Why I Think This Vanguard ETF Will Beat the S&P 500 Over the Next 10 Years

International stocks have not exactly been the best-performing part of the market over the past decade. The S&P 500 index handily outperformed any of its international counterparts. But this has created a massive valuation gap between U.S. and international stocks, and it could be a great opportunity to add some international exposure to your portfolio.

One excellent way to do it is with the Vanguard Total International Stock ETF (NASDAQ: VXUS), which provides broad international exposure with minimal investment fees.

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What is the Vanguard Total International Stock ETF?

As the name suggests, the Vanguard Total International Stock ETF is an exchange-traded fund that tracks a broad index of international stocks. To be clear, this doesn't necessarily mean companies that only trade on foreign stock exchanges -- just companies that are based outside the United States. In fact, some of the top holdings of the ETF are companies you're likely to be quite familiar with, such as Samsung, Taiwan Semiconductor, and Novartis, just to name a few.

The ETF has a broad portfolio of more than 8,700 stocks, representing companies in both developed and emerging markets worldwide. It has a rock-bottom expense ratio of just 0.05%, which means your investment expenses will be just $0.50 per year for every $1,000 in shares you own.

A massive valuation gap

As mentioned, there has been a big performance difference between international and domestic stocks. Over the past 10 years, the S&P 500 has produced total returns of about 314%, while the Vanguard Total International Stock ETF has managed just 145%.

To be fair, international stocks have historically traded at a discount compared to those based in the U.S. But the valuation gap has become too wide to ignore. For example, the average stock in the S&P 500 index trades for about 5.5 times book value. The average stock in the international ETF trades for a price-to-book multiple of just 2.3. You'll pay just 18 times earnings for the international ETF, while the Vanguard S&P 500 ETF (NYSEMKT: VOO) commands a steeper price tag of more than 28 times that index's earnings.

The bottom line

Of course, there's no guarantee that the Vanguard Total International Stock ETF will outperform the S&P 500 just because its stocks have lower valuations, or because it has underperformed for the past decade. However, the risk-reward dynamics of a broad international stock ETF like this make a lot of sense in today's expensive stock market. I've been focusing on international opportunities in 2026, and am confident I'll be glad I did.

Matt Frankel, CFP® has positions in Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Taiwan Semiconductor Manufacturing and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.