These 3 Vanguard ETFs Have Left the S&P 500 in the Dust. They All Have Dividend Yields Above 3%

Globe and Mail

19-03-2025

When it comes to the markets, U.S. exceptionalism reigned supreme for more than two years, as the broader benchmark S&P 500 outpaced most markets around the world. Recent weakening economic data, concerns about rising inflation, and President Donald Trump's efforts to initiate multiple trade wars have stalled this market run (at least for now). Last week, the S&P 500 briefly entered correction territory, and some investors appear to be moving their funds into stocks with cheaper valuations abroad in anticipation of further domestic upheaval.
While the S&P 500 has crushed foreign markets historically, some wonder if times might be changing. If you wonder as well, these three Vanguard exchange-traded funds (ETFs) might be worth a closer look. All three have left the S&P 500 in the dust so far in 2025. They all also offer dividend yields above 3%.
1. Vanguard International High Dividend Yield ETF -- 4.53% yield
The Vanguard International High Dividend Yield Index Fund (NASDAQ: VYMI) tracks large-cap stocks in emerging developed markets outside the U.S. that are projected to have higher dividend yields on average.
While the S&P 500 has fallen nearly 4% year to date (as of March 18), VYMI has risen more than 11%. The ETF also has an attractive dividend yield of over 4.5%. Over 44% of the fund is invested in European equities, 26% is in the Pacific region, and about 21% is in emerging markets. In terms of sectors, 39% of the fund is invested in financials, 10% in industrials, and roughly 9% in energy.
Data by YCharts.
Following the Great Recession in 2008-09, many parts of the world struggled to spur real economic growth, forcing central banks (including in the U.S.) to lower rates. But problems abroad seemed to be more pronounced than in the U.S.
In 2014, the European Central Bank (ECB) even lowered its benchmark lending rate below zero and held it there until 2022. Since inflation swept in, the ECB has upped its deposit benchmark rate to about 2.5%, while the U.S. went all the way up to 5.33% before cutting last year. As a result, the dollar strengthened, and the U.S. has also consistently outperformed G7 countries on gross domestic product (GDP). Stocks tend to perform well when the economy is expanding.
However, with markets penciling in rate cuts for the Federal Reserve this year and some fearing that a slowing economy and Trump's tariffs could hurt GDP growth, investors think this could be the time to buy foreign stocks that have struggled. Investors also see the possibility of higher spending in Europe, which, coupled with rate cuts in the U.S., could lead to their currencies strengthening as well. If you look at the price-to-earnings ratios of the top 10 holdings in VYMI, many of these stocks trade much cheaper than some of the high flyers in the U.S.
Rank/Holding P/E Ratio Rank/Holding P/E Ratio
1. Roche Holding AG 32.1 6. HSBC Holdings 9.2
2. Toyota Motor 7.4 7. Royal Bank of Canada 12.5
3. Nestle 21.4 8. Commonwealth Bank of Australia 24.3
4. Novartis 18.5 9. Siemens 19.3
5. Shell PLC 13.7 10. Mitsubishi Financial Group 12.4
Data by YCharts.
2. Vanguard Global ex-U.S. Real Estate ETF -- 3.97% yield
The Vanguard Global ex-U.S. Real Estate Index Fund (NASDAQ: VNQI) seeks to track international real estate stocks, some of which are real estate investment trusts (REITs).
REITs hold interesting corporate structures and can qualify for certain tax advantages. However, to do so they must pay out 90% of their annual taxable income through dividends; must invest 75% of their assets into real estate or cash; and receive at least 75% of gross income from real estate, including rent, mortgage interest, property financing, or real estate sales.
Data by YCharts.
VNQI hasn't performed as well as VYMI, but it's still up about 4% this year. Real estate remains challenged in many foreign markets, whether you think about China, which is dealing with deflationary headwinds and lacking demand in the housing sector, or Europe, where higher interest rates have also challenged housing affordability.
VNQI has nearly 21% of its holdings invested in real estate operating companies, close to 19% in diversified real estate activities, roughly 14% in real estate development, and the rest in various REITs ranging from industrial to single-family residential. Nearly 48% of the ETF is invested in companies in the Pacific, over 24% in Europe, and slightly under 24% in emerging markets.
3. Vanguard European Stock Index Fund ETF -- 3.02% yield
As the name suggests, the Vanguard European Stock Index Fund ETF (NYSEMKT: VGK) holds a basket of small-, mid-, and large-cap stocks located in major markets in Europe. As mentioned above, investors see attractive valuations in Europe that have been that way for many years, primarily because of mediocre growth in Europe's major economies.
Data by YCharts.
But perhaps due to inflated valuations in the U.S. and some of the recent economic prospects in Europe, there finally seem to be some catalysts headed Europe's way. The ETF has surged more than 15% already this year. The Trump administration's preference to have the U.S. work independently on many issues has started to make the European Union think more independently.
For instance, given the way talks between the U.S. and Ukraine have gone lately regarding Ukraine's war with Russia, European governments have contemplated increasing their own military spending, which has led European defense stocks to fly. Historically, military spending has led to economic growth. At the same time, some strategists see a potential ceasefire between Russia and Ukraine lowering both energy prices and economic uncertainty on the continent.
Close to a quarter of VGK is invested in companies in the United Kingdom, while an additional 14% to 16% are each invested in France, Switzerland, and Germany. The top three sectors are financials, industrials, and healthcare.
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