VXUS Surpasses $100 Billion, Signals Shift to Global Equity Diversification

In a significant development for the global investment landscape, the Vanguard Total International Stock ETF (VXUS) recently surpassed the $100 billion mark in assets under management. This milestone underscores a transformative shift in equity diversification strategies among investors, signaling a growing recognition of the potential for stability and growth in non-U.S. markets. Over the past year, VXUS has experienced substantial growth, adding $27.33 billion, an indication of the increasing appeal of international equities and a strategic reassessment of the role U.S. equities play in diversified portfolios.

For much of the 2010s and early 2020s, U.S. equities were revered, largely driven by the performance of a few major technology companies, including Meta, Apple, Alphabet, Amazon, Microsoft, and NVIDIA. These companies turned the U.S. market into a highly concentrated investment space, with seven firms contributing nearly one-third to the S&P 500's performance. This concentration, however, came with risks. Fluctuations in these stocks, prompted by factors such as regulatory actions or sector-specific volatility, often led to widespread market instability.

The emergence of non-U.S. equities as a compelling alternative is highlighted by the MSCI ACWI ex USA Index, which as of mid-2025, trades at a 35% discount compared to the S&P 500. Although this disparity does not assure future returns, it offers a safety margin for investors adopting a long-term perspective. Analysts anticipate that developed international equities may outperform U.S. markets by an average of 1.4 percentage points annually over the next decade, driven by lower valuations, superior dividend yields, and a more balanced earnings mix across sectors and geographies.

The move towards international equities reflects deeper shifts in the global economic framework. Notably, innovation is becoming decentralized, with China emerging as a formidable player through companies like Deepseek, Alibaba, and Tencent. These firms continue to innovate despite challenges such as U.S. semiconductor sanctions, proving that technological advancements are no longer confined to U.S. borders.

Meanwhile, fiscal policy differences are shaping market dynamics. As U.S. stimulus measures decline, regions like Europe and Asia are stepping forward. Germany's large-scale infrastructure investment and defense spending initiatives are fueling growth for European firms, while Japan's corporate governance reforms are boosting shareholder returns. Similar moves are anticipated in South Korea.

Changes in trade policies and supply chains are also influencing investment strategies. New U.S. tariffs compel global companies to reevaluate their supply chains, with non-U.S. firms often being better positioned to manage such disruptions, enhancing the appeal of non-U.S. equities.

Currency fluctuations add another layer of attraction, as a weaker U.S. dollar makes international stocks more appealing to American investors, converting overseas earnings into more substantial U.S. dollar returns. Alongside the diversification benefits of holding assets in diverse currencies, funds like VXUS gain prominence.

VXUS's achievement serves as a clear signal for investors to reevaluate their portfolio allocations. Many institutional investors now advocate for allocating 25% to 30% to developed non-U.S. equities, significantly reducing dependence on the U.S. market while tapping into growth prospects in regions like Europe and Asia. This approach dovetails with improving geopolitical stability post-Brexit and demographic trends in Asia that are expected to drive long-term demand in healthcare and consumer sectors.

Yet, international investments are not devoid of risks. Political instability in emerging markets, regulatory changes in Europe, and potential global economic slowdowns could limit returns. However, for investors willing to weather short-term fluctuations, the advantages of global diversification remain compelling. The inclusion of the MSCI World Index in portfolio strategies can offer a balanced approach, maintaining a significant U.S. presence while diversifying with a meaningful portion of non-U.S. equities.

VXUS’s milestone is indicative of a broader trend where investors are shifting away from relying solely on U.S. markets towards a global investment approach that embraces varied regions and sectors. This transition recognizes the evolving nature of global growth and its decentralization. Rather than abandoning U.S. equities, investors are understanding the benefits of a nuanced risk and return balance.

With its minimal expense ratio of $0.05 and extensive exposure across developed and emerging markets, VXUS represents a strategic option for fostering global diversification. As the dominance of the U.S. dollar wanes and innovation spreads globally, it becomes clear that the future of equities lies beyond conventional markets. Investors equipped to adapt to these changes will be better positioned for success in the emerging global economic landscape.