Core Viewpoint - The U.S. dollar is weakening against major global currencies, losing 11% against the euro and 9% against the British pound over the past year, attributed to the "sell America" trade by global investors [1][2]. Group 1: "Sell America" Trade - The "sell America" trade indicates a shift where global investors are moving money out of U.S. assets due to a less attractive investment environment, influenced by changes in trade policy, rising national debt, and potential threats to Federal Reserve independence [2]. - This trend could lead to increased gold prices, higher yields on U.S. bonds, and further depreciation of the dollar [2]. Group 2: Performance of International Stocks - International stocks are currently outperforming U.S. stocks, with the Vanguard Total International Stock Index Fund ETF gaining 32% in the past year compared to 15% for the S&P 500 and 19% for the Nasdaq-100 [3]. - The Vanguard Total International Stock ETF is highlighted as a smart investment choice for exposure to global markets [4]. Group 3: Hedging Against Dollar Weakness - Investing in international stocks and ETFs like the Vanguard Total International Stock ETF can serve as a hedge against a declining dollar, as the dollar value of international stocks tends to increase when the dollar weakens [5]. - A hypothetical example illustrates that a 10% depreciation of the dollar can increase the value of a European stock purchased at $100 to $110 due to exchange rate changes [6]. Group 4: Potential for Higher Returns - American investors can achieve higher returns by investing in international stocks if the U.S. dollar continues to decline, with the Vanguard Total International Stock ETF providing access to thousands of global stocks [7].

Core Insights - The Vanguard Total International Stock Index Fund ETF (NASDAQ: VXUS) has experienced a 27% increase year-to-date through October 3, 2025, marking its best performance in years after averaging only 5.8% annually since 2011. This raises the question of whether there is still value in this ETF after such a strong run [1] - International stocks are trading at 16.2 times earnings compared to 28 times for the S&P 500, indicating a 42% discount that reflects fundamental differences rather than market inefficiencies. Investors need to understand the reasons behind this valuation gap and the factors that contributed to the 2025 reversal after years of underperformance [1][6] Valuation Gap - The valuation gap between U.S. and international stocks is not arbitrary, as U.S. companies achieve average returns on equity above 20%, while European firms average around 12% and emerging markets hover around 10%. U.S. businesses dominate high-margin sectors like technology and healthcare, while international indices are heavily weighted in banks, industrials, and energy, which have lower profitability [3] - The geographic composition of the fund includes 8,621 holdings, with approximately 40% in Europe, 30% in Pacific developed markets, and 30% in emerging markets. Major holdings include Nestlé, Samsung, ASML, and Taiwan Semiconductor, but these companies have smaller weights in the fund compared to dominant U.S. firms like Apple or Microsoft [4] Currency and Structural Factors - Currency risk is another factor contributing to the discount, as the fund does not hedge against currency fluctuations, meaning a strengthening dollar can directly reduce returns. These structural realities explain why international stocks have traded at lower valuations for an extended period [5] Changes in 2025 - Three significant shifts have driven international equities in 2025: a weakening dollar, which has decreased by approximately 10% to 11% in the first half of the year, reducing currency headwinds for foreign assets; targeted stimulus measures and relaxed property constraints in China aimed at spurring investment; and signs of economic stabilization in Europe, with euro-zone factories returning to growth, raising optimism for potential earnings surprises [6][7] - The 27% rally in 2025 reflects not only the weakening dollar trends and China's reopening but also a valuation mean reversion [6]