VGK Pulls in Massive Assets Amid Roiling US Politics
High US equity prices are pushing purchases of Europe funds.
A look at the Vanguard FTSE Europe ETF (VGK) compared with the U.S.-focused Vanguard S&P 500 ETF (VOO) may be all that’s needed to see investors’ enthusiasm for European stock exchange-traded funds.
Over the past month through Friday, March 21, VGK has pulled in $2.5 billion, nearly 10% of its total $21.9 billion in assets under management. It’s jumped 3% over the same period.
VOO, the world’s biggest ETF with $619.9 billion in assets, pulled in $32.1 billion, leading all ETF inflows over the same period, according to the etf.com Pulse tool.
While huge amounts of money are pouring in, the total is about 5% of its AUM compared with VGK pulling in 10% of its AUM—not to mention that VOO has lost 3.4% over the past month.
This situation is not all a result of President Donald Trump’s tariffs, although they’re clearly a catalyst that has investors looking at other opportunities outside of the U.S.
Lofty US ETF Valuations
Just as big of a problem is that U.S. stocks are still expensive, even after VOO’s 3.4% year-to-date decline. The ETF’s price is 27 times the earnings of its constituent companies compared with VGK’s 17 times.
VOO’s top-three holdings include Nvidia Corp. (NVDA) at 40 times earnings and both Apple Inc. (AAPL) and Microsoft Corp. (MSFT) at 31 times. VGK’s top holdings are also pretty lofty in their valuations, with No. 1 SAP AG at 96 times and No. 3 ASML NV at 35 times. Go down the list, and you'll find No. 2 Novo Nordisk A/S class B at 23 times and Nestle SA at 21 times.
European politicians are taking steps to boost their economies, particularly around defense spending. The U.S., at the same time, feels like a whack-a-mole of chaos and uncertainty, with the president increasingly using threats and political leverage to concentrate power in the administration’s hands with no firm goal or foreseeable end in sight.
