Is The Vanguard Total International Stock Index Fund ETF Still a Buy?

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The Vanguard Total International Stock Index Fund ETF (VXUS) has risen by 27% in 2025, marking a striking reversal after many years of meek performance. Its growth, however, invites a question that is as old as the hills: Is there still value to be found in this foreign asset, now that it seems to have surged past its former slumbers?

The answer, dear reader, is yes, but with caution. The global stock market, much like the twilight of a bygone era, offers solace and skepticism in equal measure. The valuation of international stocks currently stands at a mere 16.2 times earnings-almost half that of the S&P 500, which lingers at a lofty 28 times. The numbers sing a song of disparity, but they are not merely the result of market missteps. No, they reflect deeper, more immutable truths about the economic landscape. One must understand why such a gap exists before indulging in the temptation to close it, to understand not only what has changed, but why the winds of fortune have shifted so abruptly in 2025.

Why International Stocks Trade Cheaper

The gulf in valuation is no happenstance. It is as deliberate as the hand of a sculptor chiseling away at a block of marble. U.S. companies enjoy returns on equity above 20%, a figure that would be the envy of any sovereign state. In contrast, their European counterparts hover around a modest 12%, and those in the emerging markets, struggling still with their own burdens, are content with 10%. The American behemoths, so deeply embedded in high-margin technology and healthcare, enjoy not only growth but vast margins of it. Meanwhile, Europe and the developing world are heavy with the burden of banks, industrials, and energy-sectors far less inclined to provide the same robust returns.

The composition of the Vanguard ETF reveals as much. Of its vast spread across 8,621 holdings, Europe commands 40%, while 30% lies in the Pacific’s more developed markets and another 30% in the vibrant yet volatile emerging markets. In this blend, stalwarts like Nestlé, Samsung, ASML, and Taiwan Semiconductor stand out. However, the influence of these giants pales in comparison to the omnipotent sway of Apple or Microsoft over the S&P 500. The difference is both palpable and palpable still-international stocks are, for the most part, smaller, less influential players on the global stage.

Additionally, there is the matter of currency. The Vanguard fund does not hedge its risks against the dollar, and thus, a strengthening dollar erodes the returns of foreign assets. These are structural realities, not mere fleeting market whims, and they are the true reasons for the years of undervaluation that have befallen international stocks.

What Changed in 2025

But, as the fates would have it, a change has come. In the winds of 2025, we find the first whisper of hope. The U.S. dollar has weakened, shedding some 10% to 11% in the first half of the year, providing relief to foreign investments once battered by its strength. Meanwhile, in China, the state has acted decisively, introducing stimulus measures and relaxing property regulations in an attempt to invigorate growth. In Europe, the somber economic outlook has begun to show cracks of light, with surveys revealing a return to growth in manufacturing-a prospect that raises faint hopes of an economic revival.

Yet, as with all such promises, these changes are not without their own fragility. The dollar could very well regain strength if U.S. growth accelerates, and China’s economic machinery remains vulnerable, its demand faltering under the weight of its real estate woes. Europe’s recovery, while promising, is precarious at best. Germany teeters on the brink of recession, a reminder that stability is not guaranteed. Thus, the rally in international equities, so sharply felt this year, may not last. It is a transient shift, not the beginning of an era.

The Income and Diversification Case

And yet, despite these fleeting currents, the Vanguard Total International Stock Index Fund still offers something of real worth, particularly for those seeking a more conservative, diversified investment. With a dividend yield of 2.78%, it offers nearly double the income of the S&P 500, which lingers at a modest 1.3%. In a world where yields are a rare and precious commodity, this is no small thing. And at an expense ratio of 0.05%, this fund stands in stark contrast to the more costly actively managed international funds, which often demand upwards of 1%.

However, this diversification is not without its cost. The emerging market exposure, while offering potential for growth, also brings with it the specter of volatility. One can expect sharp declines during periods of global sell-offs-20% or more is not unheard of. The European banking sector, with its low growth and negative rates, adds another layer of complexity to the equation. Asian exporters, too, are at the mercy of the vagaries of global trade. In short, the fund is perhaps best viewed as insurance against the concentrated power of U.S. tech giants, rather than a surefire route to wealth.

The Allocation Answer

And so, the question remains: Is the Vanguard Total International Stock Index Fund ETF still a wise investment? Yes, but only as part of a well-rounded portfolio. A 10% to 20% allocation, rather than as a core holding, is the most prudent approach. The gap in valuation reflects deeper realities-lower returns on equity, exposure to currency risks, and a sector composition that is fundamentally different from that of the U.S. markets. The rally of 2025, driven by specific catalysts, may not repeat itself, and history reminds us that international stocks can languish in the shadows for decades, not just years.

For those who find themselves overly exposed to U.S. stocks, this fund provides geographic diversification, a higher yield, and the potential for upside-if the conditions remain favorable. But do not be misled by the allure of cheapness; the structural differences are real, and they cannot be wished away. This fund is best viewed as a complement to your portfolio, not the cornerstone upon which to build your financial future.

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2025-10-06 16:27