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International ETFs Are Crushing U.S. Markets

What to Do About It

Author

J.L. Bernstein
May 11, 2025

In partnership with

Happy Sunday,

Please keep in mind, the US economy has outpaced every other economy in history on a 10y chunk outlook. This is reflected in its markets and is one of the reasons the U.S. stock market is the biggest stock market in the world and is considered the most reliable.

The following is just a fun contrarian take that dabbles a bit into deeper economic reasoning of why international markets are offering interesting opportunities right now. This does not mean I'm dumping my portfolio into 40%+ international ETFs or even suggesting it.

It's so incredibly important to get outside your comfort bubble and look around - we all know this, so let's not ignore it when it comes to our investing and trading..

The Numbers: Returns That’ll Make You Do a Double Take

While the S&P 500 has slumped 3.48% ($SPY ( ▼ 0.13% ) ) year-to-date, international ETFs are lighting up the scoreboard:

  • Select STOXX Europe Aerospace & Defense ETF ($EUAD): Up 52% YTD

  • iShares MSCI Poland ETF ($EPOL): Roaring ahead at 47% YTD

  • iShares MSCI Spain ETF ($EWP): Climbing a solid 32% YTD

  • European Banking ETFs ($EUFN): Banking 30-33% returns YTD

  • Global X MSCI Greece ETF ($GREK): Racking up 31% YTD gains

Even the broader Vanguard Total International Stock ETF (VXUS) is up 10%—a glaring contrast to the U.S.’s negative near flatline.

These aren’t lottery tickets or meme-stock pumps. They’re built on real economic muscle, undervalued assets, and structural tailwinds.

Poland: Eastern Europe’s Breakout Star (EPOL +47%)

While heavyweights like Germany and France limp along at 1-1.5% growth, Poland’s GDP is set to swell by 3.6-3.9% in 2025—triple the Eurozone average.

Three pillars are driving this beast:

  1. EU Cash Flood: Poland’s pocketing €60 billion from EU structural and Recovery Funds. This isn’t funny money—it’s pouring into roads, renewables, and tech, juicing real growth.

  2. Factory Boom: As supply chains shift, Poland’s snagging manufacturing from Asia and Western Europe. Think strategic location, skilled workers, and costs that don’t break the bank.

  3. Debt on a Leash: Unlike bloated peers, Poland’s public debt sits below the European average—giving it room to maneuver when others are tapped out.

Why it matters: EPOL hands you a front-row seat to Europe’s growth champ at a fraction of U.S. or Western European prices. It’s a rare combo of value and velocity.

Defense: Europe’s Big Guns Are Back (EUAD +52%)

EUAD’s 39% surge isn’t hype—it’s the sound of Europe finally getting serious about defense. The Russia-Ukraine war flipped the script: countries that skimped on military budgets for decades are now pledging 3%+ of GDP, doubling past commitments.

It’s a multi-decade rebuild, locking in fat revenue streams for defense firms.

Three forces are firing up this rally:

  1. Order Books Overflowing: Defense contractors have 5-10 years of visibility—rare certainty in a shaky world.

  2. High-Tech Payoff: New systems pack AI, cyber, and advanced materials—higher margins than old-school hardware.

  3. Politics Align: Defense cash has bipartisan love, shielding it from election swings.

Why it matters: EUAD taps this long-term boom at saner valuations than U.S. defense stocks. Thales or Rheinmetall at 12-15x earnings versus Lockheed Martin at 20-25x.

Banks: Europe’s Money Machines Reboot (Banking ETFs +30-33%)

European banks were the laggards of the post-2008 world—hammered by negative rates and red tape. Now, they’re punching back with 30-32% YTD gains, and it’s no accident.

The European Central Bank (ECB) flipped the switch:

  • Five rate cuts since June 2024.

  • Deposit rate at 2.25%.

  • Terminal rate eyed at 1.5% by year-end.

