VTI vs VXUS: Are International Stocks Finally Catching Up?
VTI dominated VXUS, VEA, and EEM from 2013–2024, but international ETFs have outperformed since 2025. We compare returns, drawdowns, valuations, currency effects, and what changed.
For over a decade, holding international equities felt like a tax on your portfolio.
From January 2013 through December 2024, VTI — Vanguard's Total US Market ETF — compounded at roughly 12% per year, turning every dollar invested into more than four dollars. VXUS, Vanguard's Total International ETF covering 7,000+ stocks outside the United States, delivered less than half that. VEA, which tracks developed markets ex-US, lagged further. EEM, the iShares Emerging Markets ETF, barely moved.
Then 2025 arrived, and the relationship inverted.
As of mid-2026, VXUS is outperforming VTI by a wide margin over the prior 18 months. VEA has staged one of its strongest runs in a decade. EEM is recovering. International diversification — long derided as a drag on performance — is working.
This analysis examines why US equities dominated so completely from 2013 to 2024, what structural forces reversed that relationship in 2025, and what the data says about where each ETF sits today.
Fast answer: VTI produced the best total return by a significant margin over 2013–2024 (+350%+ vs VXUS's ~80%), driven by US tech megacap dominance and USD strength. In 2025, a weaker dollar, extreme valuation gaps, and European fiscal expansion reversed that dynamic. International ETFs have led during this window, and the drivers appear more structural than a short-term fluctuation.
Methodology
We compare four US-listed ETFs using adjusted close price data from our CockroachDB database:
- VTI — Vanguard Total Stock Market ETF (entire US equity market, ~3,700 stocks)
- VXUS — Vanguard Total International Stock ETF (ex-US, ~7,800 stocks)
- VEA — Vanguard Developed Markets ex-US ETF (~4,000 stocks, Europe/Pacific/Canada)
- EEM — iShares MSCI Emerging Markets ETF (roughly 1,200–1,300 holdings, depending on date)
Two analysis windows:
- 2013–2024 US Dominance: January 1, 2013 → December 31, 2024 (the full "lost decade" for international equities)
- Jan 2025–Jun 2026 Reversal Window: January 1, 2025 → June 12, 2026
For each ETF and window we measure total return, CAGR, maximum drawdown, and annualized volatility. All four ETFs are USD-denominated US-listed funds, so returns are directly comparable in USD — no currency conversion adjustments are needed.
Important data notes: Data through June 12, 2026, using adjusted close prices. Returns account for splits and dividend distributions. ETF management fees are reflected in the adjusted close price series. This is not a forecast. It is a Historical Backtest comparison using real price data.
Why international markets trailed for 12 years
The gap between US and international equity performance from 2013 to 2024 was not a small statistical artifact. It was one of the most persistent divergences in modern investing history, driven by five structural forces working simultaneously.
1. The US tech megacap concentration effect
By 2024, the seven largest US technology companies collectively represented over 30% of the S&P 500. These companies compounded at extraordinary rates — Nvidia alone appreciated more than 30x over the decade. VXUS and VEA have minimal exposure to this cohort, instead heavily weighting financials, industrials, and consumer staples. This index composition gap alone explains a significant share of the return divergence.
2. Dollar strength after the 2013 Taper Tantrum
The 2013 Taper Tantrum sent capital flooding back into US dollar assets, launching a multi-year USD appreciation cycle. A stronger dollar creates a mathematical headwind for international equity returns measured in USD. This currency drag silently eroded international returns for years, particularly during the Fed's aggressive rate hike cycles.
3. Divergent central bank policy
While the Federal Reserve normalized rates after the financial crisis, the European Central Bank and Bank of Japan maintained ultra-accommodative policies. Negative interest rates in Europe and Japan compressed financial sector earnings and discouraged capital repatriation, pushing global capital toward higher-yielding US assets.
4. Emerging market structural headwinds (EEM)
EEM spent the decade fighting US dollar strength, commodity price cycles, and country-level shocks. China (roughly 25–30% of EEM) shifted from high-growth optimism to regulatory crackdowns and property sector stress, dragging the entire index to near-zero real returns for the decade.
5. Valuation expansion in US markets
US price-to-earnings ratios expanded dramatically, with the S&P 500's cyclically adjusted PE ratio (CAPE) rising from roughly 22x in 2013 to nearly 38x by late 2024. International markets never experienced this multiple expansion, leaving their valuations hovering in the 12–18x range and creating historically extreme valuation gaps.
