International stocks have outperformed U.S. equities for over a year, with the MSCI ACWI ex US Index returning approximately 40% compared to the Russell 3000’s 36%. Factors such as tariffs, high valuations, and geopolitical tensions, including the war in Iran, have pressured U.S. markets, while international equities have benefited from a weakening dollar and increased infrastructure and defense spending in key markets. Notably, the Vanguard FTSE All-World ex-US Small Cap Index Fund (VSS) has attracted attention for its strong performance, returning 30% in 2025 and 12% year-to-date through April 20.
This trend highlights a significant shift in investor sentiment as they diversify away from overvalued U.S. stocks, with experts predicting continued outperformance of international stocks driven by favorable macroeconomic conditions and the global expansion of AI technologies.
For market professionals, the VSS ETF represents a compelling opportunity, particularly as small-cap stocks outside the U.S. could capitalize on lower valuations and ongoing fiscal support, making them an essential consideration in portfolio diversification strategies.
Source: fool.com