7 Developed Market ETFs for Unstoppable Long-Term Growth

The Foundation – Your Blueprint for Global Growth

Why Developed Market ETFs Are the Next Pillar of Your Portfolio

When constructing a portfolio for long-term growth, many investors focus on domestic opportunities, overlooking the vast potential that exists beyond their home country. By concentrating solely on a single market, an investor may be missing out on economic expansion in different regions and exposing their portfolio to localized risks. The global economy is a complex network of interconnected yet distinct markets that do not always move in sync. A well-diversified portfolio that includes a strategic allocation to international equities can therefore provide a more resilient foundation for wealth accumulation over the long haul. This is not simply a defensive strategy to mitigate risk; it is an offensive one designed to capture enhanced growth potential and access a wider range of investment opportunities that may not be available in a single country.

Exchange-Traded Funds (ETFs) have revolutionized the way investors can gain this crucial international exposure. An ETF is a pooled investment vehicle that holds a basket of securities, such as stocks or bonds, but trades on an exchange throughout the day just like a single stock. This structure offers a high degree of transparency, liquidity, and cost efficiency, making it an ideal tool for accessing complex markets. For an investor seeking to tap into the world’s most advanced economies—nations with established financial systems and strong corporate governance—Developed Market ETFs are a powerful and accessible option. These funds provide broad, instant diversification across multiple countries, industries, and currencies without the need for an investor to buy individual foreign stocks.

The investment landscape, however, has become increasingly complex. The U.S. ETF market alone now features over 3,500 listed funds, a number that can be overwhelming for even an experienced investor. This proliferation gives rise to what can be referred to as the “judge a book by its cover” risk, where two ETFs with similar names may, upon closer inspection, have vastly different underlying strategies or portfolio compositions. For example, a biotech ETF could hold next-generation genomics companies, while another might focus on the tool companies that service the life sciences industry. Both are “biotech,” but their performance and risk profiles could be worlds apart. Navigating this environment requires meticulous due diligence to avoid simply chasing the “hot new thing”. This analysis is designed to provide that due diligence, presenting a curated, authoritative list of leading Developed Market ETFs and a detailed breakdown of their unique characteristics, helping an investor make an informed and confident decision.

The Master List: Top Developed Market ETFs to Build Your Future

The following list highlights the top-performing and most popular Developed Market ETFs, selected for their robust fundamentals, low costs, and suitability for a long-term investment horizon. Each fund offers a slightly different approach to achieving global diversification, providing a clear starting point for a portfolio-building strategy.

1. Vanguard FTSE Developed Markets ETF (VEA): A low-cost, comprehensive powerhouse that provides broad exposure to developed economies outside the U.S. and Canada.
2. iShares Core MSCI EAFE ETF (IEFA): A formidable competitor that offers targeted exposure to Europe, Australasia, and the Far East, excluding the U.S. and Canada.
3. Schwab International Equity ETF (SCHF): A highly competitive fund known for its ultra-low expense ratio and solid performance.
4. Vanguard Total International Stock ETF (VXUS): A highly diversified, all-in-one option that includes both developed and emerging markets for a single-fund international solution.

The Deep Dive – Dissecting the Best of the Best

Vanguard FTSE Developed Markets ETF (VEA)

The Vanguard FTSE Developed Markets ETF (VEA) is a passively managed fund that seeks to track the performance of the FTSE Developed All Cap ex US Index. Its primary objective is to provide broad exposure to stocks issued by companies located in the major developed markets of Europe and the Pacific region, as well as Canada. As of recent data, the fund holds over 3,800 stocks, employing a full-replication approach to ensure it closely mirrors its underlying benchmark. This strategy, along with Vanguard’s commitment to low costs, has resulted in a remarkably low expense ratio that minimizes the drag on long-term returns.

The following table provides a snapshot of VEA’s key metrics, which highlight its scale and cost efficiency.

Metric	Data
Ticker	VEA
AUM	$172.833 billion
Expense Ratio	0.03%
Benchmark	FTSE Developed All Cap ex US Index
Number of Holdings	3,882
30-Day Median Bid/Ask Spread	0.02%
Top Country Exposure	Europe (53.60%), Japan (24%)
Top Sector Exposure	Finance (25.87%)

An important characteristic of VEA is its massive size, boasting an assets under management (AUM) value that makes it one of the largest ETFs in the market. A large AUM often corresponds with a high degree of liquidity, as evidenced by its high average daily volume. For the retail investor, this liquidity is a significant advantage as it helps to ensure a tight bid/ask spread, thereby reducing trading costs. The lower the trading cost, the more of a return the investor gets to keep, which is a crucial factor in compounding wealth over time.

