A prominent 2025 investment theme was the renaissance of international stocks, which pushed the MSCI ACWI ex USA IMI Index 34.2% higher. That resurgence prompted investors to reassess scores of exchange-traded funds (ETFs) that provide exposure to international stocks, primarily the large-cap variety.
Not to be overlooked are ex-U.S. small-cap stocks, which are easily accessible through funds such as the Vanguard FTSE All-World ex-US Small-Cap ETF (VSS 1.81%). Last year, this international ETF returned nearly 30%, obliterating the performances of the Russell 2000 and S&P SmallCap 600 indexes.
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The calendar has turned to 2026, prompting investors to ponder whether this Vanguard ETF merits an investment of $1,000 and can build on its 2025 success.
It does, and it can. Here's why.
Tailwinds abound for this ETF
This index fund is home to $9.6 billion in assets under management (AUM), but relative to the broader Vanguard ETF stable, it leads an arguably anonymous existence. That shouldn't be the case -- not at a time when some experts believe last year's international equity rebound could usher in a new era of durable outperformance by those stocks.
Second, this international ETF has the correct geographic exposures to continue delivering for investors this year. In its portfolio, its most significant country weight is 14.6% to Japan. That's relevant because Japanese stocks have been in a rally mode since Sanae Takaichi was elected Prime Minister last year. Call it "Sanaenomics" or the "Takaichi trade," but it's clear global investors are encouraged by her pro-market posture and efforts to extend corporate reforms.
NYSEMKT: VSS
Key Data Points
Third, international small caps can bring much-needed diversification to portfolios that are heavy on domestic large caps. This Vanguard ETF does the diversification heavy lifting for investors, as it holds 4,827 stocks, none of which account for more than 0.27% of the portfolio.
Those benefits can be had for a fair annual fee of 0.08%, or $8 on a $10,000 investment. This confirms that long-term investors looking to put $1,000 to work today will find a lot to like with this ETF.
