Vanguard International ETF Outpaces S&P 500 for First Time Since 2021

The Vanguard Total International Stock Index Fund ETF Shares (VXUS) has recorded a year-to-date return of approximately 10% in 2026, outperforming the Vanguard S&P 500 ETF (VOO) which has returned roughly 8%. This marks the first meaningful year-to-date lead for the international fund since 2021, driven by a weaker US dollar against the euro and improving non-US earnings.

VXUS tracks the FTSE Global All Cap ex US Index, holding more than 8,000 stocks across developed and emerging markets outside the United States. The fund charges 0.05% in annual expenses, manages roughly $137 billion, and pays a distribution yield near 2.6%. The return engine relies on dividends from foreign companies and price appreciation, translated back into dollars, a process heavily influenced by currency movements.

The US dollar has strengthened against the euro, moving from a 12-month low of $1.198 per euro on January 27, 2026, to roughly $1.16 per euro in mid-May. A stronger domestic currency mechanically compresses the value of international earnings for US investors when translated back into corporate reporting. On the domestic side, the trade deficit narrowed to $60.3 billion in March 2026, following an expansion to $72.9 billion in December.

While year-to-date performance is encouraging, a longer view tempers the story. Over five years, VXUS has returned about 51.3% against the S&P 500 proxy's roughly 85.4%. Ten-year cumulative numbers widen the gap further, with VXUS at roughly 145% versus a staggering 313.8% for VOO. An investor who held VXUS for a decade secured real returns but ultimately walked away with less than half of what a plain S&P 500 index fund delivered.

VXUS bundles developed and emerging markets together, but Vanguard sells those pieces separately. The Vanguard FTSE Developed Markets ETF (VEA) is up nearly 11% year-to-date, driven by Japanese corporate reform and European industrial revival, while the Vanguard FTSE Emerging Markets ETF (VWO) is up about 8%. Developed markets are doing the work in 2026, offering investors who want only that exposure a vehicle at a similar expense ratio.

Currency risk runs both ways, as the dollar's weakness boosting returns now reverses when the Federal Reserve diverges hawkishly. A stronger dollar erases foreign gains before they reach a US brokerage account. Additionally, international indexes lean toward financials, industrials, and materials, lacking the concentrated technology exposure that drove S&P 500 returns from 2016 through 2024.

For an investor with an all-US equity sleeve, holding VXUS at 20% to 30% of the equity allocation brings the portfolio closer to global market-cap weights without requiring a tactical view on which region will win next. Recent short-term outperformance does not automatically vindicate years of trailing performance, and there is no factual basis to predict that a structural rotation will continue.