Why is vxus doing so well

Overview

Vanguard Total International Stock ETF (VXUS) is an exchange-traded fund that provides investors with broad exposure to international equity markets outside the United States. Launched in 2011 by Vanguard, VXUS tracks the FTSE Global All Cap ex US Index, which includes over 7,800 stocks from developed and emerging markets across Europe, Asia, and other regions. The fund has grown significantly since inception, reaching approximately $60 billion in assets under management by 2024. Historically, international stocks have experienced periods of both underperformance and outperformance relative to U.S. markets, with the 2010s being dominated by U.S. stock leadership. However, 2024 marked a notable shift as international equities began outperforming their U.S. counterparts for the first time since 2020. This reversal reflects changing global economic dynamics, including divergent monetary policies, varying economic growth rates, and currency fluctuations that have created favorable conditions for international investments.

How It Works

VXUS operates as a passively managed ETF that seeks to replicate the performance of its benchmark index through full replication. The fund holds thousands of individual stocks in proportion to their market capitalization within the index, providing diversified exposure across approximately 45 countries. The fund's strong performance in 2024 stems from several interconnected factors. First, international central banks, particularly in Europe and Japan, maintained more accommodative monetary policies compared to the Federal Reserve, supporting economic growth and equity valuations. Second, emerging markets benefited from increased manufacturing activity and infrastructure investments, with countries like India and Brazil showing robust economic expansion. Third, currency effects played a significant role as the U.S. dollar weakened against major currencies like the euro and yen, boosting returns for U.S. investors when foreign holdings were converted back to dollars. Finally, sector composition contributed to outperformance, with VXUS having greater exposure to cyclical sectors like industrials and materials that benefited from global economic recovery trends.

Why It Matters

VXUS's strong performance has significant implications for investors and global markets. For U.S.-based investors, international diversification through funds like VXUS reduces portfolio risk by spreading exposure across different economic cycles and geopolitical environments. The 2024 outperformance demonstrates that international markets can provide substantial returns, challenging the perception of U.S. market dominance. This shift matters for retirement planning and long-term investment strategies, as it highlights the importance of maintaining global allocations rather than concentrating solely on domestic stocks. From a broader economic perspective, VXUS's performance reflects improving fundamentals in many international economies, suggesting potential for sustained growth outside the U.S. The fund's low 0.07% expense ratio makes international diversification accessible to individual investors, democratizing access to global markets that were previously difficult and expensive to access directly.