International Stocks Keep Crushing the S&P. This Cheap ETF Is How You Get In

"Over the past year, Vanguard FTSE Developed Markets ETF returned 34% against the S&P 500's 27%, and year-to-date VEA is up 12% versus 8% for the SPDR S&P 500 ETF Trust. If you run a portfolio that is 100% U.S. equities because nothing else worked for a decade, VEA is the cheapest, broadest tool to start closing that gap."

"Three things flipped at once. European and Japanese equities started the year trading at a wide valuation discount to U.S. large caps, a gap that historically mean-reverts. The catalyst arrived as fiscal expansion abroad, particularly Germany's defense and infrastructure spending and Japan's continued reflation, while U.S. policy turned restrictive on tariffs and immigration. A softer dollar mechanically boosts returns on foreign equities held by U.S. investors, compounding the underlying earnings story."

"VEA tracks the FTSE Developed All Cap ex US Index, roughly 4,000 stocks across Europe, developed Asia, Canada, and Australia. The fund leans heavily on Japanese industrials and consumer names, European banks and luxury, Swiss healthcare, and Australian miners. Top holdings include ASML, Nestle, Novo Nordisk, SAP, and Toyota, global franchises most U.S. investors use but rarely own directly."

"The setup mirrors the 2014-2024 period that trained U.S. investors to ignore everything outside the S&P 500. Earnings revisions in Europe and Japan have run ahead of the U.S. for several quarters, and the dollar's reversal removes the headwind that erased foreign returns for most of the prior cycle."

International developed equities have recently delivered stronger returns than U.S. large caps. Over the past year, Vanguard FTSE Developed Markets ETF returned 34% versus 27% for the S&P 500, and year-to-date performance also trails less. The shift is linked to valuation discounts in Europe and Japan that tend to mean-revert, fiscal expansion abroad such as Germany’s defense and infrastructure spending, and Japan’s ongoing reflation. U.S. policy has become more restrictive on tariffs and immigration. A softer dollar has boosted foreign equity returns for U.S. investors. The fund tracks the FTSE Developed All Cap ex US Index with about 4,000 stocks across Europe, developed Asia, Canada, and Australia, with major exposures to Japan, European banks and luxury, Swiss healthcare, and Australian miners. The expense ratio is 0.03%.

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