Vanguard Is Bullish on Developed Markets Outside the U.S. -- But How Can You Buy Them? These 2 ETFs Can Help.

Vanguard says developed-market ex-U.S. equities could outperform U.S. growth stocks in the AI cycle, with a 10-year forecast of 4.5% to 6.5% average annual returns vs 3.6% to 5.6% for U.S. growth. The article highlights two ETFs for this positioning: State Street’s SPDW holds 2,436 developed-market stocks and has delivered ~9.8% annualized returns over five years, while Vanguard’s VYMI holds 1,565 stocks (mostly value/dividend payers) with ~14.1% annualized returns over five years. Fees are low (SPDW 0.03% vs VYMI 0.07%) and dividends are emphasized (SPDW ~3% trailing-12-month yield; VYMI ~3.5%), framing a mild positive outlook for international over U.S. growth exposure.

Analysis

Near term, this is more a positioning signal than a fundamentals shock: a modestly bullish read on ex-U.S. developed equities can still matter because crowded U.S. growth exposure is highly sensitive to any narrative that AI gains will diffuse into second-tier beneficiaries. The first-order winners are low-fee international wrappers and the ETF complex around them; if flows rotate, STT benefits from AUM gathering while VYMI-like products capture yield-seeking capital that is currently over-allocated to mega-cap growth.

The second-order winners are not just banks/pharma/energy; they are the industrial enablers of AI outside the U.S. ASML, SKHY, and SSNLF are the cleaner expression if productivity gains translate into incremental capex and memory demand, while NVS, RHHBY, and SHEL benefit if investors re-rate cash-generative, under-owned balance sheets as a “quality at a discount” substitute for expensive U.S. compounders. The flip side is that U.S. growth multiples can compress even if earnings stay strong, simply from broadening breadth and lower required return assumptions.

The key risk is timing: AI productivity is a 6-18 month story, while relative performance can lag for several quarters if U.S. hyperscaler capex keeps surprising and the dollar stays firm. If earnings revisions for U.S. mega-cap software/hardware re-accelerate or overseas PMIs roll over, the rotation thesis is likely premature. The contrarian angle is that consensus may be too focused on “where AI is built” and not enough on where margin leverage shows up; still, this is a gradual allocation shift, not a catalyst-driven sprint.

Key Decisions for Investors

• Long VYMI vs short QQQ/IWF as a 6-12 month relative-value rotation trade; thesis works if breadth broadens and U.S. growth valuation de-rates 5-10 turns while dividend/value cash yields remain intact.
• Add STT on a 1-3 month flow catalyst watch: if ex-U.S. fund inflows accelerate, AUM and fee leverage should show up before fundamentals do; stop if ETF flow data stays negative or U.S. growth keeps dominating performance.
• Prefer ASML over NVDA for a slow-burn AI breadth trade over 6-18 months; ASML is better levered to global fab spending across geographies, but the trade fails if foundry capex pauses or China restrictions tighten further.
• Use a basket long of VYMI / NVS / RHHBY / SHEL as a defensive “quality ex-U.S.” sleeve; upside is multiple expansion from depressed starting valuations, downside is currency headwinds and a risk-on U.S. tape.
• Watch the USD and relative earnings revisions: if DXY stays elevated or U.S. mega-cap EPS revisions outpace Europe/Japan for two quarters, fade the rotation and cover ex-U.S. longs.