ETF Spotlight: Vanguard’s Europe ETF Rides Overseas Stock Surge

European stocks, particularly in Germany, have outperformed in 2025 as governments across the continent roll out stimulus measures to support their economies. As a result, investors looking for international exposure are increasingly turning to exchange-traded funds like the Vanguard FTSE Europe ETF (VGK) to capture these gains. 

With an escalating tariff war disrupting global trade, European leaders have introduced fiscal incentives and infrastructure spending to counteract potential slowdowns.  

Germany, Europe's largest economy, has benefited significantly, as stimulus measures have supported industrial production, consumer confidence and corporate earnings.

Vanguard FTSE Europe ETF (VGK) Flows

VGK has been a big benefactor of European stock momentum, as the fund has attracted over $1.3 billion in assets since the beginning of February. Nearly half of those flows came during the last week of the month.

etf.com flows data as of March 5, 2025.

How Vanguard’s VGK ETF Works, What It Holds

Vanguard’s VGK is designed to provide broad exposure to European equities by tracking the FTSE Developed Europe All Cap Index. This includes large-, mid- and small-cap companies across major European markets. 

VGK’s portfolio is diversified across multiple sectors and countries, with significant weightings in Germany, France, the UK and Switzerland. Its top holdings typically include industry leaders such as Nestlé, ASML, Shell and LVMH.  

The ETF is passively managed, maintaining a low expense ratio of 0.06%, making it a cost-effective option for investors seeking exposure to European markets. Additionally, VGK offers dividend income potential, as many European companies are known for their strong dividend-paying history. 

Pros and Cons of Investing in VGK

While VGK is a low-cost fund that has enjoyed recent gains from European stocks, investors should gain an understanding of the fund’s key benefits and risks before adding it to their portfolios: 

Pros

• Broad European Exposure: VGK provides a diversified basket of European stocks, reducing country-specific risk. Investors gain access to companies across multiple industries, including finance, healthcare, consumer goods and industrials. 
• Beneficiary of Stimulus Measures: As European governments introduce stimulus to offset trade disruptions, sectors like manufacturing, infrastructure and consumer goods stand to benefit, lifting overall market performance. 
• Dividend Income Potential: Many European companies offer higher dividend yields compared to their U.S. counterparts, making VGK an attractive option for income-focused investors. 
• Cost-Effective Exposure: Vanguard is known for its low-cost ETFs, and VGK’s 0.06% expense ratio is significantly lower than actively managed European funds. 
• Currency Diversification: Investing in VGK provides exposure to euro-denominated assets, helping U.S. investors hedge against U.S. dollar fluctuations. 

Cons

• Tariff War Uncertainty: While stimulus measures have helped, ongoing trade tensions between major economies can still negatively impact European exporters and weigh on growth. 
• Currency Risk: A strengthening U.S. dollar could reduce returns for U.S. investors holding euro-based assets, as currency fluctuations directly impact VGK’s performance. 
• Sector and Country Concentration: While diversified, VGK has heavy exposure to financials and industrials, which may underperform in economic downturns. 
• Slower Economic Growth: Compared to the U.S., Europe has experienced lower long-term economic growth rates, which could limit stock market returns over time. 
• Political Uncertainty: EU regulations, Brexit-related trade policies and geopolitical tensions within Europe could create headwinds for European equities. 

Outlook for European Stocks in 2025

The outlook for European equities in 2025 remains mixed but with opportunities for long-term investors. On the positive side, stimulus-driven growth, strong corporate earnings and attractive valuations make Europe appealing. However, challenges remain, including tariff-related disruptions, political uncertainty and global economic slowdown risks. 

For investors seeking international diversification and dividend income, VGK remains a solid choice. Its low-cost structure, broad exposure and potential benefits from European stimulus make it an attractive option for long-term portfolios. However, those concerned about currency risks and geopolitical volatility may want to monitor global trade developments closely before increasing their allocation to European stocks. 

Final Thoughts on VGK

As the global economy navigates trade tensions and shifting monetary policies, European stocks—particularly German equities—have shown resilience. VGK provides an efficient way to tap into this market while maintaining broad diversification. Investors considering VGK should weigh its potential benefits against risks and ensure it aligns with their investment goals and risk tolerance before committing.