Global Index Funds News: International Markets Now Outpacing U.S. Equity Funds by Historic Margin

The investment landscape has shifted dramatically, with international index funds delivering substantially stronger returns compared to their U.S. counterparts. According to market analysis, the S&P 500 has advanced less than 1% year to date, while the MSCI ACWI ex U.S. Index (a benchmark for global equities excluding U.S. stocks) has returned 10% over the same period—a performance gap unseen since 1995.

Why International Index Funds Are Surging Past U.S. Market Benchmarks

The divergence stems from multiple factors that make global index funds increasingly attractive to investors. First, valuation differences play a critical role. The MSCI ACWI ex U.S. Index currently trades at a forward price-to-earnings multiple approximately 32% below that of the S&P 500. While U.S. stocks have historically commanded a premium to international equities, the current gap is nearly double the historical average, according to JPMorgan Chase analysis. This suggests international stocks offer better value for patient investors.

Currency dynamics have amplified returns for those holding international index funds. The U.S. Dollar Index has declined 10% since the beginning of 2025, driven by concerns about trade policies, rising federal debt, and economic headwinds. When the dollar weakens, foreign stock returns translate into stronger gains when converted back to U.S. currency—a significant tailwind for international index funds.

The performance differential has been striking in recent months. Since January 2025, the MSCI ACWI ex U.S. Index has surged 40%, compared to 15% for the S&P 500—a 25 percentage point outperformance that represents unprecedented recent market divergence.

Emerging Market Index Funds Show Strong Growth Potential

Goldman Sachs has released long-term return forecasts that highlight compelling opportunities in emerging market index funds. According to analysis by Goldman Sachs strategist Peter Oppenheimer, the S&P 500 is expected to compound at 6.5% annually over the next decade. By contrast, other markets are projected to deliver substantially stronger returns (measured in U.S. dollars):

• Europe: 7.5% annually
• Japan: 12% annually
• Asia excluding Japan: 12.6% annually
• Emerging Markets: 12.8% annually

These projections position emerging market index funds as potentially attractive for long-term wealth building, particularly for investors with extended time horizons who can weather market volatility.

Comparing Leading Emerging Market Index Funds: VWO vs EEM

For investors seeking exposure to emerging markets through index funds, two primary options dominate the landscape: the Vanguard FTSE Emerging Markets ETF (VWO) and the iShares MSCI Emerging Markets ETF (EEM). Both index funds provide diversified access to major emerging economies including China, Taiwan, India, and Brazil, but important distinctions exist.

The iShares fund offers significant exposure to South Korean stocks, including memory chip manufacturers Samsung and SK Hynix, which have benefited substantially from artificial intelligence-driven demand for semiconductors. Over the past year, the iShares fund returned 42%, compared to 30% for Vanguard’s offering.

However, the Vanguard index fund carries a much lower expense ratio—just 0.06% annually versus 0.72% for iShares. This cost advantage has proven significant over longer periods. During the past five years, both index funds have delivered nearly identical returns, as Vanguard’s lower fees offset the outperformance generated by iShares’ South Korea weighting.

Building a Diversified Portfolio: When to Consider International Index Funds

The case for international index funds appears compelling based on current valuations and forecast returns. However, investment professionals generally recommend maintaining a larger portfolio allocation toward U.S. stocks, particularly through index funds tracking the S&P 500. The rationale centers on America’s leadership in technological innovation and the outsized influence of technology companies on long-term market growth.

For investors considering a shift toward global diversification, index funds offer an efficient, low-cost vehicle for accessing international markets. Whether through Vanguard’s cost-efficient emerging market index funds or other global equity index funds, geographic diversification remains a core principle of prudent long-term investing. The current market environment underscores the value of these tools for building resilient, well-balanced investment portfolios.