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Easily one of this year’s biggest equity-level redemption stories is the leadership of international stocks over domestic peers – a scenario that applies to both developed an emerging markets.
As of Oct. 24, the widely observed MSCI EAFE and Emerging Markets indexes are up 27.9% and 33%, respectively, year-to-date while the S&P 500 is higher by “just” 16.6%. Add to that, it’s the U.S. equity gauge, not the international indexes, that’s been noticeably more volatile this year. The turbulence is the result of “interesting” U.S. trade policy, but the fact remains international stocks’ stars have been reborn this year.
That’s great news for advisors and clients alike because the many of the former likely espoused the diversification virtues of ex-US exposure while many of the latter, with good reason, took that advice only to be frustrated in recent years as domestic growth stocks acted as world beaters.
Of course, international stock-picking isn’t any easier than it is in the U.S., which is to say it’s not easy at all and that’s true across both developed and emerging markets. It’s often best to venture outside the U.S. with the help of broad-based exchange traded funds, including the Vanguard FTSE Developed Markets ETF (NYSE: VEA).
VEA Has the Right Approach
At a time when ETFs have gotten increasingly exotic, VEA stands out for its simplicity. The Vanguard ETF holds nearly 3,900 large-, mid- and small-cap stocks hailing from approximately 25 countries.
Something to note is that VEA follows the FTSE Developed All Cap ex US Index and FTSE Russell includes Canadian and South Korean equities in its developed markets benchmarks. Other index providers, including MSCI, still classify South Korea as an emerging market. That’s impactful when South Korean stocks are rallying as is the case this year, but over the past several years, South Korea exposure hasn’t been material in the VEA story as the ETF has narrowly outpaced comparable MSCI EAFE-linked ETFs.
“The FTSE Developed All Cap ex US Index returned 10.3% annualized for the five years through August 2025, similar to other developed-market indexes but better than those that included poor-performing emerging-market stocks,” notes Morningstar analyst Zachary Evens. “Volatility tends to be slightly elevated for this index, but risk-adjusted returns still measure up to similar benchmarks.”
As highlighted in the Morningstar chart below, VEA has been a long-term winner in its category, helped in part by a low annual fee of 0.03%, which is lower than what’s found on many domestic equity funds.
Weak Dollar Helping VEA’s Case
Making VEA’s performance over that decade all the more impressive is that the dollar strong for much of that period, acting as a headwind for international stocks and a tailwind for currency hedged ETFs of which VEA is not one.
One way of looking at currency hedging is that there are times when it works, even necessary, and there are times when it doesn’t work. For many retail investors, it’s best not to obsess with conundrum and simply consider products like VEA.
VEA “does not hedge currency risk. This has mostly hampered performance since the US dollar has been stronger than the foreign currencies represented in this portfolio,” concludes Evens. “However, the advantages and disadvantages of currency hedging come in waves. Over the long run, the impact of foreign-exchange rates on total return tends to wash out.”