This International ETF Might Be a Better Buy Than the VOO or QQQ

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Quick Read

• Vanguard FTSE Developed Markets ETF (VEA) gained around 29% year to date and outperformed both the S&P 500 and Nasdaq 100.

• VEA holds non-U.S. AI innovators like ASML and Shopify alongside lower valuations than U.S. indices.

• International ETFs offer geographic diversification away from Magnificent Seven concentration risk in U.S. markets.

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The international ETFs have had quite the impressive year, outperforming the likes of the Vanguard S&P 500 ETF (NYSEARCA:VOO) as well as the Invesco QQQ Trust (NASDAQ:QQQ) so far this year while rolling over far fewer bumps in the road. Undoubtedly, time will tell how much longer the international ETFs can outperform the S&P 500 or Nasdaq 100. Either way, the valuations still look quite stellar with the ETFs that go above and beyond the U.S. market.

So, if you're one of many investors who are ready to diversify geographically to new markets that might have the edge on valuation, perhaps it's time to give the international ETF roster a second look now that they're showing signs that they can keep up with America's best indices. Of course, I'm not against foregoing international exposure if you're fine with the valuations and the heaviness in the Magnificent Seven indices.

If the Mag Seven trade runs out of steam, the U.S. indices might be dragged down as international ETFs maintain their newfound momentum

The Nasdaq 100 index, in particular, is a cheap way to become overweight in the Magnificent Seven names, which are bound to soar higher if the AI trade is due for another leg higher. Though the performance of the seven names will vary, I do think that the group remains one of the most powerful forces in AI as many of the top players race to achieve some form of superintelligence over the coming decade.

When it comes to the superintelligence race, there's a lot on the line. And that makes the Mag Seven worth owning, even if they're pricier, and doubts grow about their ability to monetize the jarring level of spending they're doing.

Though I have confidence in the Mag Seven, investors must also be ready to invest beyond America, if not for diversification, to invest in the other AI innovators out there that also stand to win in the global AI race. And, yes, it's a global race that could have big winners abroad.

Here is one of the top international ETFs that is firing on all cylinders, which also has intriguing, lower-cost AI names in the mix that U.S. investors might find they're underexposed to going into the new year.

Vanguard FTSE Developed Markets ETF

Vanguard FTSE Developed Markets ETF (NYSEARCA:VEA) is one of the most popular international ETFs to go with if you want to keep your fees low and you want exposure to developed (as opposed to emerging) markets only. Given the AI boom is likely to power the developed markets more robustly in the initial stages, I'd argue that an ETF like the Vanguard FTSE Developed Markets ETF is worth standing by. Year to date, the Vanguard FTSE Developed Markets ETF has raced ahead of the S&P and Nasdaq 100, gaining around 29% year to date.

With lower valuations and a good dose, a very well-balanced mix (most holdings comprise less than 1% of the fund) of names, including non-U.S. AI innovators like European semi equipment maker ASML (NASDAQ:AMSL), diversified South Korean tech titan Samsung, and Canada's e-commerce AI firm Shopify (NYSE:SHOP), you're getting a lot from such a low-cost international ETF.

Given all the ETF can add to an S&P 500-heavy portfolio, I'd not be afraid to buy as the international names might just have the edge in the new year, as investors grow more cautious of the high-multiple growth stocks, as well as the Mag Seven, which might not be the easy way to outperform anymore.

Sure, one S&P-beating year doesn't mean that the tides have changed. However, if you've got too much exposure to the Mag Seven and want an ETF that can do well, even if the AI trade wobbles a bit, the Vanguard FTSE Developed Markets ETF is an excellent portfolio diversifier that might just help you do better as investors look to take on more of a value tilt.

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