Why I Think This Vanguard ETF Will Beat the S&P 500 Over the Next 10 Years

The Vanguard Total International Stock ETF (NASDAQ: VXUS) has lagged the S&P 500 over the past 10 years, returning about 145% versus 314% for the index, but now trades at a much cheaper valuation. The article highlights a price-to-book ratio of 2.3 and earnings multiple of 18x for VXUS versus about 5.5x book and 28x earnings for the S&P 500, arguing the discount is attractive. This is a valuation-driven allocation piece rather than a catalyst-driven event, so near-term market impact should be limited.

Analysis

The setup is less a “buy Europe/EM” call than a relative-value statement about mean reversion in global equity leadership. When U.S. multiples are this rich, the marginal buyer of international exposure is really buying diversification of factor risk: lower duration, lower quality bias, and less dependency on a handful of mega-cap U.S. winners sustaining perfection. That matters because a broad international basket is implicitly a short crowded U.S. exceptionalism trade, and those unwind fastest when earnings breadth broadens outside the U.S. or when the dollar weakens.

The most important second-order effect is not the ETF itself but what it signals for adjacent exposures. VXUS’s largest liquid components give you semiconductors, pharma, and global industrial cyclicality without paying U.S. growth multiples; Taiwan Semiconductor is the cleanest expression of that, while Novartis offers defensive ballast if the macro turns risk-off. If international outperformance starts, it will likely come from valuation compression plus FX, meaning the move can be faster than fundamentals alone would justify over a 6-18 month window.

The contrarian risk is that cheap can stay cheap if U.S. profitability remains structurally superior and foreign indices keep carrying more banks, industrials, and state-influenced businesses with lower ROIC. A stronger dollar or renewed U.S. earnings revision advantage would delay any re-rating and could keep VXUS under pressure for another 2-4 quarters. In that case, the better expression is not an outright bet on broad international beta, but selective exposure to high-quality global franchises that benefit from valuation asymmetry without relying on index-level multiple expansion.

Key Decisions for Investors

• Initiate a 3-6 month tactical long VXUS vs short VOO pair trade: target a 5-8% relative outperformance if the U.S. multiple premium compresses; stop if U.S. earnings revisions re-accelerate and DXY breaks higher.
• Add TSM on weakness as the highest-quality way to express global equity diversification; use a 6-12 month horizon with upside driven by both AI capex durability and any rotation away from U.S. mega-cap concentration.
• Use NVS as a defensive satellite long within international exposure; it should hold up better than broad VXUS in a risk-off tape and gives downside protection if the dollar rally extends.
• Avoid indexing the trade purely through VXUS if the goal is alpha; pair it with selective single-name longs in higher-ROIC international winners to reduce exposure to lower-quality financials and cyclicals embedded in the basket.
• If buying VXUS, stage entries over 4-8 weeks rather than all at once; the trade works best on macro dips when U.S. leadership momentum temporarily exhausts and FX becomes the next catalyst.