By Paul Brandus
You'd have made a lot more this year investing in non-U.S. stock markets. These ETFs are worth considering now.
U.S. stock markets have slowed and and lag global markets, sometimes by wide margins.
A few friends of mine have been surprised, even amused, when I told them that I've sharply dialed back my exposure to U.S. stocks this year in favor of overseas markets. Have I erred? After all, the S&amp;P 500 is up almost 17% so far in 2025.
But guess what? You'd have made a lot more this year investing in much hotter non-U.S. markets. Check out these returns for 2025, based on MSCI data of major Western countries (Jan. 19 through Nov. 7) compiled by University of Michigan economics professor Justin Wolfers:
Just three countries - Australia (+11%), New Zealand (flat) and Denmark (-17%) - have underperformed the U.S. stock market this year. The others have racked up a median gain of 29%.
Many investors have missed out on these fabulous returns because of something called &#34;local bias&#34; or &#34;home-country bias,&#34; which reflects the tendency of individuals and even professional investors to invest disproportionately in companies that are geographically close to them, such as in their home region or country. And as we've seen this year, this bias often results in portfolios that aren't properly diversified and can lead to underperformance.
Of course, these are rearview mirror numbers. No one knows how markets will perform in 2026 and beyond. Still, there are clues.
The first concerns America's most successful investor: Berkshire Hathaway's (BRK.A) (BRK.B) Warren Buffett. From 1965 to 2024, Berkshire has racked up a compounded annual gain of 19.9% - almost double the S&amp;P 500's SPX 10.4% return during the same six-decade period.
And what has Buffett, the &#34;Oracle of Omaha,&#34; been doing? Selling U.S. stocks. Berkshire's latest earnings report showed that the company has been a net seller of equities for 12 consecutive quarters. Berkshire holds a record $381 billion in cash, representing more than a third of the conglomerate's $1.1 trillion market cap. Berkshire also hasn't bought back any of its stock for more than a year now, even though Berkshire's shares have underperformed the S&amp;P 500 over that period.
Why hold all this cash? Because Berkshire is convinced that U.S. stocks are wildly overvalued. The &#34;Buffett Indicator&#34; divides the total market capitalization of the U.S. stock market (using the Wilshire 5000 XX:W5000FLT Index) by the size of the U.S. economy. A ratio figure 100% (or 1.0) can indicate an overvalued market, while one below 100% might suggest undervaluation.
Note that the S&amp;P 500 has risen some 3.4% since Sept. 30. GDP has not, which suggests that U.S. equities have since become even more overvalued. &#34;Be greedy when others are fearful and fearful when others are greedy,&#34; Buffett has famously said. A record high for his favorite metric and his stockpiling of cash strongly signaled the latter.
I'm underweight U.S. stocks for two more reasons. You may be familiar with the S&amp;P 500 Shiller CAPE Ratio, named for the Yale University and Nobel Prize-winning economist Robert Shiller. The CAPE (Cyclically Adjusted Price-Earnings) ratio is a tad complicated, but basically tracks the current valuation of the U.S. stock market by dividing the current price of the S&amp;P 500 by the 10-year moving average of its inflation-adjusted earnings. The higher this number is, the greater the probability of lower market returns. A lower ratio suggests the opposite. Here's where this measure stands now:
As the MSCI data showed, U.S. markets have slowed and lag global markets - sometimes by wide margins. What about an outright fall? Below are some ways to position yourself, though as always, I suggest you discuss your overall situation with a trusted financial adviser:
Top broad-market ex-U.S. ETFs
Some low-cost, broad-based exchange-traded funds offer comprehensive, &#34;buy-it-all&#34; exposure to global stock indexes outside of the U.S., covering thousands of companies in both developed and emerging markets.
-- Vanguard Total International Stock ETF VXUS: The largest major global ex-U.S. fund and a popular choice for broad diversification. Tracks the FTSE Global All Cap ex-US  Index, covering more than 8,600 small-, mid- and large-cap stocks. Expense ratio: 0.05%. Year-to-date return: 27%
-- iShares Core MSCI Total International Stock ETF IXUS: Similar to VXUS, offering access to developed- and emerging markets worldwide. Tracks the MSCI ACWI ex-USA Index Expense ratio: 0.07%. Year-to-date return: 27%
