The U.S. stock market has experienced significant growth over the past few decades, leading many investors to focus on American companies. However, a recent study by Vanguard suggests that international stocks may outperform U.S. stocks over the next 30 years. According to the Vanguard Capital Markets Model, global stocks are expected to deliver annualized returns of 5.9% to 7.9% over this time frame, which is 1.2% to 2.2% higher per year than the model's expected average annual return for U.S. stocks.
Why International Stocks Might Outperform
One reason international stocks may outperform is the potential for companies outside the U.S. to benefit from the AI boom. While American-based tech companies have been at the forefront of AI development, Vanguard's research suggests that the biggest returns from the AI boom may not go solely to these companies. Instead, a wider range of companies and industries that adopt and implement AI to improve their business operations may see significant gains. This could include international companies that were not early adopters of AI, but are now poised to benefit from its implementation.
The Vanguard Total International Stock ETF
The Vanguard Total International Stock ETF (VXUS) is a fund that holds a portfolio of 8,772 stocks from dozens of countries outside the U.S. market. This ETF has delivered a total return of 26.7% over the past year, outperforming the S&P 500 index. One reason for this outperformance may be the fund's relatively low price-to-earnings (P/E) ratio of 18.44, which is a 22% discount to the S&P 500 index's multiple of 23.61. Additionally, VXUS has paid a strong trailing 12-month dividend yield of 2.51%, while the S&P 500 yield is at historic lows.
Recent Performance and Future Potential
While VXUS has underperformed the S&P 500 over the past 15 years, with average annual returns of 6.74% compared to the S&P 500's 10% annualized return, the fund has done much better in recent years. Over the past five years, VXUS has delivered annualized returns of 9.17%, and has strongly outperformed the S&P 500 over the past year. Based on Vanguard's research and recent trends, the next 20 years may be much better for international stocks, and VXUS could be a good buy for long-term investors who believe that the rest of the world may be some of the biggest winners from the future of the global economy in the AI era.
What to Watch Next
While there is no guarantee that Vanguard's estimate is correct, the potential for international stocks to outperform U.S. stocks over the next 30 years is an intriguing one. As the global economy continues to evolve and AI becomes more widespread, it will be interesting to see how international companies adapt and benefit from this trend. Investors who are considering adding VXUS to their portfolio should keep an eye on the fund's performance and the overall market trends in the coming years.
Conclusion
The Vanguard Total International Stock ETF is a fund that holds a diverse portfolio of international stocks and has delivered strong returns in recent years. While it has underperformed the S&P 500 over the past 15 years, the fund's recent performance and Vanguard's research suggest that it may be poised for long-term growth. As the global economy continues to evolve and AI becomes more widespread, international stocks may be some of the biggest winners, and VXUS could be a good buy for long-term investors who are looking to diversify their portfolio and capitalize on this trend.
