For more than a decade, international stocks consistently failed to keep up with the S&P 500 (SNPINDEX: ^GSPC). Low interest rates, stronger economic growth, and an affinity for U.S. stocks all helped drive the rally.
2025 marked a reversal of that trend. Investors began paying attention to valuations again. Expected growth rates in international economies were accelerating. The Federal Reserve is unlikely to provide much rate cut assistance. Those factors helped to finally unlock some of the inherent value in this group.
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The 18% total return for the Vanguard S&P 500 ETF (NYSEMKT: VOO) in 2025 was unquestionably impressive. But it lagged the 32% total return of the iShares Core MSCI EAFE ETF (NYSEMKT: IEFA) by a wide margin (EAFE stands for Europe, Australasia, and the Far East).
The Vanguard International High Dividend Yield ETF (NASDAQ: VYMI) did even better. It returned 38% thanks to its deeper value profile and overweighting in some of the year’s better-performing stocks and sectors. And the momentum hasn’t stopped. Year to date through Feb. 11, it has gained another 10%, outpacing both the S&P 500 and EAFE indexes again.
Given the way that the market has turned toward cyclical, defensive, and value stocks in 2026 (and the way that momentum has sustained), I think that it’s looking like another good year for the Vanguard International High Dividend Yield ETF.
It’s common for international stocks to trade at a lower price/earnings (P/E) multiple than the S&P 500. Dividend stocks are typically even cheaper than that, and this ETF is no exception.
The Vanguard International High Dividend Yield ETF has a P/E of 13.5, or roughly half that of the S&P 500. That valuation gap has the potential to provide a meaningful downside cushion should the global growth cycle begin to slow.
The fund also has a dividend yield of 3.3%, roughly triple the yield currently being offered by the S&P 500. That could provide a material yield enhancement on top of the capital growth potential.
One of the things that’s been a drag on overseas stock performance lately has been a lack of earnings and revenue growth. In 2025, EAFE countries collectively grew their earnings by just over 1%. Emerging markets posted considerably better 10% growth, but rates across individual economies were scattered.