Key insights
- The Vanguard International High Dividend Yield ETF (VYMI) is outperforming the S&P 500, driven by reversing trends in international markets. Factors like recession risks, inflation, and dollar strength are shifting, potentially favoring international equities. This suggests a possible rotation away from US growth stocks, but the overall impact on US equities is likely to be limited.
For much of the past decade, investors have shown little interest in international dividend stocks. The market's preference for U.S. growth equities over that time put this group firmly out of favor.
But 2025 ushered in a remarkable turnaround. The Vanguard International High Dividend Yield ETF (VYMI 0.56%) returned 38%, more than doubling the 18% return of the Vanguard S&P 500 ETF. The rally hasn't ended either. It's beating the S&P 500 by a 12% to 10% margin year to date, as of May 14.
The case for international investing doesn't appear to be over either.
Ultimately, share prices are driven by fundamental strength. The strong investor preference for U.S. stocks has certainly benefited their relative performance, but international markets have struggled with avoiding recession, high inflation, weak corporate earnings, and a stronger dollar.
Those trends are beginning to reverse. These factors are slowly beginning to turn into tailwinds.