1 Unstoppable Vanguard ETF I'm Stocking Up On in 2026

International equities are demonstrating a strong resurgence, with the MSCI EAFE Index outperforming the S&P 500 this year and in 2022. The Vanguard FTSE Developed Markets ETF (VEA), up 31.2% YTD, is highlighted as a compelling long-term holding, driven by its significant exposure to Japan (21.1% weight) benefiting from anticipated pro-market reforms and increased spending, and Europe (over 50% weight) where renewed defense commitments are boosting industrial stocks (19.2% of the fund). VEA further offers broad diversification across nearly 3,900 stocks and a low 0.03% expense ratio, positioning it as a strategic asset for diversifying U.S.-heavy portfolios.

Analysis

International equities are demonstrating a significant resurgence, with the MSCI EAFE Index up 28.7% year-to-date as of October 28, positioning it to outperform the S&P 500 for the second time since 2019. The Vanguard FTSE Developed Markets ETF (VEA) has notably surpassed both benchmarks, returning 31.2% year-to-date, indicating strong momentum in non-U.S. developed markets.

A primary catalyst for VEA's performance is its 21.1% allocation to Japanese stocks, the fund's largest geographic exposure. This exposure benefits from anticipated pro-market policies, including corporate reform and increased defense and infrastructure spending, following the ascent of Sanae Takaichi and the ruling LDP. These initiatives are expected to bolster the Japanese equity market.

Furthermore, Europe, representing over half of VEA's holdings, is experiencing a rebound driven by renewed commitments to defense spending. The ETF's 19.2% weight in industrial stocks, its second-largest sector exposure, directly leverages this theme, with some European nations pledging up to 5% of GDP to defense, suggesting multi-year upside for these holdings. VEA also offers broad diversification across nearly 3,900 stocks with no single holding exceeding 1.4%, coupled with a highly competitive 0.03% annual expense ratio.

Key Decisions for Investors

• Consider VEA for long-term international diversification, particularly for U.S.-heavy portfolios, given its broad market exposure and low expense ratio.
• Monitor the execution and impact of pro-market policies and increased defense spending in Japan and Europe, as these are key drivers for VEA's underlying holdings.
• Evaluate VEA as a potential core portfolio holding due to its strategic positioning in rebounding developed markets and inherent diversification benefits.