Vanguard FTSE Europe ETF: A Surprise Winner in 2025. Is It a No-Brainer Buy?

The Vanguard FTSE Europe ETF (VGK) has been a standout performer in 2025, with a year-to-date return of roughly 11%. This ETF, which focuses on European stocks, has outpaced other Vanguard ETFs and even the broader market. But is it a no-brainer buy for investors? Let's dive into the factors contributing to VGK's strong performance and consider whether it's a wise investment choice.

VGK's impressive start to the year can be attributed to several factors:

1. Strong performance of top holdings: Several of the ETF's top holdings have started the year with significant gains. For instance, SAP's shares have soared close to 17% year to date, while Roche is not far behind. Other top 10 holdings, such as AstraZeneca, Nestlé, Novartis, and HSBC Holdings, have also risen by double-digit percentages (Friedberg, 2025).
2. Increased expectations for a ceasefire in Ukraine: Many European stocks have risen in recent weeks as expectations increased for a ceasefire in Ukraine. This geopolitical development has positively impacted the ETF's performance (Friedberg, 2025).
3. Low expense ratio: Like all Vanguard ETFs, VGK has a low expense ratio of 0.06%, making it cost-effective for investors to own. This low cost can contribute to better long-term performance (Friedberg, 2025).

However, the sustainability of these factors in the long term is uncertain. While the strong performance of top holdings can continue, it is subject to the companies' individual performance and market conditions. The geopolitical situation in Ukraine is also subject to change, which could impact the ETF's performance. Additionally, while the low expense ratio is a long-term advantage, it does not guarantee future performance.

VGK's performance in 2025 has been impressive, but it's essential to consider the ETF's historical performance and the potential risks and rewards of investing in European stocks. While VGK has outperformed the S&P 500 so far this year, its long-term performance has been lackluster compared to the U.S. benchmark. Since its inception in 2005, VGK's average annual return is only 5.14%, compared to the S&P 500's return of roughly 10.7 times higher during the same period (Friedberg, 2025).

Investors should also consider the potential risks associated with investing in the Vanguard FTSE Europe ETF, such as market volatility, geopolitical risks, currency fluctuations, concentration risk, performance lag, tariffs, and trade disputes. To mitigate these risks, investors can diversify their portfolio by allocating a portion of their investments to other regions, consider hedging currency exposure, monitor the performance of top holdings, and stay informed about trade policies and geopolitical developments.

In conclusion, while the Vanguard FTSE Europe ETF has been a surprise winner in 2025, investors should approach this ETF with caution. Its strong performance so far this year is encouraging, but the long-term sustainability of these gains is uncertain. Investors should carefully consider the potential risks and rewards before making a decision to invest in VGK. As always, it's essential to conduct thorough research and consult with a financial advisor before making any investment decisions.