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As advisors know, the laggard status of international equities is lengthy and well-documented. For the three years ending Dec. 2, the MSCI ACWI ex USA IMI Index gained just 7.8% compared to 35.8% added by the S&P 500.
In other words, advisors can be forgiven if they trimmed ex-US exposures or ignored those stocks outright. The above data points indicate clients would probably grateful for portfolios with minimal international equity exposure. Still, some experts argue the case for international diversification isn’t dead. Citing still depressed valuations, among other factors, some market observers believe international equities could be in store for better things in 2025.
Of course, there’s an argument against that view. Multiples on ex-US equities have been low for some time and betting that these stocks are overdue to outperform isn’t a legitimate asset allocation strategy. Putting it all together, perhaps the best way for advisors to tap international stocks in 2025 is in broad fashion, eschewing stock-picking and single-country bets, and to do so in cost-effective fashion. Enter the Vanguard Total International Stock ETF (VXUS).
Evaluating VXUS
VXUS is comparable to other Vanguard broad market ETFs in that it’s, well, broad. It holds a whopping 8,621 stocks, none of which exceed a weight of 2.34%. That weight is assigned to Taiwan Semiconductor (TSM) and none of the fund’s other components exceed an allocation of 1.08%, which is to say single-stock risk is essentially non-existent.
VXUS is also highly diverse at the geographic level as the stocks held by the ETF hail from 41 countries, both developed and emerging markets. Owing to the fund’s cap-weighted methodology, there is a moderate level of concentration with Japanese, British and Chinese stocks combining for a third of the roster, but overall, VXUS fits the bill as broad.
“Including emerging-markets stocks widens the scope of this fund relative to some peers,” notes Morningstar analyst Zachary Evens. “The average fund in the foreign large-blend Morningstar Category allocates around one tenth of its portfolio to these stocks, while this fund is usually closer to double that.”
That emerging markets exposure could help VXUS outperform peers if and when those stocks finally get their act together in broad-based fashion.
VXUS Is Cheap, Too
VXUS shares another trait with its Vanguard brethren: it’s inexpensive. Its annual fee is 0.08%, or $8 on a $10,000 investment. That’s an excellent comparison with the category average of 0.88%, according to Vanguard data.
That low fee makes VXUS easier for clients to engage with the fund over long holding periods and that could be exactly what it takes for international stocks to generate impressive returns.
“Low fees have helped neutralize the negative effect of emerging-markets stocks,” concludes Evens. “The ETF returned 7.8% annualized for the five years through September 2024, outpacing its average category peer by 20 basis points annualized. Volatility was slightly higher, but risk-adjusted returns still edged out the category average. Going forward, investors should expect the strategy to do well when foreign stocks do well.”