Most American portfolios contain a fund like Vanguard FTSE Developed Markets ETF (NYSEARCA:VEA) the way most American kitchens contain a wok. Technically present. Pulled out twice a year. The investor knows, vaguely, that international diversification is supposed to matter, and forgets about it because the S&P 500 has spent fifteen years making everything else look slow. VEA has spent 2026 quietly correcting that assumption. It is up 15% year-to-date against the S&P 500’s 10.9%, and the gap is structural.
What you will own when you buy VEA
VEA holds ~3,900 stocks across Europe, Japan, Canada, Australia, and South Korea, weighted by market cap through the FTSE Developed All Cap ex US Index. The expense ratio is 0.03%, meaning Vanguard charges three dollars a year per ten thousand invested. The yield runs around 2.63%, higher than the S&P 500, because European and Japanese companies still distribute earnings rather than buying back stock with them. Assets sit near $221 billion, so liquidity is never the question.
The three engines running underneath
The reason VEA caught a bid lives in three regions. South Korea, which most US investors do not realize is even in the fund, has become a meaningful conduit for AI infrastructure spending. Samsung and SK Hynix supply the high-bandwidth memory NVIDIA‘s (NASDAQ:NVDA | NVDA Price Prediction) accelerators cannot function without, and that demand has rerated Korean tech even more aggressively than it rerated American tech in 2023.
Europe is the second engine, where Germany’s fiscal pivot and a continent-wide pledge to spend 5% of GDP on defense and infrastructure has lit a fire under industrials and defense champions that spent a decade treading water. Japan is the third, finally executing the corporate governance reforms it has promised since the Abe administration, with companies unwinding cross-shareholdings, buying back stock, and behaving like return on equity matters.
If this memory shortage continues and Europe continues to be serious about defense spending, VEA could keep outperforming the SPY. The South Korean exposure alone has lifted many international AI ETFs due to its memory and chipmaking industry.
Does the math actually work
Near term, yes. Over the past year VEA returned 32% against SPDR S&P 500 ETF (NYSEARCA:SPY) at 29%. In 2025 the fund gained around 29%. JP Morgan now projects developed international equities to return 7.5% annually over the next ten to fifteen years, ahead of its 6.7% projection for the S&P 500. That call rests on valuation gaps and a weakening dollar, both of which are doing exactly what the thesis requires.
Over five years VEA is up 60%, well behind SPY’s 92%. Over ten years the gap widens to 165% against 322%. If you owned VEA through the entire post-pandemic period, you bought a decade of relative pain in exchange for whatever you are now collecting. That history stands. The recent run suggests the regime that produced it may be ending. The gap does narrow if you discount dividend reinvestments.
What you give up to get it
Currency exposure cuts both ways, and a chunk of recent returns came from dollar weakness rather than underlying earnings. Japan and Europe together dominate the country weights, so VEA functions as a developed-markets-without-China fund with all the regional concentration that implies. And the dividend, while generous, suffers foreign withholding tax that matters more in taxable accounts than in IRAs.
Who this fund actually fits
VEA is built for portfolios that are currently 90%-plus American equity, which is most American portfolios. A 10% to 15% allocation would offer exposure to the Korean memory cycle, the European fiscal awakening, and the Japanese governance shift without requiring a single-region bet. Investors who want emerging markets in the mix should look at Vanguard FTSE All-World ex-US ETF (NYSEARCA:VEU), which adds Taiwan and China. Anyone who believes US tech concentration is the only trade that matters for the next decade will find little reason to change course. The recent numbers suggest that bet is getting expensive to make.
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