For years, global equities have lagged behind U.S. stocks. But in 2025, a high-dividend international ETF staged a remarkable reversal, delivering nearly double the return of the S&P 500.
The Vanguard International High Dividend Yield Index Fund ETF Shares (VYMI) gained 29.6% in 2025, far exceeding the S&P 500’s 15.6% rise. This ends a long-running trend: since the 2008 financial crisis, international stocks have underperformed U.S. equities in 13 out of 17 years.
VYMI tracks the FTSE All-World ex-US High Dividend Yield Index, holding over 1,500 high-yield stocks outside the U.S. Its success stemmed from several factors:
The fund’s own structure also helped: a 0.17% expense ratio, a dividend yield near 4%—about 2.7 times that of the S&P 500—and a P/E ratio around 13. Major multinational holdings such as Nestlé, Toyota, and Roche added dividend sustainability.
Looking ahead, several factors could help sustain VYMI’s outperformance. Rising defense spending—with NATO countries targeting 4% of GDP by 2035—may continue to benefit related sectors. Additionally, the fund’s holdings remain attractively valued compared to U.S. growth stocks, leaving room for valuation gains if the market rotation persists. Further dollar weakness could also provide a tailwind, particularly if the Federal Reserve cuts rates while the European Central Bank maintains a steady policy.
However, risks remain evident. The fund’s high concentration in financial stocks makes it vulnerable should bank earnings disappoint. Trade policy uncertainties could weigh on export-reliant economies in Europe and Asia, while currency fluctuations may erode returns for dollar-based investors. Moreover, historical patterns suggest that a year of significant outperformance is often followed by a period of consolidation or pullback.
Predicting yearly winners is difficult, but diversification across markets can smooth portfolio volatility. For income-focused investors, VYMI offers a 4% yield cushion, global exposure, and reasonable valuations. Steady investing, rather than chasing annual outperformers, may be the wiser path.
