International ETF Outpacing the S&P 500 This Year Is Worth a Closer Look

Had you invested $10,000 in the S&P 500 index 10 years ago, your investment would have grown to roughly $41,420 today. On an annualized basis, this translates to an excellent 15.3% total return (as of July 16). This more recent return is significantly better than the benchmark's long-term 10% average.

While the S&P 500 index is doing well in 2026 (up 11.3%), there's an international exchange-traded fund (ETF) that's outperforming it by about two percentage points. This is a shorter time frame for comparison, so investors shouldn't use it to jump to any conclusions. But it might be worth it to take a closer look.

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Add this Vanguard ETF to your watch list

Investors would be wise to think about adding the Vanguard Total International Stock ETF (NASDAQ: VXUS) to their watch lists for further consideration. Based on the latest data, it has $652 billion in total assets, with an inception date of January 2011. There are over 8,700 stocks in the portfolio. And the expense ratio is compelling at 0.05%.

This ETF doesn't own any businesses based in the U.S., so investors will get completely different exposure than the S&P 500 index provides. In other words, the Vanguard Total International Stock ETF can provide a sort of hedge if you think you're heavily concentrated in American companies, most notably the Magnificent Seven stocks.

The top five positions in the ETF are Taiwan Semiconductor Manufacturing, Samsung Electronics, SK Hynix, ASML, and Tencent. Combined, they account for 11% of the entire portfolio. The Vanguard Total International Stock ETF is more diversified than the S&P 500 index.

These businesses do give investors access to the artificial intelligence (AI) spending boom. But it's in a completely different way than the hyperscalers you're likely familiar with. The first four companies listed above sell dedicated hardware that supports the data centers of major cloud computing platforms.

It's also worth pointing out that the entire technology sector represents 20% of the Vanguard Total International Stock ETF, slightly less than financial services. The portfolio will be better able to navigate any slowdown in related industries.

Diversification in a different way

The best investors know that building a diversified portfolio is key to long-term success in the stock market. While a lot of advice emphasizes owning businesses in different industries that serve different end markets and customers, less of a spotlight is placed on geographic dispersion. This is another important way to add more variety to your holdings.

Here's where the Vanguard Total International Stock ETF can add meaningful value. Japan, Taiwan, and the U.K. are the three countries with the greatest representation. I'd bet that most American investors will find they have zero exposure to these markets.

Neil Patel has positions in Vanguard Total International Stock ETF. The Motley Fool has positions in and recommends ASML, Taiwan Semiconductor Manufacturing, and Tencent. The Motley Fool has a disclosure policy.