The Vanguard Total International Stock Index Fund ETF (NASDAQ: VXUS) has surged 27% year-to-date, outperforming its average annual return since 2011. International stocks trade at a 42% discount to U.S. stocks, driven by lower margins and slower growth. A 10-20% portfolio allocation for diversification is recommended, but not as a core holding replacement.

US companies have higher returns on equity compared to European and emerging market firms, leading to the valuation gap. The fund holds 8,621 stocks with exposure to Europe, Pacific markets, and emerging markets. Currency risk from a weakening dollar impacts returns. Despite recent positive momentum, the gap in valuations reflects real structural differences.

Three key factors driving international equities in 2025 are a weaker dollar, China’s stimulus measures, and signs of stability in Europe’s economy. These tailwinds may not last, with risks of a stronger dollar, transient stimulus, and fragile European recovery. International markets have aligned with positive momentum, explaining the fund’s strong performance.

The Vanguard Total International Stock Index Fund offers value with a 2.78% dividend yield, low expense ratio, and geographic diversification. However, exposure to emerging markets adds volatility and challenges remain in Europe and Asia. Consider a 10-20% portfolio allocation for diversification, recognizing the fund as complementary rather than foundational for wealth building.

Read more at Nasdaq: Is The Vanguard Total International Stock Index Fund ETF Still a Buy?