This Is the Best-Performing Vanguard ETF of 2025 So Far. Is It a No-Brainer Buy Now?

By my count, 53 exchange-traded funds (ETFs) managed by Vanguard are in positive territory so far this year. That's more than half of the 93 ETFs in the Vanguard lineup.

Ten Vanguard ETFs have delivered double-digit percentage year-to-date gains. One stands out as the best performer in 2025, though -- and it isn't even a close contest.

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Look across the pond

There's a common denominator between all of the top 10 Vanguard ETFs of the year: They all focus on international stocks. The biggest winner, by far, is the Vanguard FTSE Europe ETF (NYSEMKT: VGK). This Vanguard ETF has skyrocketed nearly 23% year to date. The next-closest Vanguard fund is up less than 19%.

As you might have guessed from its name, the Vanguard FTSE Europe ETF owns stocks of companies based in major European nations. It attempts to track the performance of the FTSE Developed Europe All Cap Index. FTSE, by the way, stands for Financial Times Stock Exchange Russell, an organization in the United Kingdom owned by LSEG that manages stock market indices.

This Vanguard ETF currently owns 1,241 stocks. Only two of its holdings make up more than 2% of the total portfolio -- German software company SAP at 2.4% and Swiss food and beverage company Nestlé at 2.05%.

Like all Vanguard ETFs, the Vanguard FTSE Europe ETF doesn't charge exorbitant fees. Its annual expense ratio is only 0.06%.

Why has this Vanguard ETF soared?

Several factors explain why the Vanguard FTSE Europe ETF has outperformed every other Vanguard ETF in 2025. For one thing, its valuation has been relatively attractive. Even after soaring more than 20% year to date, the average trailing-12-month price-to-earnings (P/E) ratio for the stocks in the fund's portfolio is 16.2. By comparison, the Vanguard S&P 500 ETF, which owns all of the stocks in the S&P 500 index, has a P/E ratio of 24.6.

Another key ingredient is the rate cuts made by the European Central Bank (ECB). Falling inflation has paved the way for those rate cuts. Eurozone inflation for May 2025 was 1.9%, below the ECB's target of 2%. Stocks tend to respond well to interest rate cuts, especially when the outlook looks good for more of them.

In addition, increased defense spending by several European countries has contributed to the rise of European defense stocks. While this catalyst is largely limited to the region's defense sector, it nonetheless contributes to the overall European stock market gains.

Finally, the Trump administration's tariffs have created significant uncertainty for many U.S. stocks. As a result, some U.S. investors have viewed European stocks as a viable alternative. This trend has also directly benefited the Vanguard FTSE Europe ETF.

Image source: Getty Images.

A no-brainer buy?

Is the Vanguard FTSE Europe ETF a no-brainer buy after getting off to such a strong start in the first five months of 2025? I wouldn't go quite that far.

U.S. trade policy remains a big question mark. President Trump at one point threatened to impose tariffs of 50% on all European imports to the U.S. He later backed down and agreed to delay those tariffs until July 9, 2025, to allow time for progress on trade negotiations.

But the president's recent announcement of 50% tariffs on all steel imported to the U.S., which will significantly affect European steelmakers, complicates those talks. The European Union stated that the new steel tariff level "undermines ongoing efforts to reach a negotiated solution."

History also isn't on investors' side with the Vanguard FTSE Europe ETF. While the ETF has been a big winner in 2025, it has delivered an average total return since its inception in March 2005 of only 5.74%. This performance ranks the Vanguard FTSE Europe ETF at No. 57 among all Vanguard ETFs based on lifetime returns.

Still, I think the Vanguard FTSE Europe ETF is a good pick for investors looking to add some global diversification to their portfolios. It's just not a no-brainer buy; some thinking is required.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool recommends Nestlé. The Motley Fool has a disclosure policy.