VEU vs. S&P 500: Analysis of 2026 Outperformance Potential for Vanguard FTSE All-World ex-US ETF

This report is based on the Seeking Alpha article “Beyond The S&P 500: Why VEU Could Outperform Again In 2026” [1], published on December 20, 2025. VEU has already demonstrated significant 2025 outperformance, with a +28.41% total return compared to the S&P 500’s +16.99% [0]. The article cites three core drivers for 2026 potential:

1. Valuation Advantage
   : VEU’s PE ratio of ~14.77 [2] is approximately half the S&P 500’s range of ~27-29 [3][4][5], indicating international equities may be undervalued relative to U.S. markets.
2. Weakening U.S. Dollar
   : The U.S. Dollar Index (UUP) declined 8.24% in 2025 [0], with Franklin Templeton, J.P. Morgan, and Morgan Stanley expecting further weakness in 2026 due to overvaluation and narrowing interest rate differentials [6][7][8]. A weaker dollar benefits VEU as its non-U.S. holdings appreciate in dollar terms.
3. U.S. Market Frothiness
   : WisdomTree’s 2026 outlook identifies tech sector froth driven by AI exuberance [9], increasing risks of a U.S. equity pullback that could benefit lower-valued international stocks.

• Cross-Domain Alignment
  : VEU’s valuation gap and expected dollar weakness create a reinforcing tailwind for performance.
• Recent Track Record
  : 2025’s 11.4% outperformance provides empirical support for the 2026 thesis [0].
• Unaddressed Risks
  : The original article underemphasizes geopolitical tensions and regulatory changes in international markets, which could impact VEU’s holdings.

• Opportunities
  :
  • Valuation catch-up potential for undervalued international equities [2][3][4][5].
  • Currency gains from expected U.S. dollar depreciation [6][7][8].
  • Defensive positioning if U.S. market froth leads to a correction [9].

• Risks (Polite, Contextual)
  :
  • Currency Volatility
    : A sudden U.S. dollar rebound could erode VEU’s returns for U.S.-based investors [0].
  • International Slowdown
    : Economic weakness in key regions (Eurozone, Asia) could negatively impact VEU holdings [0].
  • Tech Exposure
    : While lower than the S&P 500, VEU’s top holdings (ASML, Samsung) could be affected by a global tech correction [0].
  • Geopolitical Tensions
    : Unresolved conflicts in the Middle East or trade disputes could disrupt international markets [0].

VEU presents a potential diversification opportunity with attractive valuation metrics and macro tailwinds, supported by recent outperformance. However, investors should carefully consider currency, geopolitical, and economic risks before making portfolio decisions. No prescriptive recommendations (buy/sell/hold) are provided.