U.S. stocks, particularly large-capitalization ones, have performed very well for a long period of time. Over the last 10 years through Sept. 30, the S&P 500 index produced a 15.3% annualized return. During this time, the MSCI World ex-USA Index, consisting of developed countries' equities, returned an annualized 8.4%.
However, during the first nine months of this year, the MSCI World Index returned 25.3%, trouncing the S&P 500's 14.8%. While the international developed countries index may not produce that level of return going forward, it's certainly conceivable that it could outpace U.S. stocks.
For U.S. investors, it's probably wise to have exposure to international stocks to diversify beyond domestic equities. One efficient way to do that is through exchange-traded funds (ETFs).
These three ETFs should provide investors with an excellent way to invest internationally.
Image source: Getty Images.
1. Vanguard Total International Stock ETF
Vanguard Total International Stock ETF (VXUS -0.07%) tracks the performance of the FTSE Global All Cap ex US Index. The underlying index consists of small-, mid-, and large-capitalization stocks outside of the United States.
The fund invests in 8,700 stocks with Europe (38% of assets), Pacific (25.4%), and emerging markets (27.6%) comprising the majority of its allocation, as of Sept. 30.
Among individual companies, no stock accounted for more than 3% of the ETF's assets. Taiwan Semiconductor Manufacturing had the highest weight, 2.8%, followed by Tencent's 1.4%. Alibaba Group and ASML each had about 1% weightings.
For the first nine months of the year, the Vanguard Total International Stock ETF returned 26.6%. It produced a 10-year annualized return of 8.3%.
Since the fund is passively managed rather than actively trying to beat the benchmark, the ETF has a low expense ratio of 0.05%. The average expense ratio for similar funds is 0.85%, according to the fund. The lower the expense ratio, the better, since that subtracts from an investor's return.
2. Vanguard FTSE Europe ETF
Vanguard FTSE Europe ETF (VGK 0.03%) also has a passive investment approach. It seeks to replicate the performance of the FTSE Developed Europe All Cap Index. As the index's name suggests, it includes companies with various market caps that are located in the continent's major markets.
The ETF has over 1,200 individual stocks. The United Kingdom is the biggest allocation, 23.2%. The next biggest country weightings are France and Germany at 14.5% and 14.3%, respectively. Companies based in Switzerland have a 13.8% allocation. Turning to individual stocks, ASML has a 2.7% weight, followed by SAP at 1.9%.
Year to date through Sept. 30, the ETF returned 28.5%. Over the last 10 years, holders received an annualized 8.4% return.
The Vanguard FTSE Europe ETF has a low 0.06% expense ratio compared to 0.81% for its average peer fund.
3. iShares Core MSCI EAFE ETF
The iShares Core MSCI EAFE ETF (IEFA 0.10%) aims to track the MSCI EAFE IMI index, which consists of developed countries' stocks outside the U.S. and Canada. Notably, these are located in Europe, Australia, Asia, and the Far East.
The ETF, with over 2,600 holdings, has the biggest exposure to Japan, with a 23.6% weight, and the United Kingdom has a 14.5% weight. France, Germany, and Switzerland round out the top five countries, with weights ranging from 8.8% to 10%.
In terms of sector allocation, financials make up the biggest portion of the ETF's assets, 22.1%. The industrial, healthcare, and consumer discretionary sectors have significant weights of 19.6%, 10.4%, and 10.2%, respectively.
ASML is the ETF's top stock holding, representing 1.7% of assets. SAP accounted for 1.2%.
The iShares Core MSCI EAFE ETF returned 26.5% for the first nine months of the year. It produced an 8.1% average annual return over 10 years.
The ETF has an expense ratio of 0.07%.
