The Vanguard FTSE Europe ETF (VGK) has emerged as the top-performing Vanguard exchange-traded fund (ETF) in 2025, delivering a remarkable year-to-date return of nearly 23%. This performance surpasses all other Vanguard ETFs, with the next best fund gaining less than 19% so far this year.
VGK invests in over 1,200 stocks from major developed European countries. Its goal is to track the FTSE Developed Europe All Cap Index, which includes companies from nations like Germany, France, and the United Kingdom.
The fund’s largest holdings are German software firm SAP (2.4%) and Swiss food giant Nestlé (2.05%). It maintains a low annual expense ratio of just 0.06%, consistent with Vanguard’s focus on cost efficiency.
Several factors have driven VGK’s strong performance in 2025. European stocks currently trade at attractive valuations, with an average price-to-earnings ratio of 16.2, compared to 24.6 for the U.S.-focused Vanguard S&P 500 ETF.
Additionally, the European Central Bank’s recent interest rate cuts, enabled by easing inflation (1.9% in May, below the 2% target), have boosted investor confidence. Increased defense spending in Europe has also supported gains in that sector.
Another key factor is the uncertainty surrounding U.S. tariffs under the Trump administration. While tariffs on steel and aluminum imports have created challenges for U.S. stocks, Europe has largely remained exempt, making European equities a more attractive option for some investors.
Despite its strong start, VGK is not a guaranteed buy. Trade tensions remain a risk, especially with new U.S. steel tariffs set to impact European producers. Historically, VGK’s average annual return since its 2005 inception is 5.74%, ranking it 57th among Vanguard ETFs by lifetime returns.
For investors seeking global diversification, VGK offers a compelling option. However, potential buyers should weigh the risks and not view it as a straightforward choice.
