International exchange-traded funds (ETFs) are listed funds that hold stocks from countries outside the U.S. They offer a simple way to gain global exposure without buying individual foreign stocks, ADRs, or GDRs, which can come with added complexity and higher costs.
While U.S. stocks have outperformed over the past decade, that hasn't always been the case. During the "lost decade" from 1999 to 2009, international stocks solidly outperformed U.S. equities. Savvy investors often maintain some international exposure to hedge against periods when domestic markets fall behind.
Top international ETFs to consider
The following international ETFs offer solid exposure, strong liquidity, and reasonable costs, making them smart building blocks for global diversification.
1. Vanguard Total International Stock ETF
NASDAQ: VXUS
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The Vanguard Total International Stock ETF (VXUS +0.98%) is the “buy-it-all” option for international exposure. It tracks the FTSE Global All Cap ex-US Index, covering more than 8,600 stocks across small-, mid-, and large-cap companies from both developed and emerging markets. As the name suggests, it captures the other 40% of global equities that U.S.-focused indexes like the S&P 500 leave out.
This ETF has underperformed U.S. stocks over the past decade, with a 10-year annualized return of 8.54%, but past performance doesn’t predict the future. With a low 0.05% expense ratio, it has few structural headwinds for long-term investors looking for global diversification.
2. Vanguard FTSE All-World ex-US Small-Cap ETF
NYSEMKT: VSS
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3. iShares Core MSCI EAFE ETF
NYSEMKT: IEFA
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You can break international markets down not just by country but also by classification -- developed or emerging. Developed markets typically have more mature economies, stable political systems, and well-regulated financial markets.
The iShares Core MSCI EAFE ETF (IEFA +1.22%) covers this segment by tracking the MSCI EAFE IMI Index, which holds more than 2,600 stocks from developed markets across Europe, Australasia, and the Far East -- hence the EAFE acronym. That includes countries like Japan, the United Kingdom, France, Germany, and Australia. This ETF has delivered a 10-year annualized return of 8.29% and charges a low expense ratio of 0.07%.
4. SPDR Portfolio Emerging Markets ETF
NYSEMKT: SPEM
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The counterpart to developed markets are emerging markets -- countries with growing but less mature economies, often marked by faster GDP growth, less stable political systems, and less developed financial infrastructure. For exposure to this group, you can complement a fund like the iShares Core MSCI EAFE ETF with the SPDR Portfolio Emerging Markets ETF (SPEM +0.94%), which tracks more than 3,000 holdings through the S&P® Emerging BMI index. This includes major emerging economies such as China, India, Brazil, South Africa, and Mexico.
Emerging markets have been laggards over the past decade, with this ETF posting a 10-year annualized return of 8.62%. But that backward-looking performance shouldn't stop you from considering a forward-looking allocation -- just a 10% position in emerging markets can offer strong diversification benefits. It also keeps costs low with a 0.07% expense ratio.
5. Schwab International Dividend Equity ETF
NYSEMKT: SCHY
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One thing income investors will appreciate about international equities is their tendency to offer higher dividend yields compared to U.S. stocks. If you’re looking to diversify globally while collecting above-average payouts, The Schwab International Dividend Equity ETF (SCHY +0.49%) is worth a look. It tracks the Dow Jones International Dividend 100 index, which screens for companies with at least 10 consecutive years of dividend payments.
Then, the Schwab International Dividend Equity ETF applies a composite score based on free cash flow to total debt, return on equity, dividend yield, and five-year dividend growth rate. The result is a portfolio with a strong 3.91% 30-day SEC yield. It hasn’t been around long enough to show a 10-year track record, but its 0.08% expense ratio is highly competitive in the international dividend equity space.
Should you invest in international ETFs?
The primary reason to include international ETFs is diversification. Holding stocks from outside your home market reduces your exposure to a single economy or currency. When U.S. markets struggle, international equities from regions like Europe or Asia can offset some of that weakness, while also giving you access to different sectors, consumer trends, and economic cycles.
Valuation is another consideration. Many international markets currently trade at lower price-to-earnings ratios than U.S. equities, meaning investors may be getting more earnings per dollar invested. A weaker U.S. dollar could further support relative returns over time.
The main trade-offs are currency risk, since foreign currencies fluctuate against the dollar, and the fact that growth in many developed markets outside North America tends to be slower. Certain regions also carry greater political and economic instability.
For most long-term investors, a reasonable target is allocating roughly 30% to 40% of your equity portfolio to international markets, enough to improve global balance without overexposing you to foreign risks.
How to choose the best international ETF
Start by defining the exposure you want. Some investors prefer a single-country or regional ETF; others want broad exposure to everything outside the U.S. Being clear on this upfront avoids unintended overlap and narrows your choices quickly.
Next, decide between passive and active management. Passive ETFs track an index and offer lower fees, greater transparency, and predictable exposure. Actively managed ETFs aim to outperform but typically come with higher costs and manager risk.
Then screen for cost and liquidity. Look at the expense ratio and 30-day median bid-ask spread together, as these represent the ongoing and transaction costs of ownership. International ETFs, especially those targeting smaller markets, can have wider spreads than U.S. funds.
Finally, consider how the ETF fits your broader portfolio. Decide how much of your total allocation you want in international equities, what role the fund plays in diversification, and how often you plan to rebalance.