The numbers: 2013–2024 comparison
| ETF | Region | 2013–2024 Total Return | CAGR | Max Drawdown | Ann. Volatility |
|---|---|---|---|---|---|
| VTI | US Total Market | +375.7% | +13.9% | -35.0% | 17.1% |
| VXUS | Intl ex-US | +76.7% | +4.9% | -36.0% | 16.6% |
| VEA | Developed Intl | +92.2% | +5.6% | -35.7% | 16.7% |
| EEM | Emerging Markets | +20.5% | +1.6% | -39.8% | 20.1% |
The bar chart makes the divergence visceral. VTI's +375.7% total return over 2013–2024 dwarfs every international alternative. EEM produced a near-decade of near-zero real returns — just +20.5% over 12 years, or 1.6% annualized. VXUS returned +76.7% — less than a fifth of what VTI delivered, at essentially the same volatility.
This is why "just buy VTI" became a popular shorthand among many US investors. The data supported it, repeatedly and consistently, for 12 years.
Deep dive: VTI — the decade's dominant equity vehicle
What it owns: Vanguard's Total Stock Market ETF holds approximately 3,700 US-listed companies weighted by market cap. The top 10 holdings — almost entirely mega-cap technology and consumer companies — represent roughly 30% of the fund. The remaining 3,690+ holdings cover mid-cap, small-cap, and micro-cap exposure.
Why it dominated: VTI's market-cap weighting meant it automatically concentrated into the best-performing businesses of the decade. As Apple, Microsoft, and Nvidia grew into multi-trillion-dollar companies, VTI's weight in those holdings grew with them. The fund rode the technology earnings cycle, the multiple expansion, and the USD strength — all at once.
Interpretation: In hindsight, VTI was one of the strongest broad-market equity vehicles for USD investors during this period. The only ETFs that materially outperformed it were more concentrated technology vehicles like QQQ. Its 2022 drawdown (-35%) was substantial but temporary; the recovery was rapid. Investors who held through the 2022 bear market were rewarded by 2023's powerful recovery.
The flip side is that VTI's current CAPE ratio sits at elevated levels. Valuation does not determine short-term returns, but it is a meaningful input to long-term expected return estimates. At 30–38x CAPE, the forward return expectations for US equities are mathematically lower than at 22x — which is where they started in 2013.
Note also that in the Jan 2025–Jun 2026 reversal window, VTI has still delivered a strong +28.2% return (18.8% annualized). The story is not that US equities are crashing — it is that international markets have finally caught up and begun outrunning them for the first time in over a decade.
Investor takeaway: VTI's decade-long dominance was real, data-backed, and substantial. But some of that return came from valuation expansion rather than pure earnings growth — and that expansion cannot continue indefinitely. The question for the next decade is whether the earnings engine can sustain returns without the valuation tailwind.
Deep dive: VXUS — the lost decade, now turning
What it owns: Vanguard Total International Stock ETF holds approximately 7,800 non-US companies. Europe accounts for roughly 40% of the fund (UK, France, Germany, Switzerland, Netherlands are the largest country weights), Asia-Pacific developed markets (Japan, Australia) add ~27%, and Emerging Markets (China, India, Taiwan, Korea, Brazil) contribute approximately 26%.
Why it lagged: VXUS is a broad-based catch-all for everything that wasn't US equities. It suffered from every structural headwind described above simultaneously: no megacap tech exposure, persistent USD strength, ECB/BoJ policy divergence, China regulatory risk, and EM currency pressures. There was virtually no tailwind that benefited all of these simultaneously during 2013–2024.
Interpretation: VXUS underperformed VTI by approximately 6–7 percentage points per year over the decade. For a long-term investor, that kind of persistent gap compounds into an enormous final wealth difference. A $100,000 investment in VTI in January 2013 grew to over $450,000 by December 2024. The same investment in VXUS grew to approximately $180,000.
However — and this is the critical shift — 2025 changed the dynamic. VXUS began outperforming sharply as the dollar weakened, international valuations looked compelling relative to US markets, and European fiscal expansion created a new earnings tailwind. The rolling 12-month return chart below captures this inflection with striking clarity.
