. Because it can never show consistent profitability under GAAP accounting, it will never qualify for the S&P 500—yet it is the first name on the Completion Index.Large-Cap Creep
Although designed to track small- and mid-sized companies, the index is built simply by excluding the S&P 500. The result: a surprising amount of large-cap exposure sneaks in. According to VettaFi, nearly 35% of the Completion Index is actually large caps, diluting the intended exposure.
Easy Entry for IPOs and SPACs
To join the S&P 500, companies must meet stricter criteria, including that a significant portion of shares be publicly held. No such guardrail exists for the Completion Index. This means recent IPOs and de-SPACs can enter quickly, often at inflated valuations and without profitability. During speculative surges like 2021, this leads to a flood of overpriced, low-float companies being added—an outcome that harms long-term returns.
A Dumping Ground for S&P 500 Discards
When companies are removed from the S&P 500—often due to shrinking market caps, obsolete business models, or poor management—they don’t disappear. Instead, they slide into the Completion Index. Many of these “fallen angels” languish for years, dragging down performance.
The Few Advantages
The Completion Index does have some benefits:
- Pipeline to the S&P 500: Companies promoted into the S&P 500 start out in the Completion Index, so investors can benefit from the “index pop” when those stocks are included in the S&P 500.
- Low Cost and Tax Efficient: Like most Vanguard index products, VEXAX and VXF are inexpensive and tax-friendly, avoiding the inefficiencies of active management.
Key Takeaways
The S&P Completion Index is a good benchmark but a flawed fund. Its lack of profitability screens, large-cap creep, easy inclusion rules for speculative IPOs/SPACs, and role as a dumping ground for fallen S&P 500 companies make it less attractive as a core holding.
With so many alternatives for small- and mid-cap exposure, this is not a fund I’d put at the top of the list.