1 No-Brainer International Vanguard ETF to Buy Right Now for Less Than $1,000

For the past few years (and probably longer than that), investors have focused on one theme for their portfolios: large-cap tech. As interest rates fell, trillions of dollars of liquidity flooded the market, and the artificial intelligence (AI) trade took root, many people have made tech the cornerstone of their portfolios.

Last year marked a shift. For the first time since 2020, emerging markets outperformed the S&P 500 (SNPINDEX: ^GSPC) on a total return basis. The U.S. market still performed well, but it was an indication that investors began looking to international and value stocks for returns.

That trend has continued in 2026. International stocks are still outperforming, and a broader market rotation seems to be taking place. This is important because historically, when the market shifts from U.S. leadership to international leadership, it's a trend change that can last for years.

Image source: Getty Images.

U.S./international stock outperformance tends to run in multiyear cycles

Although there is certainly some variance in which of these two groups outperforms in any given year, a study by the Hartford Funds finds that there are very lengthy periods of leadership by one group or the other when looking at trailing-five-year returns.

The average cycle length going back to 1975 is just over eight years, but leadership has been very one-sided since the end of the financial crisis.

Data source: Hartford Funds

Looking at trailing-five-year returns, the U.S. has been outperforming international stocks for the past 15 years.

Even after last year's win for developed ex-U.S. and emerging markets stocks, the S&P 500 still holds the lead, but it's definitely beginning to flip in the other direction. Based on the length of the current cycle alone, it's pretty clear that international equities are overdue for a run in front.

But 2025's performance shows that fundamentals and valuations may support the switch, too. There's certainly a case to be made for developed international stocks right now, but I think the no-brainer choice for taking advantage of this shift is the Vanguard FTSE Emerging Markets ETF (NYSEMKT: VWO).

Why emerging markets could be a big winner during the next several years

A number of factors are beginning to work in favor of emerging markets' outperformance:

Valuations

Emerging markets normally trade at lower price-to-earnings ratios than U.S. stocks, but the gap is getting particularly wide now. The Vanguard S&P 500 ETF (NYSEMKT: VOO) trades at about 28 times earnings currently. The Vanguard FTSE Emerging Markets ETF trades at just 16.

That valuation discount doesn't automatically translate into better returns. But in an environment where value begins to outperform and investors begin looking outside of mega-cap tech, that discount could become valuable.

Falling dollar

The geopolitical backdrop has favored a global de-dollarization trade. A number of large European investors have shown an interest in selling or have actually sold some of their U.S. Treasury positions. The perception is that the value of U.S. debt and the U.S. financial position have deteriorated.

We're seeing evidence of this already. The 10-year Treasury yield is up roughly 30 basis points from its October low, and the U.S. dollar index is down to its lowest level since early 2022. A falling dollar is a tailwind for emerging markets stocks.

Better growth outlook

According to the International Monetary Fund, the 2026 growth projection for emerging markets economies is 4.2%. For developed market economies, the growth forecast is just 1.8%. Those above-average growth rates have largely been ignored for some time, but they could become attractive again if the U.S. economy begins to stumble.

Easier monetary policy

Many emerging markets economies have significantly lower borrowing costs and central bank rates to stimulate growth. The Federal Reserve, on the other hand, just held the fed funds rate steady at its January meeting and has signaled doubts about doing much more cutting in 2026.

If monetary conditions remain comparatively more lax overseas than in the U.S., it could also provide a tailwind for emerging markets equities.

The Vanguard FTSE Emerging Markets ETF is the way to capitalize

This exchange-traded fund (ETF) invests in a broad range of emerging markets equities but is more heavily focused on China (32%), Taiwan (23%), and India (20%). That's common among diversified emerging markets funds, but it also positions shareholders to be where some of the biggest growth opportunities are at the moment.

From a sector standpoint, the portfolio is headlined by the industries that benefit directly from global trade and consumption. That includes technology and AI, e-commerce, financial services, consumer discretionary, and energy.

It's overweight in the areas that the market is beginning to favor. It's got a strong value component. The foreign currency and fixed income markets are starting to favor non-dollar trades. And it's just simply long overdue for an extended stretch of market leadership.

To me, that sounds like a no-brainer trade.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard International Equity Index Funds-Vanguard Ftse Emerging Markets ETF and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.