What's the Best-Performing Vanguard ETF of 2025 So Far?

By assets under management (AUM), Vanguard is the country's second-largest issuer of exchange-traded funds (ETFs), and it could take the top spot in the months ahead. Alone, that would be impressive, but it's even more so when considering the company manages just 99 ETFs -- far fewer than some of its nearest rivals.

Of those funds, 62 focus on equities while the other 37 address various corners of the fixed-income market. In both stocks and bonds, Vanguard provides investors with plenty of choices when it comes to accessing domestic and foreign assets. Speaking of international stocks, that segment is the point of emphasis for Vanguard's best-performing ETF to this point in 2025.

The Vanguard FTSE Europe ETF (NYSEMKT: VGK) is that fund, confirming that European equities are among this year's most noteworthy examples of resurgent asset classes.

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What's powering this Vanguard ETF in 2025?

The 2025 success of the Vanguard FTSE Europe ETF -- which owns shares of companies located in Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom -- is well documented. It's up roughly 25% this year and has been a leader in Vanguard's clubhouse for essentially all of this year. Of course, savvy investors look beyond surface-level statistics. They want to know why a stock or fund is delivering the goods.

In the case of this Vanguard ETF, it's benefiting as global investors rotate into sectors such as industrials and financial services in Europe -- a distinctly different phenomenon than what is being seen in the U.S., where communication services and technology stocks remain the apples of market participants' eyes. Industrial and financial stocks combine for 43.6% of this ETF's roster.

The fund's industrial exposure is paying dividends at a time when European nations are materially boosting their defense spending. The European Defense Agency says the European Union's combined military expenditures hit an all-time high of $402 billion in 2024, but that record is expected to be eclipsed this year, with defense spending on course to reach $446 billion.

With the specter of Russia to the east and pressure from the White House on NATO members to reduce their dependence on U.S. military infrastructure, the theme of rising defense spending in the E.U. could be durable for years, providing long-term support for the Vanguard FTSE Europe ETF.

As for the ETF's financial services exposure, that has been an additive factor as well because European banks have been among the world's leading performers in the sector this year. Many of them, including the ones in this ETF's portfolio, have more than compensated for the headwind of lower interest rates by finding ways to boost their noninterest-linked income. (The European Central Bank has more than halved its benchmark lending rate since June 2024.) They're also booking higher trading profits.

Can the Vanguard ETF do it again in 2026?

With 2025 drawing to a close, investors who missed out on this year's European equity redemption story may be wondering if a sequel is in store next year. Only time will tell, but it's possible -- and that's not a cop-out. This assessment is rooted in some fundamentally credible forecasts that bode well for the Vanguard FTSE Europe ETF.

For example, eurozone financial services and industrial stocks are expected to notch impressive earnings per share growth in 2026, according to J.P. Morgan. Second, some experts believe increased fiscal spending in Germany, the eurozone's largest economy, could be a positive catalyst for German stocks. Third, market observers see opportunities in recently resurgent French equities, which trade at clear discounts to the Euro Stoxx 50 index.

French and German stocks combine for almost 29% of the Vanguard FTSE Europe ETF's portfolio. So if the experts are correct, good things could be in store for it again in 2026. The fund's turnover rate for fiscal 2024 was just 3.4%, according to issuer data, indicating dramatic geographic and stock-level changes are uncommon with this product.

Todd Shriber has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.