Top developed market ex-U.S. ETFs
These funds concentrate on established economies outside the U.S., such as Japan, the U.K. and Europe, generally offering more stability than emerging markets.
-- Vanguard FTSE Developed Markets ETF VEA: One of the largest international ETFs by assets, focusing on top-tier non-U.S. economies. Focus: Broad exposure to developed markets (Europe, Australasia, Far East). Expense Ratio: Extremely low at 0.03%. Year-to-date return: 32%
-- iShares Core MSCI EAFE ETF IEFA: A widely recommended fund that tracks large and midcap stocks in Europe, Australasia, and the Far East. Focus: Excludes North America, with top country allocations often including Japan and the U.K. Expense ratio: 0.07%. Year-to-date return: 27%
Top developed market ETFs
If you're seeking higher growth potential, these funds focus on countries with developing economies and potentially faster GDP growth, though often with higher volatility.
-- iShares Core MSCI Emerging Markets ETF IEMG: One of the largest emerging markets ETFs, providing broad exposure. Focus: Tracks emerging market stocks globally. Expense ratio: 0.09%. Year-to-date return: 29%
-- Vanguard FTSE Emerging Markets ETF (VWO VWO): A popular and low-cost alternative for emerging markets exposure. Focus: Invests in companies in developing nations. Expense ratio: 0.07%. Year-to-date return: 24%
The ETFs below may be suitable if you're looking for income, given that international equities often provide higher dividend yields than U.S. stocks.
-- Schwab International Dividend Equity ETF SCHY: Screens for high-quality companies with a history of consistent dividend payments. Focus: Targets companies with at least 10 consecutive years of dividend payments. Expense ratio: 0.08%. Year-to-date return: 29%
-- Vanguard International Dividend Appreciation ETF VIGI: Focuses on non-U.S. companies with a history of growing their dividends. Focus: International developed and emerging market stocks. Expense ratio: 0.10%. Year-to-date return: 14%
I'm not suggesting that anyone abandon U.S. stocks. My own portfolio is still about 35% U.S. equities, a mix of indexes and individual holdings. The U.S. stock market, the world's largest and most vibrant, will likely do quite well over the long run.
But valuations can sometimes get ahead of themselves, and we're in such a period now. I just finished reading Andrew Ross Sorkin's magnificent book, &#34;1929: Inside the Greatest Crash in Wall Street History - and How It Shattered a Nation.&#34; Amid the hubris of that era, there were market warnings. There were similar warnings in 2000 and 2008. Then there were the warnings ahead of the bear market that resembles the current market - namely the nasty selloff in 1973 and 1974 that cut the S&amp;P 500 in half.
Why does 1973-74 resonate today? Political instability here at home. Rising inflation. Concerns about energy supplies. As I mentioned in a prior column, gold surged then, and it's surging now.
Pundits nowadays talk up the incredible promise of artificial intelligence and how it will continue powering the stock market. Over the next 10, 15 or 20 years, I'd bet they'll be proven right. But over the next two, three or five years? Buffett, Shiller, their data and market history suggest caution.
Paul Brandus owns VXUS, VEA and VIGI.
Plus: 'Crazy' investors are betting too much on the U.S. stock market
More: Here's how the best investors protect their money from market bubbles and FOMO
-Paul Brandus
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12-13-25 1443ET

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<p>Paul Brandus explains his decision to reduce exposure to U.S. stocks, citing better returns in non-U.S. markets and Warren Buffett's similar strategy. He highlights the overvaluation of U.S. stocks using the Buffett Indicator and Shiller CAPE Ratio. Brandus suggests considering international ETFs for diversification, noting their strong year-to-date returns compared to U.S. markets.</p>

- The article discusses the underperformance of U.S. stock markets compared to international markets in 2025, highlighting a median gain of 29% in non-U.S. markets.  
- It emphasizes the risks of "local bias" in investing and suggests that investors consider various international ETFs for better diversification and potential returns.  
- The author, Paul Brandus, maintains a cautious stance on U.S. stocks, citing historical market warnings and current economic indicators as reasons for concern.

Why I'm moving my money out of U.S. stocks - just like Warren Buffett