International Stocks Keep Crushing the S&P. This Cheap ETF Is How You Get In

For a decade, owning anything outside the S&P 500 felt like paying tuition to learn a lesson you already knew. International developed equities lagged, the dollar marched higher, and every diversification pitch sounded like an apology. That trade has flipped. Over the past year, Vanguard FTSE Developed Markets ETF (NYSEARCA:VEA | VEA Price Prediction) returned 34% against the S&P 500’s 27%, and year-to-date VEA is up 12% versus 8% for the SPDR S&P 500 ETF Trust (NYSEARCA:SPY). If you run a portfolio that is 100% U.S. equities because nothing else worked for a decade, VEA is the cheapest, broadest tool to start closing that gap.

Why international is finally working

Three things flipped at once. European and Japanese equities started the year trading at a wide valuation discount to U.S. large caps, a gap that historically mean-reverts. The catalyst arrived as fiscal expansion abroad, particularly Germany’s defense and infrastructure spending and Japan’s continued reflation, while U.S. policy turned restrictive on tariffs and immigration. A softer dollar mechanically boosts returns on foreign equities held by U.S. investors, compounding the underlying earnings story.

Earnings revisions in Europe and Japan have run ahead of the U.S. for several quarters, and the dollar’s reversal removes the headwind that erased foreign returns for most of the prior cycle. The setup mirrors the 2014-2024 period that trained U.S. investors to ignore everything outside the S&P 500.

What you are actually buying

VEA tracks the FTSE Developed All Cap ex US Index, roughly 4,000 stocks across Europe, developed Asia, Canada, and Australia. The fund leans heavily on Japanese industrials and consumer names, European banks and luxury, Swiss healthcare, and Australian miners. Top holdings include ASML, Nestle, Novo Nordisk, SAP, and Toyota, global franchises most U.S. investors use but rarely own directly.

The expense ratio is 0.03%, among the cheapest diversified equity funds ever offered. Yield runs around 3% on trailing distributions, well above the S&P 500’s payout, because European and Japanese companies return more cash through dividends and less through buybacks.

The honest scorecard

VEA is winning right now, but the longer record is still a U.S. blowout. Over five years VEA returned 62% against SPY’s 80%, and over ten years VEA’s 166% trails SPY’s 261%. Anyone claiming international is a sure thing because of one strong year has forgotten how long the prior regime lasted. The case for VEA is that the two return streams diverge over multi-year cycles, and being entirely on one side of that trade is the actual risk.

What you give up

1. Currency exposure cuts both ways. VEA is unhedged, so a dollar rally would claw back some of the gains foreign earnings deliver.
2. Sector mix is heavier on financials and industrials, lighter on tech. If the next leg of the AI capex cycle reaccelerates U.S. mega-cap earnings, VEA will lag again. Owning it is a bet that breadth, not narrow tech leadership, drives the next several years.
3. Tax complexity on dividends. Foreign withholding taxes are partially recoverable in taxable accounts via the foreign tax credit, but the paperwork is real, and the credit is lost entirely inside an IRA.

Who VEA belongs to

If your portfolio is built around an S&P 500 or total U.S. market core, VEA is the cleanest 15-25% sleeve to round out developed-market equity exposure at a cost so low it barely registers. The investor who should skip VEA is the one who genuinely believes U.S. exceptionalism is permanent and structural, because that is the only worldview where paying three basis points to hedge against being wrong looks expensive.