VXUS Has Delivered Better Returns Than IEFA Over the Past 5 Years. Should It Be in Your Portfolio?

In 2026, the Vanguard Total International Stock ETF (NASDAQ: VXUS) has returned 11.5% compared to a 7.9% gain for the iShares Core MSCI EAFE ETF (NYSEMKT: IEFA). That year-to-date outperformance has pushed the Vanguard ETF ahead on a trailing one-, three-, five-, and 10-year basis.

Both international exchange-traded funds (ETFs) invest in a wide variety of foreign stocks, but the biggest difference is the markets they invest in. The iShares Core MSCI EAFE ETF holds more than 2,600 stocks, but they're all from developed markets. The Vanguard Total International Stock ETF holds 8,700 stocks, spanning both developed and emerging markets.

The choice between them comes down to whether you want emerging markets exposure. I prefer the ETF that owns those markets.

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iShares Core MSCI EAFE ETF

This ETF tracks the MSCI EAFE IMI Index. It invests in companies of all sizes from developed markets outside the United States and Canada. It's comprehensive exposure to these countries with an expense ratio of just 0.07%, one of the lowest in this category.

The top five holdings currently are:

1. ASML Holdings (2.44% of the index)
2. HSBC Holdings (1.26%)
3. Roche (1.15%)
4. AstraZeneca (1.12%)
5. Novartis AG (1.12%)

The fund has more than 60% of its assets in the eurozone, so the next big catalyst could come from there. I see European defense spending potentially providing the upside push. By 2035, NATO allies have committed to spending 5% of GDP annually on core defense, up from the 2% requirement in place today. The biggest percentage of spending growth is likely to come from Europe and Canada, which increased an estimated 16% year over year in 2025.

This ETF has nearly 20% of its assets invested in industrials, the second-largest sector holding.

Vanguard Total International Stock ETF

This ETF follows the FTSE Global All Cap ex US Index. It targets virtually every investable stock outside of the United States. Canada, which is absent from the iShares ETF, accounts for 8% of this fund. Emerging markets are 27% of the portfolio.

The top five holdings currently are:

1. Taiwan Semiconductor Manufacturing (4.25% of the index)
2. Samsung (1.79%)
3. ASML Holdings (1.42%)
4. SK Hynix (1.22%)
5. Tencent Holdings (0.95%)

The added exposure to tech and emerging markets is evident in the top holdings. But I think China and Taiwan could be differentiators going forward. Chinese stocks are on the downswing again as slowing growth, geopolitical tensions, and trade tensions remain risks. Both countries are heavy importers of oil, and any prolonged conflict in the Middle East could drag on returns.

Despite this, I still think the Vanguard Total International Stock ETF is the winner. Emerging-market exposure is important for a well-rounded equity portfolio. Plus, it tends to offer better value and higher long-term return potential. That potential is already evident in 2026.

HSBC Holdings is an advertising partner of Motley Fool Money. David Dierking has positions in Vanguard Total International Stock ETF. The Motley Fool has positions in and recommends ASML, AstraZeneca Plc, Taiwan Semiconductor Manufacturing, and Tencent. The Motley Fool recommends HSBC Holdings and Roche Holding AG. The Motley Fool has a disclosure policy.