Finding Europe's Best ETF: Why VYMI Continues to Outpace U.S. Benchmarks

When hunting for the best European ETF, one Vanguard fund deserves serious attention. The Vanguard International High Dividend Yield ETF (VYMI) has delivered compelling returns since the start of 2025, rising approximately 41% through late January 2026—a performance that more than doubles the S&P 500’s roughly 18% gain over the same period. While the broader U.S. market has recovered from a turbulent year, international dividend-focused investing has emerged as an intriguing alternative for diversified portfolios.

A High-Yielding International Gateway

VYMI focuses on a straightforward premise: identify global companies—particularly those in developed and emerging markets—that generate above-average dividend income and demonstrate the financial strength to sustain those payouts. The fund’s breadth is remarkable, holding over 1,500 stocks across diverse geographies:

• Europe: 44%
• Pacific: 25.9%
• Emerging Markets: 20.9%
• North America: 8.2%
• Middle East: 0.8%
• Other: 0.2%

This geographic distribution, with Europe as the dominant holding, positions VYMI as a compelling vehicle for investors seeking exposure to European equities alongside Pacific and emerging market opportunities. The fund’s top five holdings—Roche, HSBC, Novartis, Nestlé, and Royal Bank of Canada—represent blue-chip companies with established track records of rewarding shareholders through consistent dividends.

The Income Advantage: Why Dividends Matter

The dividend story is where VYMI truly stands apart. Currently yielding around 3.4%, the fund has averaged approximately 4.1% since early 2025—more than triple the S&P 500’s yield. To put this in practical terms: a $1,000 investment would generate roughly $40 in annual income at the 4% rate. This meaningful yield differential reflects the nature of VYMI’s holdings—mature, financially stable companies that prioritize returning capital to shareholders.

The consistency of this income stream matters just as much as the headline yield. When equity markets face headwinds, dividend-paying stocks often provide a cushion, transforming volatility into opportunity for those collecting regular payouts.

Weaving International Exposure Into Your Portfolio

Diversification extends beyond sector and company size; geographic allocation is equally critical. While a 90% allocation to American stocks remains prudent given the U.S. market’s long-term performance, international holdings—particularly dividend payers—serve as valuable portfolio ballast. VYMI offers this exposure through a concentrated, high-conviction approach to yield rather than broad index replication.

Even if VYMI experiences a pullback from its recent momentum, its dividend-generating capacity persists. This dual characteristic—capital appreciation potential paired with income production—makes it particularly suited for investors seeking both growth and cash flow.

Evaluating the Investment Case Today

The question facing potential investors is straightforward: does VYMI deserve a spot in your portfolio now?

The case for inclusion rests on several factors: exceptional recent performance, a robust dividend yield relative to alternatives, geographic diversification centered on developed markets with emerging market kickers, and holdings in financially secure, shareholder-friendly corporations. The case against relies on the market’s inherent tendency to revert toward historical norms after outsized runs and the currency risks embedded in international investing.

For most investors, VYMI functions best as a complementary holding rather than a portfolio cornerstone. Its European and international focus provides valuable diversification that pure U.S. equity exposure cannot replicate.

The Bottom Line

Finding the best European ETF shouldn’t mean chasing performance blindly. VYMI presents a thoughtfully constructed approach to international dividend investing, but it works best as part of a broader strategy. The fund’s capacity to deliver income, paired with exposure to stable global markets, makes it worthy of consideration—particularly for those seeking to balance growth with regular cash distributions in an increasingly complex global economy.