A notable evolution in VEA’s strategy is its decision to incorporate Canadian stocks into its portfolio. While its benchmark, the FTSE Developed All Cap ex US Index, now includes Canada, some of its peers specifically exclude it. For an investor who already holds a U.S. fund with exposure to North America, VEA’s inclusion of Canada can be a key differentiator. It shows that even passive funds are not static and that a fund’s underlying index and its historical evolution are important factors to consider. This subtle difference highlights the importance of looking beyond the ticker symbol to understand the precise exposure an investor is purchasing.

iShares Core MSCI EAFE ETF (IEFA)

The iShares Core MSCI EAFE ETF (IEFA) is a low-cost, passively managed fund designed to track the investment results of the MSCI EAFE Investable Market Index (IMI). This index is a comprehensive measure of equity market performance in Europe, Australasia, and the Far East (EAFE). It includes large-, mid-, and small-capitalization stocks, providing more comprehensive coverage than the standard MSCI EAFE Index. A key feature of IEFA is its explicit exclusion of the U.S. and Canada from its holdings, making it a “pure-play” on the EAFE region.

The following table provides a snapshot of IEFA’s key metrics, illustrating its competitive standing.

Metric	Data
Ticker	IEFA
AUM	$150.2 billion
Expense Ratio	0.07%
Benchmark	MSCI EAFE IMI Index
Top Country Exposure	Japan (24%), UK (15%), France (7%)
5-Year Annualized NAV Return	11.2%

The decision to exclude U.S. and Canadian stocks is a deliberate design choice that has significant implications for portfolio construction. For a U.S. investor who already holds domestic stocks and a separate fund for Canadian exposure, IEFA can be an ideal component to complete a diversification strategy. It allows for a more precise, non-overlapping allocation to developed international markets. Conversely, an investor who seeks a single fund to cover all developed markets outside the U.S. may prefer a fund that includes Canada, such as VEA or SCHF. This shows that the best fund is not a universal choice but rather a decision that must be aligned with an investor’s existing portfolio structure and specific diversification goals.

Schwab International Equity ETF (SCHF)

The Schwab International Equity ETF (SCHF) is a fund that tracks the FTSE Developed ex US Index. Its objective is to provide exposure to developed international markets, including South Korea and Canada. One of the most compelling features of SCHF is its ultra-low expense ratio, which, at 0.03%, is among the most competitive in the industry. This makes it a strong choice for cost-conscious investors seeking to maximize their long-term returns.

The following table provides a snapshot of SCHF’s key metrics, which demonstrate its appeal as a low-cost option.

Metric	Data
Ticker	SCHF
AUM	$50.3 billion
Expense Ratio	0.03%
Benchmark	FTSE Developed ex US Index
1-Year NAV Return	+13.74%
30-Day Median Bid/Ask Spread	0.04%

The aggressive competition among major fund providers like Vanguard, iShares, and Schwab has created a “race to the bottom” on fees. This competition directly benefits the long-term investor. A fund’s expense ratio is a small but persistent drag on performance, and while a difference of just a few basis points may seem negligible in the short term, its effect on a portfolio is magnified over decades through the power of compounding. A lower expense ratio directly translates to a higher net return, making SCHF’s cost efficiency a significant advantage for those with a long-term investment horizon. This is an excellent example of how the financial industry’s competition can create substantial value for the end consumer.

Alternative Developed Market ETFs

The landscape of developed market ETFs extends beyond the three major funds analyzed above. The Vanguard Total International Stock ETF (VXUS) is a notable alternative, though it serves a slightly different purpose. Unlike the pure developed market funds, VXUS seeks to track the performance of the FTSE Global All Cap ex US Index, which provides broad exposure to both developed and emerging markets outside the U.S..

The inclusion of emerging markets is a critical distinction for a number of reasons. Emerging market economies are typically in earlier stages of development and are inherently more volatile and prone to sudden, large falls in value compared to their developed market counterparts. For a risk-conscious investor who prefers the stability of mature economies, a pure developed market fund would be the more suitable choice. However, for an investor who wants a single, highly diversified fund to cover all non-U.S. markets—from Japan and the UK to China and Brazil—VXUS is an excellent, low-cost option that simplifies their international allocation. This distinction highlights the importance of understanding a fund’s full mandate and underlying assets, not just its name, to ensure it aligns with an investor’s specific risk tolerance and long-term goals.