In the Jan 2025–Jun 2026 window, VXUS delivered +50.6% (+32.9% annualized) — nearly double VTI's +28.2% over the same period. The risk-return profile has looked very different in the Jan 2025–Jun 2026 window: VXUS has delivered higher returns than VTI with a shallower maximum drawdown in this dataset.
Investor takeaway: VXUS's max drawdown during the decade was comparable to VTI's. Investors accepted similar volatility and drawdown risk for dramatically lower returns. In 2025, that equation is shifting — but the degree to which this represents a durable regime change versus a temporary reversal is not yet determined.
View VXUS Risk Analysis on StressTest.proDeep dive: VEA — developed markets ex-US, the Europe and Japan story
What it owns: Vanguard Developed Markets ex-US ETF holds approximately 4,000 large and mid-cap stocks across 24 developed markets outside the US. Japan is the single largest country weight (~20%), followed by the UK (~13%), France (~10%), Canada (~9%), and Switzerland (~8%). The fund has essentially zero Emerging Markets exposure — it is a pure developed-world ex-US fund.
Why the decade was difficult: VEA's Japan exposure hurt during years when the yen depreciated significantly against the dollar. Its UK weight faced Brexit uncertainty from 2016 through 2020. European industrials and financials — the backbone of the fund — grew earnings but experienced multiple compression as low rates squeezed bank margins and industrial capex cycles were tepid.
The absence of technology megacaps was particularly acute for VEA. While the US tech sector expanded from $3 trillion to $12 trillion in market cap over the decade, Europe's technology sector barely moved in relative terms.
Interpretation: VEA is actually a cleaner story than VXUS for 2025 — because the primary driver of the reversal is European fiscal expansion, which benefits the European-heavy VEA directly. Germany’s fiscal shift opened the door to hundreds of billions in potential infrastructure and defense spending. France, the UK, and other NATO members followed with increased defense budgets. These are not abstract macro shifts — they translate directly into earnings for European industrials, defense contractors, and infrastructure companies that represent significant weight in VEA.
Investor takeaway: VEA’s Jan 2025–Jun 2026 performance appears more structurally grounded than a simple valuation mean-reversion trade. If European fiscal expansion continues for 2–3 years (as Germany's 12-year infrastructure program suggests), VEA has a durable earnings tailwind that did not exist at any point during the 2013–2024 period.
View VEA Risk Analysis on StressTest.proDeep dive: EEM — emerging markets, the China drag and selective recovery
What it owns: iShares MSCI Emerging Markets ETF holds approximately 1,300 large and mid-cap stocks across 24 emerging market countries. China is the dominant weight (~25–28%), followed by India (~20%), Taiwan (~17%), South Korea (~12%), and Brazil (~5%). The fund's composition has shifted meaningfully over the decade as China's regulatory crackdowns caused passive index providers to reduce Chinese weights.
The lost decade in detail: EEM's near-zero real return over 2013–2024 obscures significant country-level variation. India was a strong performer — the BSE Sensex compounded at roughly 12% in local currency terms. Taiwan benefitted from semiconductor dominance. But China — the largest weight — experienced a devastating regulatory crackdown on technology companies (Alibaba, Tencent, Didi) in 2021, a property sector crisis centered on Evergrande in 2021–2022, and persistent geopolitical overhang from US-China trade friction.
Because China's weight is so large in EEM, a decade of Chinese equity underperformance dragged the entire index to near-zero returns.
Interpretation: EEM's path in 2025 is the most complex of the four ETFs. China announced significant fiscal stimulus in late 2024 and into 2025, which has supported Chinese equities. India continues to compound at a high rate and has overtaken or is approaching China's weight in some index formulations. Taiwan's semiconductor exposure benefits from the AI infrastructure capex cycle.
However, EEM carries the highest geopolitical risk premium of any ETF in this analysis. US-China relations remain a source of structural uncertainty that could reignite at any time. The maximum drawdown (-36%+) over 2013–2024 is the highest in the group, reflecting the compounding of country-level political risk, currency volatility, and global risk-off selling in a single vehicle.
Investor takeaway: EEM's rebound in the Jan 2025–Jun 2026 window has been sharp, but it remains exposed to higher country, currency, and geopolitical risk. It depends heavily on China's stimulus durability and the continuation of India's growth trajectory. Investors who hold EEM are making a concentrated bet on Chinese regulatory normalization, Indian growth, and Taiwanese semiconductor demand — simultaneously.
