Investment analysts use a variety of fundamental metrics to gauge whether the U.S. stock market is overvalued. One of the most widely cited is the cyclically adjusted price-to-earnings (CAPE) ratio, also known as the Shiller P/E, named after Nobel Prize-winning economist Robert Shiller.
The CAPE ratio measures the price of the S&P 500 relative to the average of inflation-adjusted earnings over the previous 10 years, smoothing out short-term fluctuations. It reached a record high of 44.2 in November 1999, just before the collapse of the dot-com bubble.
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Today, a similar dynamic is unfolding. Artificial intelligence-driven spending and investor enthusiasm have pushed a handful of mega-cap tech stocks to dominate the S&P 500, while the CAPE ratio has climbed back near bubble-era levels, hovering around 39.7.
Historically, periods of elevated valuations have often been followed by years of muted or even negative returns. For example, from Aug. 17, 2001, through Dec. 31, 2007, the S&P 500 saw a cumulative decline of 11.5%.
However, not all markets move in lockstep. During that same period, international stocks strongly outperformed as U.S. valuations deflated and global investors rotated toward better-value opportunities abroad.
For example, The MSCI EAFE Index, which tracks developed markets across Europe, Australasia and the Far East, delivered a cumulative gain of 23.2%. These markets avoided much of the mania surrounding U.S. internet and telecom stocks at the time.
With the Shiller CAPE once again approaching levels seen at the height of the dot-com era, and with AI-driven gains increasingly concentrated in U.S. benchmarks, the parallels are striking. While there’s no need to abandon U.S. equities altogether, investors may want to consider a more thoughtful allocation toward better-valued international markets in 2025.
Here are seven of the best international stock funds to buy in 2025:
| Fund | Expense ratio |
| Vanguard Total International Stock ETF (ticker: VXUS) | 0.05% |
| Fidelity Zero International Index Fund (FZILX) | 0% |
| Schwab International Dividend Equity ETF (SCHY) | 0.08% |
| Vanguard International Dividend Appreciation Index Fund Admiral Shares (VIAAX) | 0.16% |
| Vanguard International High Dividend Yield Index Fund Admiral Shares (VIHAX) | 0.17% |
| iShares MSCI EAFE Min Vol Factor ETF (EFAV) | 0.20% |
| WisdomTree Emerging Markets ex-State-Owned Enterprises Fund (XSOE) | 0.32% |
Vanguard Total International Stock ETF (VXUS)
“Adding international stocks to your portfolio can dampen volatility and improve returns, since the U.S. economy and market may face challenges at different times compared to international regions,” says Scott Klimo, chief investment officer at Saturna Capital. “Mitigating currency risk also plays a role, as the U.S. dollar may strengthen or weaken versus other countries at different times.”
VXUS is one of the simplest ways to gain broad international diversification. The fund tracks the FTSE Global All Cap ex US Index and holds about 8,700 small-, mid- and large-cap stocks across all 11 sectors from both developed and emerging markets. It charges a 0.05% expense ratio and is also available as Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) mutual fund.
Fidelity Zero International Index Fund (FZILX)
“The ex-U.S. market makes up about 40% to 45% of the world’s market capitalization, so by ignoring international stocks, investors are missing out on roughly half the world’s investing opportunities,” says Kirk Kinder, director of financial planning at Bastion Fiduciary. “Moreover, international stocks are substantially undervalued when you look at metrics like price-to-earnings and price-to-book ratios.”
For those who don’t mind using a mutual fund instead of an ETF, FZILX offers an even cheaper way to invest internationally. It tracks the Fidelity Global ex U.S. Index, which eliminates third-party licensing fees. The fund also lends securities to generate income and uses a sampling approach rather than full replication. These efficiencies bring its expense ratio to 0%, and with no minimum investment required.
Schwab International Dividend Equity ETF (SCHY)
International stocks pay dividends, too, though they aren’t taxed as efficiently as qualified dividends from U.S. corporations. For that reason, funds like SCHY are best suited for tax-sheltered accounts such as a Roth IRA. Within those accounts, they can serve as a powerful income source. A good example is SCHY, which pays a 4.2% 30-day SEC yield after accounting for its 0.08% expense ratio.
SCHY tracks the Dow Jones International Dividend 100 Index, which selects 100 companies that have maintained at least 10 consecutive years of dividend payments. The index also uses a composite screen evaluating free cash flow to total debt, return on equity, dividend yield and five-year dividend growth rate. This approach focuses not only on yield but also on dividend quality and sustainability.
Vanguard International Dividend Appreciation Index Fund Admiral Shares (VIAAX)
SCHY is a balanced international dividend ETF that performs well across multiple areas but doesn’t specialize in any single one. Its dividend growth screen, for example, is relatively light, with a five-year growth rate window. Investors who prioritize stronger dividend growth metrics may prefer VIAAX, which tracks the more specialized S&P Global ex-U.S. Dividend Growers Index.
This benchmark includes companies that have raised dividends for at least seven consecutive years while excluding the top 25% highest-yielding firms to avoid potential yield traps. VIAAX is diversified across both developed and emerging markets, which for the former includes about 17% exposure to Canada. It carries a 0.16% expense ratio and requires a $3,000 minimum investment.
Vanguard International High Dividend Yield Index Fund Admiral Shares (VIHAX)
The counterpart to VIAAX is VIHAX, which tracks the FTSE All-World ex U.S. High Dividend Yield Index. This benchmark selects stocks in the top 55th percentile of yield and weights them by market capitalization, resulting in a portfolio tilted toward large-cap value companies across both developed and emerging markets. This stands in contrast to VIAAX’s more large-cap core tilted exposure.
Compared with VIAAX, VIHAX holds a much larger portfolio of more than 1,500 stocks versus 335. While investors give up some return on equity, they gain exposure to lower price-to-earnings and price-to-book ratios, representing a trade-off of quality for value. The fund charges a 0.17% expense ratio and also requires a $3,000 minimum investment, typical of most Vanguard mutual funds.
iShares MSCI EAFE Min Vol Factor ETF (EFAV)
EFAV allows investors to own developed-market stocks from the EAFE region, but with potentially lower risk. The ETF tracks the MSCI EAFE Minimum Volatility Index, which uses a series of quantitative screens to reduce downside exposure. The methodology is significantly more complex than vanilla market-cap-weighted international index ETFs, which explains EFAV’s higher 0.2% expense ratio.
It’s important to note that “minimum volatility” is not the same as “low volatility.” Low-volatility strategies usually focus on stocks that have historically shown lower beta. Minimum volatility strategies, however, use optimization models that look at how stocks interact with one another to build a portfolio designed to lower total risk while keeping sector exposures similar to the parent index.
WisdomTree Emerging Markets ex-State-Owned Enterprises Fund (XSOE)
One unique risk of investing in emerging markets such as China and Brazil is government intervention, which can lead to unpredictable actions like nationalizations or policy changes that harm shareholders. To sidestep this type of geopolitical risk, XSOE offers a thoughtful alternative. The fund tracks the WisdomTree Emerging Markets ex-State-Owned Enterprises Index.
XSOE’s main feature is the exclusion of companies where government ownership exceeds 20% of outstanding shares. By removing these state-controlled entities, the index focuses on firms more responsive to market forces and shareholder interests. Since inception, this approach has slightly outperformed the MSCI Emerging Markets Index. XSOE charges a 0.32% expense ratio.
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7 Best International Stock Funds to Buy for 2025 originally appeared on usnews.com
Update 10/15/25: This story was published at an earlier date and has been updated with new information.
