Worried About Tariffs? Buy 2 Vanguard Index Funds That Are Beating the S&P 500 in 2026.
Worried About Tariffs? Buy 2 Vanguard Index Funds That Are Beating the S&P 500 in 2026.
Trevor Jennewine, The Motley FoolThu, February 26, 2026 at 10:08 AM UTC
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Key Points -
The U.S. stock market has underperformed many international stock markets year to date, due in part to concerns about how tariffs will affect the U.S. economy.
The Vanguard FTSE Pacific ETF provides heavy exposure to stocks in Japan, South Korea, and Australia; the fund has advanced 18% year to date.
The Vanguard FTSE Developed Markets ETF provides heavy exposure to stocks in Japan, the United Kingdom, and Canada; the fund has advanced 11% year to date.
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Many experts believe President Trump's tariffs will hurt the U.S. economy. Several recent studies say U.S. businesses and consumers have borne most of the costs, and there is no reason to think that will change. While the Supreme Court recently struck down some of the duties, Trump has replaced them with a 10% global tariff.
Uncertainty about the economic impact has motivated some investors to move money from U.S. stocks into international markets. That's one reason the S&P 500 has essentially traded sideways this year, while the Vanguard FTSE Pacific ETF (NYSEMKT: VPL) has added 18% and the Vanguard FTSE Developed Markets ETF (NYSEMKT: VEA) has added 11%.
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While neither index fund beat the S&P 500 over the last decade, their outperformance may continue in the months ahead if Trump's trade policies continue to sow uncertainty about the U.S. economy.
Blocks that spell "tariffs" sit atop an American flag and a stock price chart.
Image source: Getty Images.
1. Vanguard FTSE Pacific ETF
The Vanguard FTSE Pacific ETF tracks the performance of about 2,300 companies located in Asia-Pacific countries, especially Japan, South Korea, and Australia. The index fund is most heavily weighted toward three stock market sectors: industrials (20%), financials (20%), and consumer discretionary (15%).
The top five holdings are:
Samsung Electronics: 4.6%.
SK Hynix: 3%.
Toyota Motor: 2.1%.
Mitsubishi Financial Group: 1.7%.
Commonwealth Bank of Australia: 1.5%.
While the Vanguard FTSE Pacific ETF has beaten the S&P 500 by nearly 18 percentage points year to date, the index fund still underperformed by about 150 percentage points during the past decade. The primary reason it has done so well this year is exposure to Samsung and SK Hynix, the two largest memory chip manufacturers in the world.
Demand for artificial intelligence infrastructure has led to an unprecedented shortage in DRAM and NAND flash memory, causing prices to skyrocket. The International Data Corp. says the shortage could "persist well into 2027." But the cyclical nature of the memory chip industry will eventually become a headwind to Samsung and SK Hynix, at which point this index fund could underperform.
The Vanguard FTSE Pacific ETF has an expense ratio of 0.07%, meaning shareholders will pay $7 per year on every $10,000 invested. The average expense ratio among similar funds is 0.68%. All things considered, this index fund is a sensible option for investors seeking exposure to stocks in the Asia-Pacific region of the globe.
2. Vanguard FTSE Developed Markets ETF
The Vanguard FTSE Developed Markets ETF tracks the performance of nearly 3,900 companies in developed markets outside of the United States, especially Japan, the United Kingdom, and Canada. The index fund is most heavily weighted toward three stock market sectors: financials (24%), industrials (18%), and consumer discretionary (11%).
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The top five holdings are:
ASML: 1.8%.
Samsung Electronics: 1.7%.
SK Hynix: 1.1%.
Roche Holding: 1%.
HSBC Holdings: 1%.
While the Vanguard FTSE Developed Markets ETF has beaten the S&P by nearly 11 percentage points year to date, the index fund underperformed by about 150 percentage points over the past decade. In fact, the returns in the Vanguard FTSE Developed Markets ETF were nearly identical to those in the Vanguard FTSE Pacific ETF during that period.
Once again, a big reason this index fund has outperformed in 2026 is its inclusion of Samsung and SK Hynix. However, it has not performed as well as the Vanguard FTSE Pacific ETF because it lacks the same level of exposure to those chipmakers.
In most years, the greater diversity of this index fund has been a positive thing. For instance, it outperformed the Vanguard FTSE Pacific ETF by 19 percentage points between 2021 and 2025, partly because of its cheaper expense ratio of 0.03%. All things considered, the Vanguard Developed Markets ETF is a good choice for investors seeking diverse exposure to non-U.S. stocks in stable economies.
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HSBC Holdings is an advertising partner of Motley Fool Money. Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML and Vanguard FTSE Developed Markets ETF. The Motley Fool recommends HSBC Holdings and Roche Holding AG. The Motley Fool has a disclosure policy.
Source: “AOL Money”
