VXUS ETF

The Vanguard Total International Stock Market ETF offers broad exposure to international markets. However, the VXUS ETF's performance has been awful over the last decade. History shows there's not much sense in diversifying outside the US.

The Vanguard Total International Stock Index Fund ETF tracks ex-US equities with a focus on Europe (40.4% of assets), the Pacific (26.3%), and Emerging Markets (25.7%). The VXUS has underperformed the SPY so far in 2024, delivering a ~13% total return. This has resulted in VXUS trading at a ~2% higher earnings yield. GDP growth in Japan, the United Kingdom, and Canada is forecast to accelerate going into 2025, while GDP growth in emerging markets should stabilize at a high rate.

Orthodox investment practice allocates a third or more of total assets to Ex-US Funds. Compared to U.S.-only investment, this has led to dramatic underperformance lasting over a decade. We examine the reasons why The Vanguard Total International Stock Market ETF has done so poorly by looking closely at its holdings. We also list several persistent qualitative factors that suggest broad market international ETFs will not see their performance improve over the long term.

Vanguard Total International Stock Index Fund ETF focuses on global companies with dividends. Reducing exposure to U.S. stocks and increasing exposure to global stocks could make sense right now. Top holdings include Taiwan Semiconductor, Novo Nordisk, and ASML Holding NV, each representing less than 2% of the portfolio.

VXUS, an ETF focusing on global equity markets outside the US, offers extensive diversification with over 8,500 holdings but has no means to generate alpha. Since 1986, US stocks have outperformed international stocks, with the S&P 500 significantly outperforming VXUS since 2011. However historically, there are nearly as many years international stocks outperform US stocks. Despite short-term fluctuations, maintaining international exposure can reduce portfolio volatility and increase yield over the long term. With the right weighting and international investment vehicle, the diversification investors seek can be properly achieved.

VXUS: Improving Outlook In 2024

The dollar's strength over the past year has led to underperformance of the Vanguard Total International Stock ETF, but the tide may be turning as US inflation decreases. The VXUS ETF provides exposure to a mix of emerging and developed market stocks, with a focus on financials and a minimal expense ratio. A weaker dollar has historically been associated with VXUS outperformance, and the ETF's valuation discount compared to the S&P 500 is at its largest on record.

The US Dollar Index has risen for eight consecutive weeks, putting pressure on foreign stocks and causing them to underperform domestic stocks. The Vanguard Total International Stock ETF is trading near all-time relative lows compared to US stocks. VXUS offers a low expense ratio and attractive valuation, but its technical picture is lukewarm and better performance is needed before a buy rating is issued.

Consider investing internationally as US markets may be vulnerable and there is a valuation differential between the US and other countries. The Vanguard Total International Stock ETF offers extensive diversification, an attractive valuation, and a low expense ratio. While the momentum may not be there currently, VXUS is a good option for those looking to invest outside the US, especially if Technology momentum weakens.