This Overlooked Vanguard ETF Is Quietly Outperforming Its Rivals
Key Points
The Vanguard S&P 500 ETF and Vanguard Total Stock Market ETF get a lot of attention, but investors need to look at another high-performing ETF.
Notable trends are challenging the American economy’s dominance, which should force investors to consider adding international exposure.
Building geographic diversification in your portfolio is a smart way to address any concentration risk you might have.
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With trillions of dollars in assets under management and an operating history that started in 1975, Vanguard is undoubtedly a leading force in the investment industry. It offers numerous low-cost products that allow investors to gain passive exposure to the stock market. These exchange-traded funds (ETFs) can focus on different sectors, geographies, or asset classes.
One of the most popular ETFs is the Vanguard S&P 500 ETF. As the name suggests, it tracks the performance of the S&P 500 index, the most closely watched stock market barometer.
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Another highly regarded choice is the Vanguard Total Stock Market ETF, which tracks the performance of the entire U.S. market. This not only includes large-caps but also small-caps and mid-caps.
The Vanguard S&P 500 ETF and Vanguard Total Stock Market ETF have each produced total returns of around 32% in the past 12 months (as of April 16). While these are impressive gains, there's an overlooked Vanguard ETF that has outperformed its peers. Here's what investors need to know.
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Maybe it's time for investors to start looking outside the U.S.
Over the trailing one-year period, the Vanguard Total International Stock ETF (NASDAQ: VXUS) has generated a total return of 40%. This means that had you invested $10,000 in this investment vehicle exactly 12 months ago in mid-April 2025, you'd have $14,000 today. The other two ETFs mentioned would not have beaten this outcome.
The Vanguard Total International Stock ETF gives investors exposure to stocks in businesses located outside the U.S. It's a way to instantly add geographic diversification to your portfolio. I wouldn't be surprised if this factor is not on the minds of many investors in the U.S. This is especially true given the impressive 300% total return of the S&P 500 in the past decade.
But it's always a smart idea to find ways to improve your portfolio. Leaning toward international stocks can make sense today.
Valuation concerns about U.S. equities are a major topic of discussion that might make investors believe that returns going forward won't be nearly as robust as they were in the past. There are also other reasons to consider making an investment in the Vanguard Total International Stock ETF right now. They all rest on challenging the assumption that the U.S. economy and its leading companies will continue to dominate on a world stage.
U.S. debt has exploded, now approaching $40 trillion. The rise has no end in sight. This could weaken any trust that market participants have in the American economy and financial system.
Due to President Donald Trump's tariff announcements over the past year, there has been a huge shift in supply chains. These protectionist measures can discourage foreign businesses from wanting to trade with their U.S. counterparts.
What's more, the development of artificial intelligence appears to be a national priority for many countries. Because it appears that the implications are high, governments can lean toward being more competitive than they were in the past to gain an edge.
This ETF makes sense as part of a well-diversified portfolio
While the Vanguard Total International Stock ETF has performed well in the past 12 months, the strong gains aren't guaranteed to continue, of course. However, I believe a small allocation, say 5% of a well-diversified portfolio, makes sense.
The low expense ratio of 0.05% is an attractive proposition to seamlessly build exposure to international companies. The top three stocks that this ETF owns are Taiwan Semiconductor Manufacturing, Samsung, and ASML. The top three geographies are Japan, the United Kingdom, and Canada.
Owning this will clearly lessen the dependence your portfolio might have on the U.S. economy, particularly when it comes to the tech-heavy "Magnificent Seven" companies that have dominated the market in the past several years.
Should you buy stock in Vanguard Total International Stock ETF right now?
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Neil Patel has positions in Vanguard S&P 500 ETF, Vanguard Total International Stock ETF, and Vanguard Total Stock Market ETF. The Motley Fool has positions in and recommends ASML, Taiwan Semiconductor Manufacturing, Vanguard S&P 500 ETF, Vanguard Total International Stock ETF, and Vanguard Total Stock Market ETF. The Motley Fool has a disclosure policy.
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