The Top 3 Vanguard ETFs of 2025 (so Far) Share This 1 Striking Common Denominator

Globe and Mail

30-03-2025

Baskin-Robbins has nothing on Vanguard. The ice cream chain is famous for offering 31 flavors to ice cream lovers. Meanwhile, Vanguard's family of exchange-traded funds (ETFs) features 90 choices for investors.
However, some of those funds will probably "taste" very similar. The top three Vanguard ETFs of 2025 (so far) share one striking common denominator.
Funds of a feather
Vanguard markets multiple types of ETFs. You can buy funds that focus on specific U.S. sectors. Some ETFs own only large-cap stocks. Others specialize in small-cap stocks and mid-cap stocks. Vanguard offers ETFs with only growth stocks in their portfolios and others with only value stocks. Some Vanguard funds allow you to invest in bonds of varying maturities.
However, the three best performing Vanguard ETFs year to date don't focus on any of those asset classes. Instead, they all concentrate on international stocks.
The Vanguard FTSE Europe ETF (NYSEMKT: VGK) ranks as the top Vanguard ETF of 2025 with a return of around 12%. This fund owns 1,263 stocks, all headquartered in the key European markets of Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom.
The Vanguard International High Dividend Yield ETF (NASDAQ: VYMI) has gained nearly 10% year to date. As its name indicates, this ETF focuses on international stocks that offer above-average dividend yields. Its portfolio features 1,491 stocks, with top holdings including Swiss food and beverage company Nestlé, healthcare giant Roche , and big drugmaker Novartis. Nearly 45% of the Vanguard International High Dividend Yield ETF's stocks are based in Europe.
The Vanguard FTSE Developed Markets ETF (NYSEMKT: VEA) has risen over 8% in 2025, landing it in the No. 3 spot among Vanguard's best performing ETFs. This fund owns a diversified portfolio of 3,910 international stocks, from large-cap to small-cap. Its top holdings include German software company SAP, Danish pharmaceutical company Novo Nordisk, and Dutch semiconductor fabrication equipment maker ASML.
Why are international Vanguard ETFs performing so well?
It isn't only Vanguard's top three ETFs this year that focus on international stocks. Eight of the fund manager's top 10 ETFs do so as well. Could that be a coincidence? Nope.
One reason international stocks, especially those based in Europe, are outperforming their U.S. peers is that they're more attractively valued. For example, even with its strong year-to-date gains, the Vanguard FTSE Europe ETF's price-to-earnings (P/E) ratio is 17.4. By comparison, the Vanguard S&P 500 ETF trades at 26.9 times earnings.
European defense stocks have been especially big winners. Why? European Union members including Germany plan to increase their defense spending over the next few years.
Economic data from European governments has also been better than expected. And the trend isn't limited to only one sector. European banking, manufacturing, and services have seen improvement.
Some wishful thinking could also be a factor. The Trump administration's prioritization of negotiating an end to the war between Russia and Ukraine has raised hopes that energy prices could come down and pave the way for significant investments in reconstruction in Ukraine.
Should you buy these Vanguard ETFs?
When so many similar ETFs are performing well, many investors could be tempted to jump on the bandwagon. Is that a good idea? Maybe, but maybe not.
International stocks could continue to outgain U.S. stocks over the near term. If this happens, the Vanguard FTSE Europe ETF, the Vanguard International High Dividend Yield ETF, and the Vanguard FTSE Developed Markets ETF could remain top performers.
However, a severe and prolonged trade war between the U.S. and Europe (as well as with other regions) resulting from the Trump administration's tariffs could weigh on U.S. and international stocks alike. The "peace dividend" from a cessation of hostilities between Russia and Ukraine could also be less likely than hoped.
Investing in Vanguard ETFs that focus on international stocks to provide more portfolio diversification isn't a bad idea. But betting the farm that the current trend of these ETFs outperforming funds focused on other asset classes over the long term might not pay off.
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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML, Vanguard S&P 500 ETF, and Vanguard Tax-Managed Funds-Vanguard Ftse Developed Markets ETF. The Motley Fool recommends Nestlé, Novo Nordisk, and Roche Holding AG. The Motley Fool has a disclosure policy.