Part 3: The Big Picture – Context and Strategy

How the Top ETFs Stack Up: A Comparative Analysis

The following table provides a consolidated view of the three main developed market ETFs, allowing for a clear, side-by-side comparison of their key attributes and historical performance.

Metric	Vanguard FTSE Developed Markets ETF (VEA)	iShares Core MSCI EAFE ETF (IEFA)	Schwab International Equity ETF (SCHF)
AUM	$172.833 B	$150.2 B	$50.3 B
Expense Ratio	0.03%	0.07%	0.03%
Benchmark	FTSE Developed All Cap ex US Index	MSCI EAFE IMI Index	FTSE Developed ex US Index
Top Country Exposure	Europe (53.6%), Japan (24%)	Japan (24%), UK (15%)	N/A (Tracks FTSE Developed ex US Index)
5-Year NAV Return	10.36%	11.2%	10.57%
Number of Holdings	3,882	N/A	N/A (Tracks FTSE Index)
Bid/Ask Spread	0.02%	N/A (Not Listed)	0.04%

Beyond the numbers, a nuanced understanding of these funds requires an examination of their underlying benchmarks. While both the MSCI and FTSE indices track developed markets, there can be subtle differences in their constituent companies and weighting methodologies, which may lead to minor performance variations over time. For example, the FTSE benchmarks used by VEA and SCHF include stocks from Canada, while IEFA’s MSCI benchmark specifically excludes them. This seemingly minor difference can be a deciding factor for an investor crafting a precise, diversified portfolio. The data also reveals a clear trend of extremely low costs across all major players, highlighting the incredible value the long-term investor receives from this competitive marketplace.

Investing for the Long Haul: Core Principles and Best Practices

A list of excellent funds is merely a tool; the success of a long-term investment strategy ultimately depends on the application of sound financial principles and a disciplined approach.

The Power of Compounding. The most important engine of long-term wealth creation is compounding. This is the process by which an asset’s earnings, whether from dividends or capital gains, are reinvested to generate their own returns. The effect is exponential, meaning that over time, the gains on gains can far exceed the initial investment. For a long-term investor, this means that even small differences in a fund’s performance or expense ratio, when compounded over decades, can result in a significant difference in the final portfolio value. A low-cost, broadly diversified ETF is the ideal vehicle for harnessing this power because it minimizes fees and ensures that all returns are working for the investor.

The Indispensable Role of Diversification. Diversification is the strategy of spreading investments across various assets, industries, and geographic regions to help mitigate risk. The analysis of Developed Market ETFs highlights the importance of global diversification, which extends this principle to an international scale. By investing in different economies, a portfolio can be better protected from localized risks, such as a recession or political instability in a single country. This strategy also offers a layer of currency diversification, as holding assets in foreign currencies can act as a natural hedge against a weakening home currency. A globally diversified portfolio is, by design, more resilient to economic shocks and market volatility.

Embracing Volatility and Controlling Behavior. Market volatility is a normal and inevitable part of the investment journey. Markets rarely go straight up, and downturns are a predictable occurrence. The most significant risk to a long-term portfolio is often the investor’s own behavior—specifically, the temptation to panic-sell during a decline or try to time the market. Trying to time the market involves making two correct decisions: knowing when to get out and, even more challenging, knowing when to get back in. The risk of missing the market’s rebound after a downturn is substantial and can severely undermine a portfolio’s long-term returns. A disciplined investor views periods of volatility not as a threat but as an opportunity to rebalance their portfolio back to its target allocation or to add to positions at a lower price.

Know the Risks: Protecting Your Investment Journey

While ETFs offer incredible benefits, it is crucial for an investor to be aware of the inherent risks. An informed investor is a protected investor.

