Vanguard’s 0.05% International Stock ETF Just Outpaced the S&P 500 for the First Time in Five Years

Vanguard’s VXUS ETF, which tracks the FTSE Global All Cap ex US Index, has outperformed the S&P 500 for the first time since 2021, with a 10% year-to-date gain compared to VOO’s 8%. The fund holds over 8,000 stocks across developed and emerging markets outside the U.S., charging a 0.05% annual fee and offering a 2.6% distribution yield. A stronger U.S. dollar has boosted returns by compressing the value of foreign earnings when translated back to dollars, though currency fluctuations remain a risk. The turnaround in 2026 contrasts with VXUS’s long-term underperformance, with five-year returns at 51.3% versus the S&P 500’s 85.4% and a decade-long gap widening further to 145% for VXUS compared to VOO’s 313.8%. The fund delivers broad international exposure but lacks the concentrated tech exposure that has driven U.S. market gains. Investors face trade-offs, including currency risk, lower growth potential, and tax friction from foreign dividend withholding. Developed markets are leading VXUS’s YTD gains, with VEA up nearly 11% and VWO at 8%, driven by Japanese corporate reforms and a European industrial revival. VXUS bundles these regions together, avoiding the need for investors to time developed versus emerging markets. The fund’s strength in 2026 suggests shifting investor sentiment toward international diversification, though long-term trends still favor the S&P 500. For investors with a U.S.-focused portfolio, holding VXUS at 20-30% of equity allocations aligns holdings closer to global market-cap weights. However, risks remain, including potential losses if the dollar strengthens further or if U.S. tech stocks continue outperforming. The trade-off between broad international exposure and the S&P 500’s historic returns remains a key consideration for long-term investors.