Get a Slice of International Diversification With This Vanguard ETF

Global stock markets have gotten off to a healthy start in 2025. Late last year, Goldman Sachs, along with several other major investment firms, forecast around a 10% total return for the benchmark S&P 500 this year. However, President Trump has thrown a wrench into the mix with his attempts to reset U.S. trade relationships with major partners including China, the European Union, the U.K., Mexico, and Canada. As a result of the macroeconomic uncertainty being generated by the White House, it might be a smart move to increase your exposure to international stocks this year.

What's the best way to sprinkle such stocks into your portfolio? Although numerous exchange-traded funds (ETFs) exist that offer direct and diversified exposure to foreign markets, one Vanguard ETF stands out as one of the best options available for those looking to broaden their portfolio's reach beyond America's shores.

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Overview

The Vanguard Total International Stock ETF (NASDAQ:VXUS) tracks the FTSE Global All Cap ex-U.S. index, providing comprehensive exposure to both developed and emerging markets outside the United States. Since its inception in January 2011, the fund has built a strong track record through its passive investment approach. It currently holds more than 8,500 stocks across all market caps and sectors.

With an expense ratio of just 0.05%, the fund delivers global diversification at a fraction of the cost of its peers, which charge an average of 0.87% in fees. The impact of those lower expenses will compound meaningfully for long-term investors.

The combination of broad diversification and low costs makes this Vanguard ETF a compelling choice for investors looking beyond U.S. markets.

Portfolio construction

The Vanguard Total International Stock ETF employs a market-cap-weighted methodology that naturally tilts toward larger, established companies while still maintaining exposure to mid-cap and small-cap opportunities. This approach results in a portfolio that currently trades at just 15.5 times earnings, compared to the S&P 500's earnings multiple of 28.7.

The fund's broad diversification helps mitigate single-country risk, though its largest holdings reflect the growing importance of technology in global markets. These include the world's largest semiconductor manufacturer Taiwan Semiconductor Manufacturing Company, Chinese social media and gaming giant Tencent Holdings, and Dutch semiconductor equipment leader ASML.

The market-cap weighted approach provides a balance between stability from large companies and growth potential from smaller companies.

Value proposition

With a dividend yield of about 3.4%, this ETF offers significantly higher income potential than the S&P 500 with its modest 1.2% yield. The substantially lower valuations of international stocks compared to their U.S. counterparts provide a margin of safety in the event global stock markets struggle in 2025.

The Vanguard Total International Stock ETF serves as an excellent complement to U.S.-focused portfolios, particularly given current market dynamics. Its low correlation with the U.S. market can also help reduce portfolio volatility.

The bottom line is that this international ETF offers considerably more attractive income and value opportunities than U.S. large caps do. The current setup doesn't guarantee that international stocks will outperform U.S. equities this year, but foreign equities do appear to be the safer play right now.

Portfolio fit

This ETF can serve as a core international holding for investors seeking to build a globally diversified portfolio. Its combination of broad market coverage, low costs, and attractive valuations makes it an efficient vehicle for accessing international markets.

The fund's passive approach and low turnover rate of 3.4% help minimize tax implications, while its size and liquidity ensure easy trading. These characteristics make it suitable for both long-term buy-and-hold investors and those making tactical allocations.

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George Budwell has positions in Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends ASML, Taiwan Semiconductor Manufacturing, Tencent, and Vanguard Total International Stock ETF. The Motley Fool has a disclosure policy.