View EEM Risk Analysis on StressTest.proWhat changed in 2025: the structural forces behind the reversal
The 2025 international outperformance is not simply mean-reversion or a random walk back toward historical averages. Four distinct structural forces converged to produce it.
1. The US dollar weakened — and the math reversed
Broad 2025 tariffs added uncertainty around US trade policy and growth. Combined with valuation concerns and changing capital flows, that created a less favorable backdrop for the dollar, contributing to a gradual weakening of the DXY index.
For VXUS, VEA, and EEM, a weaker dollar is a direct return tailwind. European stocks that appreciate 10% in euro terms now produce more than 10% in USD terms when the dollar has weakened. The currency effect — which subtracted 1–2% per year from international returns during dollar strength — added 2–3% per year during dollar weakness.
2. The valuation gap was historically extreme — and is now closing
By the end of 2024, the CAPE ratio gap between US equities (~36–38x) and international equities (~14–16x for developed international, ~12–13x for emerging) reached one of the widest levels in history. Historically, valuation gaps this wide have often preceded periods of relative international outperformance — not because valuations determine short-term returns, but because they define the starting point for future earnings-to-price relationships.
As global capital reallocated toward cheaper international markets, the valuation gap began compressing. That compression itself generates price returns — it is a self-fulfilling element of the reversion trade.
3. European fiscal expansion created a genuine earnings catalyst
Germany’s 2025 fiscal shift — including debt-brake flexibility for defense and a proposed €500 billion infrastructure fund — created a clearer earnings catalyst for European industrials, defense, construction, and materials companies. Combined with France, the UK, and Poland's defense spending increases in response to the changed European security environment, these sectors are experiencing an earnings tailwind that did not exist during the 2013–2024 period.
VEA outperformed VXUS in the decade (+92.2% vs +76.7%) partly because its lower EM exposure shielded it from the worst of China's regulatory crackdown and EM currency pressures. In the Jan 2025–Jun 2026 reversal window, VEA leads even more emphatically (+55.2% vs VXUS's +50.6%), consistent with the idea that European fiscal expansion has been an important driver.
4. China's stimulus and India's continued growth
China's announced fiscal stimulus package (infrastructure investment, consumer subsidies, property sector support) in late 2024 and 2025 meaningfully changed the forward earnings outlook for Chinese equities, which had been pricing in persistent stagnation. India continued to compound at 10–12% earnings growth driven by domestic consumption, infrastructure buildout, and manufacturing nearshoring.
EEM's +66.5% return in the Jan 2025–Jun 2026 reversal window is actually the highest of any ETF in this analysis — surpassing VEA's +55.2%, VXUS's +50.6%, and VTI's +28.2%. The EEM recovery is real and dramatic. It also carries the highest volatility at 21.7% annualized, and a -15.0% max drawdown that is higher than VXUS and VEA despite a shorter timeframe. High return, high risk — consistent with what EEM has always been.
The rolling 12-month return chart captures the story more viscerally than any summary table. For most of 2013–2024, the VTI line sits persistently above VXUS. The crossover in 2025 is visible, unmistakable, and represents the first sustained international outperformance in over a decade.
The four biggest takeaways
1. The source of outperformance matters as much as the fact of it.
VTI's 12-year dominance was driven by two separable forces: genuine earnings growth from technology companies (durable) and valuation multiple expansion (borrowed from the future). The earnings engine remains powerful. But the multiple-expansion tailwind is exhausted. The next 12 years cannot replicate the past 12 on valuation alone.
2. International underperformance was not random — it had structural causes. Those causes are now partially reversing.
Dollar strength, tech concentration, and ECB/BoJ divergence were the primary culprits. In 2025, the dollar is weakening, European fiscal policy is expansionary, and the valuation gap is the widest in modern history. The structural backdrop has genuinely shifted — not merely cyclically but in some cases structurally.
3. VEA has the clearest earnings-linked explanation in the Jan 2025–Jun 2026 reversal window.
VXUS and EEM benefit from valuation reversion and dollar weakness. VEA benefits from those same forces plus a concrete European fiscal expansion that is generating real earnings for the industrial, defense, and infrastructure companies that dominate the index. That earnings catalyst distinguishes VEA from a pure valuation trade.
