According to my calculations, 53 of Vanguard’s exchange-traded funds (ETFs) have shown positive performance this year. This represents more than half of the 93 Vanguard-managed ETFs. Among these, ten have witnessed double-digit percentage gains so far this year. However, one ETF has proved to lead the pack in 2025.
The standout performance is not a closely contested result. Interestingly, all ten leading Vanguard ETFs for this year share a common feature – their primary focus is on international stocks. The Vanguard FTSE Europe ETF (VGK 0.10%) takes the top prize by a noticeable margin.
The Vanguard FTSE Europe ETF has seen an impressive rally of nearly 23% year to date. The second-best Vanguard fund is trailing behind at less than a 19% rise. The name of the ETF is a giveaway that it owns shares of companies headquartered in key European countries and follows the FTSE Developed Europe All Cap Index.
This particular Vanguard ETF holds a diverse range: 1,241 stocks, to be exact. Only a pair of holdings represent more than 2% of the entire portfolio – German software firm SAP constitutes 2.4%, and Swiss food and drink company Nestlé covers 2.05%.
The Vanguard FTSE Europe ETF upholds the Vanguard promise of not levying exorbitant charges. Its annual expense ratio is an affordable 0.06%. There are several underlying factors driving the standout performance of the Vanguard FTSE Europe ETF in 2025.
One pivotal element is the relatively attractive valuation of the ETF. Despite rally of over 20% year to date, the trailing-12-month average price-to-earnings (P/E) ratio for the stocks in the portfolio sits at a comfortable 16.2. Comparatively, the Vanguard S&P 500 ETF, boasting all stocks from the S&P 500 index, possesses a P/E ratio of 24.6.
The strategic course of rate cuts charted by the European Central Bank (ECB) also contributed significantly. Diminishing inflation cleared the path for these rate cuts. The inflation rate of the Eurozone in May 2025 stood at 1.9%, still under the 2% target set by the ECB.
Stocks typically reflect positivity to interest rate cuts, more so when there is a potential for additional cuts in the forecast. Furthermore, amplification in defense spending by several European nations has boosted European defense stocks.
Although the effect of this trigger is predominantly restricted to the defense sector, it does play a significant role in the overall gain of the European stock market. Lastly, the uncertainty introduced by the Trump administration’s tariffs has swayed many investors in the United States to gravitate towards European stocks as a plausible alternative.
This trend of shifting preferences has been a direct advantage for the Vanguard FTSE Europe ETF. Despite its robust first five months in 2025, calling the Vanguard FTSE Europe ETF a no-brainer buy might not be appropriate; there are still several variables in play.
US trade policy is one such determinant that poses an unpredictable risk. President Trump once threatened tariffs of 50% on all European imports into the US. Although these were postponed till July 9, 2025, to facilitate trade negotiation advances, the situation is complicated by the recent announcement of imposing a 50% tariff on all US steel imports.
This upcoming move, affecting European steelmakers significantly, threatens to derail these negotiations. In response, the European Union has expressed concerns, stating that the new steel tariff level ‘disrupts the ongoing efforts towards a collaborative solution.’
Historically, the Vanguard FTSE Europe ETF doesn’t always favor investors. Though it has proven to be a big achiever in 2025, its total return average since its 2005 inception in March is a modest 5.74%, positioning it 57th among all Vanguard ETFs in terms of lifetime returns.
Despite these realities, the Vanguard FTSE Europe ETF remains a strong candidate for investors aiming to diversify their portfolios globally. It does not represent an effortless buying decision, requiring careful consideration.
Concluding, the role of the Vanguard FTSE Europe ETF may be nuanced, requiring analysis and thought before pleasure. It offers an opportunity for diversifying portfolios but is not a straightforward choice for all, highlighting the need for investors to make informed decisions in this complex financial climate.
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