After more than two years of a bull market run, the broader benchmark S&P 500(SNPINDEX: ^GSPC) is starting to show some cracks. The index has given up all its post-election gains and finished Monday’s trading down 4.5% on the year, hardly the move most investors hoped for after President Donald Trump promised a pro-business administration.
Foreign markets have trailed the S&P 500 for years, but they’re holding up better this year, and it may be their time to shine. These two Vanguard exchange-traded funds (ETFs) are crushing the S&P 500 so far in 2025. Should you buy?
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1. Vanguard International Dividend Appreciation ETF
The Vanguard International Dividend Appreciation ETF(NASDAQ: VIGI) has gotten off to a good start this year and is up 4.7% through Monday’s close. The fund seeks to track large-cap stocks from developing and international markets with a record of growing dividends. The yield currently sits around 1.85%, which isn’t what I’d call strong — but it’s better than the S&P 500’s yield around 1.3%, and if you compare the ETF’s total return to simple price appreciation, you can see how even this kind of yield makes a difference over time.
For the past several months, many market strategists have recommended buying beaten-down international stocks over the U.S. stocks because of elevated valuations. Euphoria over artificial intelligence (AI) rocketed the S&P 500 to 57 all-time highs in 2024. Even before Trump implemented his tariffs and started a trade war, the S&P 500 looked fragile from a valuation standpoint.
Over the past month or so, new economic data emerged, suggesting weakness in consumer spending, which started to raise concerns about a recession and possible stagflation. Most investors have been concerned about sticky inflation, so the data marked a turning point. The dollar has also weakened this year, which can often be bullish for international markets. Defense stocks in Europe have soared, as officials discuss increasing military spending. Chinese tech stocks have also done well as investors have grown bullish about the country’s AI capabilities thanks to the emergence of DeepSeek.
Here are the 10 largest stocks by weight in this Vanguard fund:
- SAP SE
- Roche Holding AG
- Novartis AG
- Nestle SA
- Sony Group Corp.
- Schneider Electric SE
- Sanofi SA
- Novo Nordisk
- Hitachi
- Reliance Industries
2. Vanguard International High Dividend Yield Index Fund ETF
The Vanguard International High Dividend Yield ETF(NASDAQ: VYMI) has ripped by 8.8% this year, taking advantage of a shift to international and emerging markets. This fund enables investors to get exposure to stocks in international markets expected to have higher dividend yields. Roughly 44% of the fund is invested in European stocks, 26% is invested in stocks in the Pacific region, and about 21% in emerging markets. As the name suggests, this ETF also has a strong dividend yield.
Dividend stocks are not a bad idea in this market, as reliable passive income looks a lot better than trying to play the volatility in this market. Additionally, dividends over time can compound and accumulate into significant wealth. While this ETF’s dividend yield bounces around a bit, it’s typically over 4%, which is considered a high-yield dividend. Here are the ETF’s top 10 holdings by weight:
- Roche Holding
- Toyota Motor Corp.
- Nestle NA
- Novartis AG
- Shell
- HSBC
- Royal Bank of Canada
- Commonwealth Bank of Australia
- Siemens AG
- Mitsubishi UFJ Financial Group Inc.
As you can see, some of the top 10 holdings are similar to the other Vanguard fund above. The big difference is that the Vanguard International High Dividend Yield ETF includes several international bank stocks. Banks are cyclical and can therefore take advantage of economic growth. While I’m not sure that international growth is expected to blow anyone away, the World Bank suggests that it’s expected to grow in 2025 and 2026, while growth slows in China and the U.S.
European Union countries like Germany have vowed to spend more, while the Federal Reserve Bank of Atlanta just lowered its first-quarter U.S. growth domestic product (GDP) expectations at the fastest rate since the pandemic. Things can change fast but international stocks will likely outperform if their GDP assumptions stay constant or tick up marginally and U.S. growth disappoints.
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HSBC Holdings is an advertising partner of Motley Fool Money. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool recommends HSBC Holdings, Nestlé, Novo Nordisk, and Roche Holding AG. The Motley Fool has a disclosure policy.