VGK vs. EFA vs. EUAD: Europe ETF Three-Way Throwdown
- We explore three leading ETFs giving investors access to the European opportunity.
- Funds like VGK, EFA and EUAD can provide growth, income and diversification.
European equities have been a bright spot for global investors in 2025, outperforming their U.S. counterparts in a year dominated by trade policy uncertainty and slowing economic growth in the United States.
As Wall Street wrestles with the impact of shifting tariffs and mixed economic signals, many investors are looking across the Atlantic for stability, value and fresh growth narratives.
One of the biggest tailwinds for Europe? Defense spending. In a historic agreement, the North Atlantic Treaty Organization (NATO) members committed to raising defense spending to 5% of GDP, boosting the outlook for European defense contractors and industrial firms.
Combined with lower valuations and sectoral differences favoring industrials and defense, this has led to a surge in demand for Europe-focused ETFs.
In this data dive, we’ll explore three leading ETFs giving investors access to the European opportunity: the Vanguard FTSE Europe ETF (VGK), the iShares MSCI EAFE ETF (EFA) and the Select STOXX Europe Aerospace & Defense ETF (EUAD).
We'll compare their structure, performance and how they fit into a broader portfolio, then wrap up with an outlook for the rest of 2025.
VGK vs. EFA vs. EUAD: Europe ETF Breakdown
Europe ETFs have significantly outperformed broad U.S. equity funds in 2025. The combination of geopolitical tailwinds, attractive valuations and currency stability has given investors new reasons to allocate internationally. Among the top-performing and most actively traded ETFs are VGK, EFA and EUAD.
Each brings something unique to the table. All data as of June 24, 2025.
Vanguard FTSE Europe ETF (VGK)
Seeking to track the performance of the FTSE Developed Europe All Cap Index, VGK offers broad exposure to developed European markets, with heavy weights in the U.K., France, Switzerland and Germany. It’s a pure-play Europe fund and one of the most cost-effective options for regional diversification.
- AUM: $32.4 billion
- Expense Ratio: 0.06%
- YTD Performance: 22.7%
VGK’s appeal lies in its diversified country and sector exposure, and it has benefited this year from a strong performance in European industrials and financials.
iShares MSCI EAFE ETF (EFA)
EFA tracks a market-cap-weighted index of developed-market securities based in Europe, Australia and the Far East. Thus, while this ETF provides heavy exposure to Europe, at 65% of the portfolio, it also provides exposure to developed markets in Asia and the Pacific, including Japan and Australia. It's more geographically diversified than VGK, which makes it a popular core international equity holding.
- AUM: $55.7 billion
- Expense Ratio: 0.32%
- YTD Performance: 18.5%
While not a Europe-exclusive fund, EFA captures much of Europe’s strength this year and also smooths volatility through broader exposure.
Select STOXX Europe Aerospace & Defense ETF (EUAD)
EUAD tracks the STOXX Europe Total Market Aerospace & Defense Index, a smaller index of European stocks or ADRs of companies headquartered in Europe, which derive a significant portion of their revenue from the aerospace and defense industry.
- AUM: $934.3 million
- Expense Ratio: 0.5%
- YTD Performance: 65.9%
EUAD has gained popularity as a targeted sector Europe play, particularly among ETF investors wanting to capitalize on Europe's surge in defense spending in 2025.
Europe vs. US: Outlook for the Second Half of 2025
As we move into the second half of the year, Europe remains relatively well-positioned against a backdrop of slowing U.S. growth and monetary policy indecision.
Tailwinds for Europe ETFs:
- NATO’s 5% defense spending pledge is expected to benefit defense, aerospace and industrial sectors.
- Valuations remain cheaper than U.S. equities, especially in financials and consumer discretionary sectors.
- The euro has remained stable, and interest rate differentials between the U.S. and Europe have narrowed.
Meanwhile, the U.S. faces challenges:
- Tariff uncertainty is tied to shifting trade policies.
- The Fed is sending mixed signals regarding inflation vs. unemployment.
- Valuations are stretched in U.S. tech and growth sectors.
In short, Europe may continue to outperform, or at least complement, U.S. equities through the remainder of 2025, especially if defensive sectors lead.
Final Thoughts: Europe ETFs as Diversification Tools
Europe ETFs have proven themselves in 2025 as smart diversification plays and not just because of performance. Their sector mix, valuation advantage and exposure to defense spending trends give them staying power.
But investors should also be aware of risks, including currency exposure, which can amplify or reduce returns, and geopolitical sensitivity to issues such as energy supply and regional tensions.
Still, for those seeking global balance, funds like VGK, EFA and EUAD can provide growth, income and diversification, all while reducing dependence on U.S. equity markets.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investing in ETFs involves risks, and investors should carefully consider their investment objectives and risk tolerance before making any investment decisions.
At the time of publication, Kent Thune did not hold a position in any of the aforementioned securities.