This is banker heaven:

  1. Fatter Margins: A steeper yield curve means bigger lending spreads, less sweat on deposit costs.

  2. Solid Loans: Even with headwinds, non-performing loans are shrinking—resilience you can bank on.

  3. Cash Back: After years of fixing balance sheets, banks are dishing out dividends and buybacks like it’s 2006 (not really, but sorta)

Why it matters: At 7-9x earnings and 6-8% dividend yields, European banks are a steal compared to U.S. peers. It’s value plus income, turbocharged by fundamentals.

Greece: The Comeback Kid Goes Legit ($GREK)

Five years ago, Greece was the Eurozone’s punching bag. Now its bonds yield less than France’s. Moody’s sealed the deal in March 2025, lifting Greece to investment grade (Baa3) after 15 years in junk purgatory.

This isn’t luck:

  1. Budget Muscle: Primary surpluses of 2.5% of GDP put Greece among Europe’s fiscal elite.

  2. Growth Thats Sticking: GDP’s humming at 2.1-2.3%, outpacing the Eurozone, thanks to infrastructure and reforms.

  3. Debt Tame: Public debt’s sliding toward 130% of GDP by 2030—high, but trending right.

Valuation: The Math Doesn’t Lie

Here’s a clincher: international markets are winning this year yea, but they’re also “cheap”:

  • Europe’s P/E is 17.0x vs. the S&P 500’s 27.5x—a 38% discount.

  • That gap dwarfs the historical norm (15-20%).

  • MSCI Europe’s dividend yield doubles the S&P’s.

Europe would need a 20-25% rally just to hit its long-term average relative to the U.S. This isn’t about outgrowing America—it’s about closing a valuation chasm that’s too wide to last.

Build a Smarter International Portfolio

get strategic.

Tier 1: Core Holdings (International Exposure)

  • Vanguard FTSE Europe ETF (VGK): Broad Europe, dirt-cheap at 0.08% fees.

  • iShares Core MSCI Europe ETF (IEUR): Similar vibe, slight twist on weights.

  • iShares MSCI EAFE Value ETF (EFV): Value tilt across developed markets.

Tier 2: Country Bets (International Exposure)

  • iShares MSCI Poland ETF (EPOL): Eastern Europe’s rocket.

  • Global X MSCI Greece ETF (GREK): Mediterranean rebound play.

  • iShares MSCI Spain ETF (EWP): Spain’s steady climb.

Tier 3: Thematic Winners (International Exposure)

  • Select STOXX Europe Aerospace & Defense ETF (EUAD): Defense (war) cash cow.

  • iShares MSCI Europe Financials ETF (EUFN): Banking’s big moment.

  • Franklin FTSE United Kingdom ETF (FLGB): UK’s undervalued shot.

Fee alert: EUAD (0.50%) and EPOL (0.60%) sting more than VGK (0.08%). Weigh the payoff.

Risks

No free lunch here of course. Watch these potholes:

  1. Trade Wars: Export-heavy Europe could bleed if tariffs spike or a deal isn’t completely synced.

  2. Fed Curveball: Faster U.S. rate cuts could tilt momentum back stateside.

  3. China Slump: Luxury and industrial exporters would feel the pinch.

  4. Geopolitical Mess: New conflicts could spook European assets hard.

Track these, especially if you’re leaning into niche plays.

Think Bigger Than the S&P

U.S. dominance has trained us to ignore the world. 2025’s flipping that script. International ETFs are crushing it—backed by value, policy, and flows that demand at least a second look.

Your call: Revisit your map. The world’s bigger than Wall Street and your portfolio could be, too.

Stay global, stay sharp, and stay curious.



Happy Sunday

- John

This analysis reflects Pivot and Flow’s views and isn’t personalized advice. All investments carry risk, including loss of principal. International investing adds currency swings, political instability, and accounting quirks. Past performance isn’t a crystal ball.

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