Prediction: This Overlooked ETF Could Be the Smartest Buy of 2026

The Vanguard S&P 500 ETF is up 100% since the beginning of 2023. The Vanguard Information Technology ETF is up 191%. Both have managed double-digit returns in each of the past three calendar years and are on pace for another in 2026.

With those kinds of returns from the largest and most familiar U.S. stocks, it would be understandable if investors didn't look anywhere else for equities in their portfolios. But if they did that, they would miss the fact that international stocks have been outperforming the S&P 500 lately. And by a pretty big margin.

Since the beginning of 2025, the iShares Core MSCI Total International Stock ETF (NASDAQ: IXUS) has returned 50% compared to a 27% return for the Vanguard S&P 500 ETF over the same time frame.

There are several factors that have helped drive this kind of outperformance. It's some of those same factors that could make investing overseas a smart choice going forward as well.

Image source: Getty Images.

Why have international stocks performed so well?

The initial stretch of outperformance for foreign stocks began at the start of 2025, driven by a steep decline in the dollar's value. Since a weaker dollar is a tailwind for international assets, the iShares Core MSCI Total International Stock ETF began leading the S&P 500 by a double-digit margin in the first half of the year.

Relative performance picked up again at the beginning of 2026 when investors rotated out of tech and other riskier assets back into undervalued stocks. International stocks fall into the "cheaper" bucket and have caught the value tailwind again.

International stocks are still a smart buy

Many of the big megacap tech stocks, including Microsoft, Nvidia, and Apple, are trading well off their highs, reinforcing the idea that smaller, value-oriented names are still in favor.

The overhang of high inflation, the war in Iran, the possibility that the Fed may need to hike rates later this year, and concerns about AI overspending are all contributing to investor hesitation about returning to riskier, more expensive stocks.

International stocks still have a couple of things going for them. Valuations are significantly lower than those of the S&P 500. Economic growth rates are forecast to be higher in a number of countries and regions. Geopolitical tensions remain a dark cloud over U.S. assets at the moment.

Historically, U.S. and international leadership has swung back and forth in multi-year cycles. U.S. stocks have clearly outperformed for quite a while, making international stocks perhaps overdue for a run of their own.

Given how much AI-related stocks have been running, investor preference for better value in their investments, and the outsize growth potential in these regions, the iShares Core MSCI Total International Stock ETF looks like one of the smarter buys for the remainder of 2026 and beyond.

David Dierking has positions in Apple. The Motley Fool has positions in and recommends Apple, Microsoft, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.