4. EEM carries the highest volatility and country-concentration risk.
EEM's concentration in China means investors are substantially making a China bet alongside India and Taiwan. For investors who want EM exposure with less China concentration risk, alternatives like SCHE or VWO offer slightly different weightings. EEM’s max drawdown of nearly -40% and volatility above 20% were meaningfully higher than the other three ETFs — investors should understand the country and currency risks behind the headline ETF exposure.
What this does not mean
This analysis does not argue that investors should sell their US equity holdings and rotate wholesale into international funds.
The same US technology companies that drove VTI's outperformance — Microsoft, Nvidia, Apple, Amazon — remain genuinely exceptional businesses with real competitive moats, extraordinary cash generation, and AI-driven earnings trajectories. US equity markets are not broken; they are expensive relative to international markets, but expensive does not mean wrong.
The case for international exposure is a diversification and valuation argument, not an anti-US argument. A portfolio that includes both US and international equity exposure may be less dependent on any single regional regime continuing indefinitely.
The data from Jan 2025 through June 2026 suggests that the relative-performance regime has shifted during this window. How long it lasts, and how deep the reversion runs, is genuinely uncertain. What is not uncertain is that the structural forces producing international outperformance in 2025 are different from the cyclical factors that produced occasional international blips in prior years.
Test your own international allocation
Every portfolio combination will respond differently to the regime shift described here. If your portfolio is entirely US equity, you have zero exposure to the 2025 international outperformance. If it is split 60/40 US/international, you are partially positioned for both directions.
Try this on your own portfolio
Run your current allocation across two windows:
- US dominance: Jan 2013–Dec 2024
- International reversal: Jan 2025–Jun 2026
Compare total return, drawdown, volatility, and concentration risk.
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Frequently Asked Questions
Is VXUS better than VTI in 2026?
There is no single "better" ETF. VXUS has outperformed VTI since early 2025 due to a weaker US dollar and valuation gaps, but VTI historically produced higher returns during the 2013–2024 period. They serve different roles in a diversified portfolio.
Why did international stocks underperform US stocks from 2013 to 2024?
The primary drivers were the extraordinary earnings growth of US technology megacaps, persistent US dollar strength, and diverging central bank policies that favored US markets over Europe and Japan.
What is the difference between VXUS and VEA?
VXUS is a "Total International" ETF that includes both developed and emerging markets (like China and India). VEA focuses exclusively on developed markets outside the US (like Europe, Japan, and Canada) and holds no emerging market equities.
Why is EEM more volatile than VXUS?
EEM focuses purely on emerging markets, which carry higher currency volatility, geopolitical risks, and country-concentration risks (such as a heavy weighting in China and India) compared to the broader, developed-market-heavy VXUS.
Should a US investor hold international ETFs?
International ETFs like VXUS or VEA can provide exposure to non-US markets and reduce reliance on a single country's equity market and currency. Whether they belong in a portfolio depends on the investor's goals, risk tolerance, time horizon, and existing allocation.
Sources and further reading
Macro and valuation data
- Shiller CAPE Ratio Data — Historical cyclically adjusted PE ratios for US and international markets
- Federal Reserve H.10 — Foreign Exchange Rates — DXY and bilateral USD exchange rates
- Deutsche Bank Research — European Defense Spending — Analysis of Germany's constitutional debt brake reform and its economic implications
- IMF World Economic Outlook, April 2025 — Global growth forecasts and cross-country comparison
- MSCI ACWI Index — Country Weights — MSCI's global index country allocation breakdown
- Yale Budget Lab — Fiscal and Economic Effects of 2025 Tariffs — Tariff impact on US dollar and trade balance
Fund documentation
- Vanguard VTI Fund Page — Holdings, fees, methodology
- Vanguard VXUS Fund Page — Holdings, fees, methodology
- Vanguard VEA Fund Page — Holdings, fees, methodology
- iShares EEM Fund Page — Holdings, fees, methodology
Related StressTest.pro analysis
- VTI Risk Analysis
- VXUS Risk Analysis
- VEA Risk Analysis
- EEM Risk Analysis
- StressTest.pro Historical Backtest Engine
Disclaimer: This article is for educational and informational purposes only. stresstest.pro does not provide investment, legal, tax, or financial advice. Past performance does not guarantee future results. All data is sourced from historical adjusted close price records and is subject to the inherent limitations of backtesting methodology. All returns are measured in USD using adjusted close prices.