• Market Risk: The most fundamental risk is that the overall market will decline. An ETF is simply a “wrapper” for its underlying investments. If the stocks in its portfolio lose value, the ETF will as well, regardless of how low its fees are or how transparent its structure is.
• Tracking Error: This is the risk that an ETF’s performance will not perfectly match the performance of its benchmark index. While low-cost, passively managed funds are designed to minimize this, factors such as fees, trading costs, and the fund’s replication strategy can all contribute to tracking error.
• Liquidity and Trading Risk: The price of an ETF fluctuates throughout the trading day, and every transaction incurs costs. These trading costs are often measured by the bid/ask spread, which is the difference between the highest price a buyer is willing to pay and the lowest price a seller is willing to accept. Funds with high trading volumes and large AUM, like VEA, generally have a tighter spread, which reduces trading costs for the investor.
• “Judge a Book by Its Cover” Risk: This is a behavioral risk where investors rely solely on a fund’s name without understanding its underlying strategy. As highlighted in the research, two funds in the same sector can have wildly different holdings, leading to unexpected performance. Similarly, a leveraged ETF may not deliver the exact multiple of its benchmark’s return over an extended period. Meticulous review of a fund’s prospectus, holdings, and objective is essential to avoid this pitfall.
• Concentration Risk: Even a seemingly diversified ETF can have concentration risk. This can manifest as a heavy weighting in a specific sector, as seen with VEA’s significant allocation to Finance , or in a small number of dominant stocks. An investor should review a fund’s top holdings and sector allocation to ensure it aligns with their diversification goals.
• Shutdown Risk: Occasionally, an ETF may be liquidated due to low demand or poor performance. While shareholders are paid in cash, this can result in an unexpected and unnecessary tax burden from capital gains realized during the liquidation process.

Part 4: The Final Word

Conclusion: Your Path to a Globally Diversified Portfolio

The journey to building a globally diversified portfolio for long-term growth is a strategic and rewarding one. It requires an understanding that global markets are not merely a supplement to domestic ones, but a fundamental pillar of a resilient investment plan. The analysis presented here demonstrates that low-cost, highly efficient Developed Market ETFs offer a powerful, accessible way to capture this international growth and mitigate localized risks.

By selecting from well-established, reputable funds like Vanguard’s VEA, iShares’ IEFA, or Schwab’s SCHF, an investor gains instant access to thousands of companies across the world’s most advanced economies. The differences between these funds—such as their benchmarks or geographic exclusions—are not signs of superiority but rather different tools for specific portfolio-building needs.

Ultimately, long-term investment success is a product of knowledge, discipline, and patience. The best funds are useless without the behavioral foundation to ride out market volatility and harness the compounding effect of returns over decades. The path to long-term wealth is rooted in a disciplined, informed strategy that embraces global diversification and focuses on what truly matters: a low-cost, consistent approach that is impervious to short-term emotional reactions. The journey begins with a single, informed choice.

Frequently Asked Questions

What is an ETF?

An ETF, or exchange-traded fund, is a pooled investment vehicle that holds a collection of securities, like stocks or bonds. Its shares trade on a stock exchange at a market-determined price throughout the day, much like the shares of a publicly traded company.

How are ETFs different from mutual funds?

While both hold a basket of securities, a key difference is how they are traded. ETF shares are bought and sold on an exchange throughout the day, while traditional mutual fund shares are purchased or redeemed directly from the fund company at the end of the trading day at the net asset value (NAV).

Why invest in developed markets instead of just the U.S.?

Investing in developed markets outside the U.S. helps to reduce risk by diversifying a portfolio across multiple economies that may not be affected by the same events at the same time. This strategy also provides access to a broader range of companies and offers the potential for enhanced growth and currency diversification.

What is the difference between MSCI and FTSE indices?

MSCI and FTSE are two of the world’s leading index providers. While their indices often track similar markets, there can be subtle differences in their methodologies, such as how they classify certain countries or companies, or whether they include specific regions like Canada. These differences can lead to slight variations in a fund’s portfolio and performance over time.

What is an expense ratio, and why does it matter?

An expense ratio is the annual fee that a fund charges to manage its assets, expressed as a percentage of the fund’s assets. It is a direct and persistent drag on a portfolio’s returns, so for a long-term investor, choosing a fund with a low expense ratio is critical for maximizing compounding and net returns over time.

Should I rebalance my portfolio?

Yes. Rebalancing is the practice of adjusting a portfolio’s asset allocation back to its original target weights on a regular basis. If one asset class (e.g., stocks) performs particularly well, its weight in the portfolio may increase, potentially increasing the portfolio’s overall risk. Rebalancing ensures a portfolio remains aligned with the investor’s goals and risk tolerance.