This Stellar Vanguard ETF Is Beating the VTI and VOO This Year

For investors looking to set and forget, it’s hard to do much better than the Vanguard ETFs. Undoubtedly, the Vanguard Total Stock Market Index Fund ETF (NYSEARCA:VTI) and Vanguard S&P 500 ETF (NYSEARCA:VOO) are popular for a reason.

But for investors looking for something extra, there are other Vanguard ETFs that are worth exploring and even owning for the long term for a shot to top the VOO (or any other ETF that follows in the footsteps of the S&P 500) in any given year. Indeed, beating the S&P is no easy feat, and there really is no secret sauce to doing it.

It Might Be Worth It to Diversify into European Stocks

However, for investors seeking more diversification, I think it can pay dividends (quite literally) to consider complementing a U.S. equity-heavy portfolio with some European names. Sure, going 100% (or close to it) in the U.S. names will grant you a front-row seat to America’s long-term ascent, and there’s nothing fundamentally wrong with doing so.

However, I believe it doesn’t hurt to add some international exposure as well for the value of geographic diversification and, perhaps more importantly, lower valuations.

Undoubtedly, the U.S. market isn’t cheap anymore (at least not on traditional valuation metrics), not after an incredible three-year bull run. And while the higher valuations aren’t indicative of a bubble in AI, at least in my opinion, I do think higher multiples do set the stage for more modest returns moving forward. 

As such, diversifying outside the U.S. might just be a ticket to cheaper valuations and perhaps less downside if an AI upset were to occur in the future, given how much exposure the U.S. market has to AI-driven tech titans. Of course, if you’re worried about an AI bubble brewing, the case for diversifying more broadly is that much stronger.

Many very smart people (including Andrew Ross Sorkin) seem convinced that a crash is due in due time. And while he’s not wrong, investors should ensure proper diversification to weather a downturn so they don’t run the risk of leaving the party too early, perhaps many years too early. Of course, the European market will probably be dragged down come the next big market selloff.

But with less AI exposure, perhaps the damage might be less intense. 

Enter the Vanguard FTSE Europe ETF

One solution? The Vanguard FTSE Europe ETF (NYSEARCA:VGK), which I think is a fantastic addition to a VTI or VOO-heavy portfolio. Year to date, the VGK has risen 26.7%, beating not only the VOO or the broader VTI (both up around 13% so far this year), but also topping the Nasdaq 100 (up just over 17%).

Can the run in the Europe-focused ETFs continue? It’s hard to say, but for investors seeking more diversification and lower valuations, I think it’s hard to overlook the risk/reward provided by the ETF as U.S. tariff risks rise alongside the price-to-earnings (P/E) ratio of the broad U.S. market.

Despite outrunning the VTI and VOO by quite a wide margin this year, the price-to-earnings (P/E) multiple is still quite low at 16.5 times. With a good mix of well-known European growth companies, many of which trade at significant discounts to their U.S. comparables, and an ultra-cheap 0.06% expense ratio, I think there’s never been a better time to at least think about the names beyond the U.S. market.

Time will tell if the bull market in Europe has more legs to outrun the U.S. Either way, I’d say it’s worthwhile to diversify into the region, given the shot to play intriguing themes (think GLP-1 drugs, semiconductor machinery, and AI-driven software) at a discount. Based on valuations alone, I think the VGK might just have its way over the VOO and VTI for a while longer.