Meet the 2 Best-Performing Vanguard Index Funds of 2025

Vanguard is widely viewed as the gold standard in index funds because it provides a wide variety of products at relatively low fees. Vanguard founder John Bogle once said that the best way to make money in stocks is to buy the entire market. "Don't look for a needle in a haystack. Just buy the haystack."

Excluding actively managed funds and mutual funds, the best-performing Vanguard index funds year to date are the Vanguard FTSE Europe ETF (NYSEMKT: VGK) and Vanguard FTSE Developed Markets ETF (NYSEMKT: VEA), which have added 29% and 28%, respectively, as of Oct. 21.

Here's what investors should know about these products.

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Vanguard FTSE Europe ETF: 29% gain year to date

The Vanguard FTSE Europe ETF measures the performance of over 1,200 stocks across the major European markets. Its regional weighting leans toward companies in the U.K., France, and Germany, and its sector weighting leans toward financials, industrials, and healthcare. The five largest holdings are listed by weight below:

1. ASML Holding: 2.6%
2. SAP: 1.9%
3. HSBC: 1.7
4. Novartis: 1.6%
5. Roche: 1.6%

The Vanguard FTSE Europe ETF has advanced 29% year to date, outperforming the S&P 500 (a benchmark for the U.S. stock market) by 15 percentage points. However, European stocks have consistently underperformed U.S. stocks over long periods. For instance, the Vanguard FTSE Europe ETF added 53% in the last five years, trailing the S&P 500 by 43 percentage points.

The last item of consequence is the fee structure. The Vanguard FTSE Europe ETF has an expense ratio of 0.06%, meaning shareholders will pay $6 per year on every $10,000 invested in the fund. The average expense ratio on similar funds is 0.81%, which makes this Vanguard product a good choice for investors who want exposure to the European stock market.

Vanguard FTSE Developed Markets ETF: 28% gain year to date

The Vanguard FTSE Developed Markets ETF measures the performance of more than 3,800 companies in developed international markets. Its regional weighting leans heavily toward Europe and the Asia-Pacific, and its sector weighting leans toward financials, industrials, and consumer discretionary. The five largest holdings are listed by weight below:

1. ASML Holding: 1.4%
2. Samsung: 1%
3. SAP: 1%
4. HSBC: 0.9%
5. Novartis: 0.8%

The Vanguard FTSE Developed Markets ETF has advanced 28% year to date, outperforming the S&P 500 by 14 percentage points. However, like European stocks, international equities have consistently underperformed U.S. stocks over long periods. For instance, the Vanguard FTSE Developed Markets ETF advanced 46% in the last five years, trailing the S&P 500 by 50 percentage points.

Finally, the Vanguard FTSE Developed Markets ETF has an expense ratio of 0.03%, meaning shareholders will pay $3 annually on every $10,000 invested in the fund. The expense ratio on similar funds is 0.85%, which makes this Vanguard product a good choice for investors who want diversified exposure to international stocks.

Can European and other international stocks continue to outperform U.S. stocks?

International stocks -- including equities across Europe, the Asia-Pacific region, and emerging markets -- have typically underperformed U.S. stocks over long periods. However, the opposite has happened in 2025, and there are two major reasons why the trend has reversed.

First, U.S. currency has lost value due to concerns about federal debt and tariffs. Analysts at Morgan Stanley write, "The value of the U.S. dollar against other currencies dropped about 11% in the first half of this year, the biggest decline in more than 50 years." Money invested in international stocks would have benefited from currency fluctuations when measured in U.S. dollars.

Second, monetary policy diverged earlier this year when the European central bank started cutting its key interest rate in February while the U.S. Federal Reserve held its benchmark rate steady until September. Also, German lawmakers announced a massive spending package that included 500 billion euros in infrastructure investments.

In short, investors toward the beginning of the year shied away from U.S. equities in favor of international equities due to concerns about U.S. debt, tariffs, and monetary policy. They gravitated toward international equities due to expectations that lower interest rates and fiscal stimulus would lead to growth.

However, those developments have already been priced into the market, and the S&P 500 has more than doubled the return of the European benchmark index in the last six months. Goldman Sachs expects U.S. equities to continue outperforming. The investment bank estimates the S&P 500 will advance 7% in the next year, while benchmarks for European and Asian stocks return 2% and 6%, respectively.

I agree with Goldman Sachs. Investors interested in exposure to international markets can consider buying small positions in the index funds discussed, but I would be surprised if either one beat the S&P 500 over the next three to five years. For that reason, I would keep a much larger percentage of my portfolio in an S&P 500 index fund and/or individual U.S. stocks.

HSBC Holdings is an advertising partner of Motley Fool Money. Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML, Goldman Sachs Group, and Vanguard Tax-Managed Funds-Vanguard Ftse Developed Markets ETF. The Motley Fool recommends HSBC Holdings and Roche Holding AG. The Motley Fool has a disclosure policy.