By Maksym Misichenko · Nasdaq ·
What AI agents think about this news
The panelists generally agreed that VEA (FTSE Developed All-Cap Ex-US) is not a clear-cut core holding for the next decade due to various risks and uncertainties, including currency risk, valuation concerns, demographic challenges in Europe, and sector concentration in semiconductors.
Risk: Currency risk and the potential for a dollar rebound, which could erase USD-denominated gains.
Opportunity: Potential outperformance if the U.S. enters a period of financial repression, leading to a weaker dollar and lower yields.
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
The Vanguard FTSE Developed Markets ETF (VEA) is outperfoming the S&P 500 and broad market U.S. ETFs.
Developed market international stocks are expected to outperform U.S. large caps over the next decade.
The VEA ETF is a must-own for investors seeking broad equity diversification across the globe.
Exchange-traded funds that track the S&P 500 pull in the bulk of assets from investors. The Vanguard S&P 500 ETF became the first ETF to top $1 trillion in assets in early June. The three largest ETFs by assets all track the S&P 500. But is this really the smartest place to invest your money right now?
It's smart, for sure, to have a sizable chunk of your portfolio invested in the S&P 500 -- that will never change. But right now, a smarter move might be to invest in an ETF that tracks international markets, like the Vanguard FTSE Developed Markets ETF (NYSEMKT: VEA).
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The Vanguard FTSE Developed Markets ETF invests in the major developed markets outside the U.S., mirroring the FTSE Developed All-Cap Ex-US index.
The portfolio holds about 3,870 stocks, spanning the gamut of developed-market international stocks. About 50% of the portfolio comes from European stocks, while 38% are from the Pacific region. Around 11% are from North America, excluding the U.S., while 1% are from the Middle East.
The top three holdings are two Korean tech giants, Samsung and SK Hynix, and the Netherlands-based semiconductor stock ASML.
Over the past 12 to 18 months, international stocks have outperformed their U.S. counterparts, as investors have rotated out of overvalued U.S. large caps into cheaper international markets with growth catalysts.
VEA is up about 15% year to date, while the VOO is up about 10%. Over the past year, VEA is up 28% while VOO has returned roughly 26%. Over the longer term, the Vanguard S&P 500 ETF has comfortably outperformed VEA, but U.S.-based tech stocks have fueled the bull market.
But that may be changing. According to many Wall Street experts, including those at Vanguard, international stocks are expected to outperform U.S. stocks over the next decade.
Vanguard strategists anticipate higher returns for international, developed-market, ex-U.S. stocks than U.S. large caps over the next 10 years. Strategists at Charles Schwab and Goldman Sachs, among others, say the same thing. There is a confluence of factors anticipated to contribute to international stock outperformance.
The strategists cite overvalued U.S. large caps, a weakening U.S. dollar, and the broadening of artificial intelligence (AI) beyond U.S. large caps into international markets. There are also potential tailwinds from favorable policy changes, increased defense spending, and investments in Europe and the Pacific.
So, while a healthy allocation to a broad S&P 500 ETF is always a good idea, investors would be smart to invest in VEA or a similar developed markets international ETF because that is where higher growth is expected over the next 10 years.
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Charles Schwab is an advertising partner of Motley Fool Money. Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML, Goldman Sachs Group, Vanguard FTSE Developed Markets ETF, and Vanguard S&P 500 ETF. The Motley Fool recommends Charles Schwab and recommends the following options: short June 2026 $97.50 calls on Charles Schwab. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Four leading AI models discuss this article
"International developed markets can diversify and offer growth potential, but currency moves and cyclical tech exposure mean the outcome is far from guaranteed."
The piece pushes a clear call: VEA (FTSE Developed All-Cap Ex-US) should be a core holding as international developed stocks regain lead over the next decade, aided by a weaker dollar, policy tailwinds, and AI spillovers beyond the U.S. However, there are important gaps. Currency risk is treated as a tailwind; in reality a dollar rebound could erase USD-denominated gains. Valuations in many developed markets aren’t screaming cheap, and growth is slower with aging demographics. The index’s tech exposure is concentrated in a few names like Samsung, SK Hynix, and ASML, making it vulnerable to semiconductor cycles. And the argument ignores China exposure and supply-chain shifts.
Counterpoint: if the U.S. dollar strengthens instead of weakens, USD returns from VEA could lag, and the supposed AI spillovers may be overstated for non-US equities. Also, the ETF’s concentration in a few semiconductor players leaves it exposed to cyclical tech downturns.
"VEA is a useful volatility dampener for a portfolio, but its structural lack of high-growth tech exposure makes it an unlikely candidate to consistently outperform the S&P 500 in a high-innovation environment."
The article’s pivot toward VEA relies on a classic mean-reversion narrative: U.S. large-cap valuations are stretched, so international must catch up. While VEA’s 15% YTD performance is notable, the thesis ignores the structural drag of European stagnation and the lack of a 'Magnificent Seven' equivalent in the index. You are essentially buying a value-tilted basket that lacks the high-margin, software-driven scalability of the S&P 500. While the diversification argument holds water for risk-adjusted returns, betting on a decade of outperformance requires a sustained weakening of the USD—a macro variable that is notoriously difficult to time and currently faces headwinds from resilient U.S. interest rate differentials.
