Prediction: This International ETF Will Be the Best Investment of 2026

After a somewhat disappointing 2025, international stocks are renewing their bullish ways this year. Using one exchange-traded fund (ETF), the Vanguard Total International Stock ETF, as a measuring stick, non-U.S. equities are outpacing domestic rivals again this year. As of July 17, that Vanguard ETF is up 12% year to date, a slight advantage over the 10.8% return of the S&P 500 index.

Yet some international strategies have been even better bets. Just look at the Vanguard FTSE Pacific ETF (NYSEMKT: VPL). Cementing its status as one of the best international ETFs, this Vanguard fund is up 20.7% year to date.

The Vanguard FTSE Pacific ETF looks like a star among international funds. Image source: Getty Images.

That sounds enticing, but before allocating their hard-earned capital to this ETF, investors need to understand why it may or may not rank as one of 2026's best investments when the year draws to a close.

Memory at the forefront of investors' minds

The Vanguard FTSE Pacific ETF's "best" status took a hit over the past month, as the fund slumped 6.8%. Identifying the culprit is easy: Once-hot memory stocks are now in bear territory. In theory, one sector suffering shouldn't affect a diverse international ETF much, and this Vanguard ETF does appear to be diverse as it holds 2,333 stocks.

So what's the deal? This fund tracks the FTSE Developed Asia Pacific All Cap index, which is a barometer of the "major markets of the Pacific region." That leads to some geographic concentration, as just six countries are represented in the fund, with Japan and South Korea together accounting for 78.6%.

And because that index weights components by market capitalization, Samsung Electronics and SK Hynix, the two South Korean titans of the memory-chip space, combine for 15.3% of this ETF's portfolio. That's an unusually high concentration in just two stocks for a broad-based international ETF, and it implies that investors are making de facto bets on memory chips with this fund.

There's a good news/bad news element there. First, the bad news: South Korean markets became overheated so rapidly due to investors' leveraged bets on tech stocks that the Bank of Korea hiked rates on July 16 to cool the party.

Here's the good news: The memory stocks in this Vanguard ETF have upside potential because memory shortages are expected to persist well into 2027 -- and perhaps beyond. So current supply constraints mean that even small additions could lead to significant price decreases.

The Berkshire element

With the Vanguard FTSE Pacific ETF, the South Korea factor must be accounted for, but the 52.9% weight to Japanese stocks can't be ignored, either. Year to date, the MSCI Japan index is beating both the S&P 500 and broad gauges of international stocks. Yet that's not the only Japan-related perk associated with this Vanguard fund.

The ETF is home to several Japanese stocks, including two of the trading companies among the top holdings of Berkshire Hathaway (where Warren Buffett is now chairman). That group includes Sumitomo, in which Berkshire recently raised its stake.

Other Japan tailwinds include a pro-business government, lower tech-market concentration than in South Korea, and attractive valuations relative to U.S. stocks. All are likely to help propel the Vanguard FTSE Pacific ETF to "best" status this year.

Todd Shriber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.