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After years of underperformance, international stocks are crushing their U.S. counterparts and having the best start to a year so far this century. This is especially true amid the ongoing trade uncertainty under the new administration, which has raised concerns over growing inflation and a slowing economy in the United States.
Vanguard Total International Stock ETF VXUS is up 9.2% since the start of the year compared to a decline of 3.2% for SPDR S&P 500 ETF Trust (SPY).
While there have been winners in many corners of the world, we highlight five top-performing country ETFs that beat the market so far this year. These include Select STOXX Europe Aerospace & Defense ETF EUAD, Roundhill China Dragons ETF DRAG, iShares MSCI Poland ETF EPOL, First Trust Germany AlphaDEX Fund FGM and Global X Defense Tech ETF SHLD.
Factors Driving This Trend
Trade Disputes: International markets appear better insulated from the ongoing trade tensions. While the United States faces tariff battles on several fronts, many foreign economies primarily navigate a single trade opponent—the United States—simplifying their risk exposure.
Aggressive Government Stimulus Abroad: Fiscal policy is another major factor. Germany recently unveiled a €500 billion infrastructure package aimed to bolster economic growth, while China has ramped up fiscal support to stabilize its economy. In contrast, the United States has taken a different approach as the Department of Government Efficiency has prioritized budget cuts, reducing federal expenditures rather than expanding them (read: Europe ETFs Beating S&P 500 in 2025: Here's How).
Attractive Valuations: After more than a decade of U.S. stock market outperformance, valuations between U.S. and international stocks have reached historically wide gaps. As such, the valuation for international stocks has become attractive, compelling investors to invest in them. U.S. investors have poured more than $19 billion (as of March 14) into international stock ETFs since the start of the year, per etf.com.
What is Outshining?
Defense companies have been among the best-performing stocks in global markets this year. European ETFs took the charge, fueled by expectations of fiscal stimulus and soaring defense spending. The unprecedented military spending spree by European leaders has fueled a blistering rally in defense stocks, with Germany leading the way higher (read: How Military Budget Cuts Could Shake Up Defense ETFs?).
Polish stocks are outperformers, buoyed by the government’s pledge to invest tens of billions of euros in transportation and energy infrastructure, including plans to build its first nuclear power plant by 2026. Poland’s economy has been one of Europe’s fastest-growing, with GDP expanding nearly 4% in recent quarters.
China-focused ETFs are also performing well despite the return of trade tensions. President Donald Trump’s imposition of fresh tariffs on Chinese goods hasn't deterred investors from betting on China's tech sector and stimulus efforts.