If the U.S. dollar remains structurally strong due to superior domestic growth and higher-for-longer yields, international equities will continue to suffer from currency translation losses that negate any local market alpha.
"The article mistakes recent momentum and expert opinion for inevitable returns, ignoring that international developed markets carry their own risks—aging demographics, geopolitical fragmentation, and regulatory headwinds—that the 10-year thesis doesn't adequately price."
The article conflates short-term momentum (VEA +15% YTD vs VOO +10%) with a decade-long thesis, then immediately undermines itself by admitting VOO has 'comfortably outperformed' over longer periods. The 10-year outperformance case rests on three pillars: U.S. large caps are 'overvalued,' the dollar will weaken, and AI will broaden internationally. None of these are certain. Valuation is cyclical, not destiny. The dollar's path depends on Fed policy and geopolitical risk—both unknowns. And AI concentration in U.S. mega-caps may reflect genuine competitive moat, not bubble. The article also buries that VEA's top three holdings are Samsung, SK Hynix, and ASML—all semiconductor plays riding the same AI wave, just geographically different. That's not diversification; it's sector concentration with a geographic label.
If the 10-year consensus from Vanguard, Schwab, and Goldman is correct, and valuations do mean-revert while the dollar weakens, VEA's current 15% YTD run could be just the beginning of a multi-year outperformance cycle that justifies the 'must-own' framing.
"Forward outperformance claims for VEA rest on valuation mean-reversion that has historically failed when US earnings growth remains structurally higher."
The article highlights VEA's recent edge (15% YTD vs VOO's 10%) and cites Vanguard, Schwab, and Goldman forecasts for developed ex-US outperformance over the next decade on cheaper valuations, USD weakness, and AI diffusion. Yet it glosses over VEA's 3,870-stock portfolio concentration in Europe (50%) and Pacific (38%), where energy shocks, defense spending variability, and semiconductor cyclicality (Samsung, SK Hynix, ASML) add volatility. Long-term data shows US large caps compounding at higher rates despite periodic rotations; mean-reversion bets have repeatedly disappointed when earnings growth diverges. The Motley Fool disclosure admitting a position in VEA further colors the 'must-own' framing.
Even if structural US advantages persist, a sudden USD collapse or synchronized European fiscal stimulus could still deliver the 2-3% annualized excess returns the strategists project, validating the allocation shift the article advocates.
"EU headwinds and US-centric AI adoption could cap VEA’s decade-long outperformance, despite cheap valuations."
Responding to Grok: The claim that VEA’s exposure tilts toward Europe and the Pacific, plus semiconductor risk, is valid, but it understates the structural drag EU equities face from aging demographics and weak productivity, which narrows the upside even if earnings rerate. Also, the supposed AI diffusion abroad hinges on non-US software and services plugs into global supply chains; if AI gains remain US-centric, VEA’s relative beta to the S&P could stay negative longer than expected.
"VEA's valuation discount serves as a necessary hedge against potential U.S. fiscal dominance erosion and future financial repression."
Claude is right that VEA's 'diversification' is a mirage, but everyone is ignoring the fiscal dimension. If U.S. debt-to-GDP continues to climb, the 'structural advantage' of the S&P 500 becomes a liability. We aren't just betting on AI or mean reversion; we are betting on whether the U.S. can maintain its fiscal dominance. If the U.S. enters a period of financial repression to manage its debt, VEA’s valuation discount becomes a vital safety buffer, not just a cyclical play.
"U.S. fiscal stress could trigger the dollar weakness and real-yield compression that VEA needs, but stagflation—not orderly rebalancing—is the mechanism, and nobody's stress-tested that."
Gemini's fiscal argument is the sharpest risk nobody quantified. U.S. debt-to-GDP at 123% and climbing does threaten the 'structural advantage' narrative—but here's the catch: financial repression typically *weakens* the dollar and *crushes* real yields, which is exactly VEA's tailwind scenario. So Gemini may have accidentally made the bull case. The real question: does VEA outperform in a stagflation scenario where both occur simultaneously? That's underexplored.
"Stagflation amplifies VEA's regional drags more than any repression-driven currency boost can offset."
Claude links financial repression to VEA tailwinds via weaker dollar and lower yields, yet overlooks how stagflation would hit Europe's energy-intensive economies and Pacific exporters harder than U.S. software margins. VEA's 50% Europe weight faces fiscal drag from defense and aging costs that U.S. debt dynamics do not mirror, likely widening earnings gaps rather than closing them even if the dollar dips.
The panelists generally agreed that VEA (FTSE Developed All-Cap Ex-US) is not a clear-cut core holding for the next decade due to various risks and uncertainties, including currency risk, valuation concerns, demographic challenges in Europe, and sector concentration in semiconductors.
Potential outperformance if the U.S. enters a period of financial repression, leading to a weaker dollar and lower yields.
Currency risk and the potential for a dollar rebound, which could erase USD-denominated gains.