Vanguard index funds focused on Asia and emerging markets are drawing fresh attention after a new long-term outlook from Goldman Sachs suggested those regions could outpace the S&P 500 over the next decade.
Key Points
Analysts at the Wall Street firm now project that broad U.S. stocks, represented by the S&P 500, will return about 6.5% annually over the next 10 years. By contrast, they see significantly higher annual gains from Asian and emerging‑market equities, especially once currency effects are included.
For investors looking beyond the U.S. benchmark, two Vanguard index funds — the Vanguard FTSE Pacific ETF and the Vanguard FTSE Emerging Markets ETF — offer low‑cost ways to capture those potential trends, while still raising important questions about how much to tilt away from U.S. stocks.
Goldman Sachs Favors Asia and Emerging Markets Over the S&P 500
In its updated global equity forecast, Goldman Sachs set expectations that diverge sharply by region.
The bank’s analysts, led by Peter Oppenheimer, estimate that:
- The S&P 500, a broad proxy for the U.S. stock market, will return about 6.5% per year.
- Asian stocks are expected to deliver roughly 10.3% annual returns in local currencies.
- Emerging‑market stocks are projected to return about 10.9% annually in local terms.
Goldman also expects the relevant local currencies to strengthen against the U.S. dollar over time. If that plays out, the bank sees annual returns rising to about 12.6% for Asia and 12.8% for emerging markets when measured in dollars.
That spread has led some market watchers to highlight two Vanguard index funds that track those regions and charge relatively low fees: the Vanguard FTSE Pacific ETF (VPL) and the Vanguard FTSE Emerging Markets ETF (VWO).
Vanguard FTSE Pacific ETF: Targeting Developed Asia
One of the two highlighted Vanguard index funds is the Vanguard FTSE Pacific ETF, which tracks an index of about 2,300 companies across Asia-Pacific markets.
The fund’s geographic exposure is concentrated in developed economies such as:
- Japan
- Australia
- Korea
On a sector basis, the ETF leans most heavily toward:
- Financials
- Industrials
- Consumer discretionary
According to the latest breakdown, its five largest holdings by weight are:
- Samsung Electronics – 3.3%
- Toyota Motor – 2.1%
- Commonwealth Bank of Australia – 1.9%
- Mitsubishi Financial – 1.9%
- Sony – 1.8%
With an expense ratio of 0.07% — meaning investors pay $7 annually for every $10,000 invested — the Vanguard FTSE Pacific ETF offers broad exposure to Asian equities at a relatively low cost. That structure makes it an accessible way to align a slice of a portfolio with Goldman’s constructive view on the region.
Past Decade: S&P 500 Still in the Lead
Despite Goldman’s upbeat outlook for Asia, recent history has favored the U.S. benchmark.
Over the past 10 years, the S&P 500 delivered a total return of 288%. By comparison, the Vanguard FTSE Pacific ETF returned 105% over the same period.
That gap underscores an important point for anyone evaluating these Vanguard index funds: forward‑looking forecasts often point in a different direction from trailing performance. Investors considering an allocation to the Pacific fund must weigh the potential for a catch‑up phase against the reality that U.S. stocks have dominated the last decade.
For that reason, some analysts suggest using the fund as a complement rather than a replacement, keeping a larger share of assets in a core S&P 500 index fund.
Vanguard FTSE Emerging Markets ETF: Broad Developing-World Exposure
The second of the two Vanguard index funds singled out by commentators is the Vanguard FTSE Emerging Markets ETF, which tracks about 6,000 companies across major developing economies.
Its country exposure is tilted toward:
- China
- Taiwan
- India
Sector weights are most concentrated in:
- Technology
- Financials
- Consumer discretionary
The ETF’s five largest positions by weight are:
- Taiwan Semiconductor – 10.6%
- Tencent Holdings – 4.5%
- Alibaba Group – 3.4%
- HDFC Bank – 1.1%
- Reliance Industries – 1.0%
Like its Pacific counterpart, the Vanguard FTSE Emerging Markets ETF charges an expense ratio of 0.07%, or $7 per year on each $10,000 invested. That pricing makes it a relatively inexpensive way to spread capital across a wide range of emerging‑market leaders.
Emerging Markets Have Also Trailed U.S. Stocks
Here too, Goldman Sachs’ optimistic 10‑year forecast contrasts with the last decade’s scoreboard.
Over the most recent 10‑year window, the S&P 500’s total return of 288% far outpaced the 106% gain posted by the Vanguard FTSE Emerging Markets ETF.
Those figures highlight a recurring theme for investors weighing these Vanguard index funds: markets that appear poised to outperform in the future have often underperformed in the recent past. That dynamic may create opportunity, but it also requires a willingness to look beyond trailing returns when deciding how to allocate capital.
Why Many Investors Still Lean Heavily on U.S. Stocks
Even while acknowledging the potential of these Vanguard index funds, some analysts argue that the S&P 500 should remain the anchor in most portfolios.
They point to two main reasons:
- Long-run outperformance of U.S. equities
Historical data show that U.S. stocks have frequently beaten international markets over extended periods, despite occasional cycles of underperformance. - A mixed track record for forecasts
Goldman Sachs itself has been off the mark before. In 2015, strategist David Kostin projected that the S&P 500 would return about 5% per year over the next decade, citing high valuations as a likely drag. In reality, the index delivered annual returns of 12.9%, more than doubling that estimate.The earlier forecast did not fully account for the way rising profit margins would support higher valuations, helping drive the index well beyond expectations.
Looking ahead, some investors believe a similar pattern could repeat if U.S. companies continue to unlock efficiencies from advances in artificial intelligence, robotics and other technologies. Those developments could sustain stronger earnings growth than currently assumed, leaving room for the S&P 500 to outperform conservative projections once again.
How Investors Might Use These Vanguard Index Funds
Against this backdrop, the debate is less about whether to use Vanguard index funds tied to Asia and emerging markets, and more about how large those positions should be.
The Goldman Sachs outlook offers one argument for increasing exposure to regions like:
- Developed Asia, via the Vanguard FTSE Pacific ETF
- Emerging markets, via the Vanguard FTSE Emerging Markets ETF
At the same time, the S&P 500’s history of strong performance — along with past underestimates of U.S. returns — supports keeping a substantial allocation in a broad U.S. stock index fund.
In practice, that means some investors may opt to hold a core position in U.S. equities while layering in smaller positions in these international Vanguard index funds to diversify and potentially capture higher regional growth. The balance will depend on individual risk tolerance, time horizon and views on how global economic and currency trends might evolve.
Outlook: Diversification vs. “Never Bet Against America”
The current conversation around these Vanguard index funds reflects a familiar tension in global investing. On one hand, forecasts from major firms like Goldman Sachs highlight opportunities outside the United States, particularly in Asia and emerging markets where expected returns look relatively high. On the other hand, the U.S. market’s track record — and its ability to surprise on the upside — continues to draw loyalty from many long‑term investors.
As Warren Buffett has famously put it, “Never bet against America.” For some, that remains the guiding principle, even as they selectively add international exposure through vehicles like the Vanguard FTSE Pacific ETF and the Vanguard FTSE Emerging Markets ETF.
Over the next decade, the outcome of that balancing act will depend on how earnings grow, how currencies move and how accurately today’s forecasts capture a future that is always uncertain. For now, the choice for investors is clear: whether, and to what extent, to tilt toward the regions that Wall Street currently believes may finally outpace the S&P 500.
