Reducing US Risk: The Case for Ex-US ETFs in 2026

If you hold VWCE or IWDA — the two most popular ETFs among European index investors — you might be surprised to learn how much of your portfolio is invested in a single country.

VWCE (Vanguard FTSE All-World) allocates around 62% to the United States. IWDA (iShares Core MSCI World) is even more concentrated at roughly 72% US. These are marketed as "global" ETFs, and technically they are — but "global" increasingly means "mostly American."

For many investors, this is fine. US companies are genuinely global businesses, and the US market has delivered extraordinary returns over the past 15 years. But in 2025, something shifted: international stocks outperformed the US by a wide margin — and European investors started asking whether their supposedly diversified portfolios were actually diversified at all.

This article explains what ex-US ETFs are, what drove the 2025 rotation, which UCITS options are available to European investors, and how to think about adding them to your portfolio.

Why your "global" ETF is mostly American

It's worth understanding how global index ETFs are constructed. Most of them — VWCE, IWDA, and similar — are market-cap weighted. That means larger companies get a bigger slice of the fund, in proportion to their market capitalisation.

The US stock market has been the largest in the world for decades, and its relative share has grown dramatically since 2010. In 2010, the US represented about 42% of the MSCI All Country World Index. Today it sits above 65%. That growth reflects genuine economic performance, but it also reflects a valuation expansion — especially in tech — that has pushed US prices far above historical norms relative to the rest of the world.

The practical consequence is this: when you buy a market-cap weighted global ETF and call it "diversified," you are primarily betting on continued US outperformance.

What happened in 2025: the ex-US comeback

For most of the 2010s, holding a global ETF felt equivalent to holding a US ETF with some international decoration around the edges. The US outperformed everything, consistently.

2025 was different. International stocks — those outside the United States — returned approximately 30% over the course of the year, outpacing the S&P 500 by double digits. European equities in particular staged a remarkable recovery: the MSCI Europe index outperformed the Russell 1000 by roughly 20% in USD terms, according to JP Morgan Asset Management.

Several factors converged. The euro appreciated significantly against the dollar, amplifying returns for European investors holding overseas positions. European defence and industrial stocks surged following policy changes in NATO spending. Asian markets recovered. Meanwhile, US tech valuations — already stretched — faced pressure from rising rates and antitrust concerns.

None of this means the US is going to collapse, or that you should abandon your VWCE. But it does illustrate that a 62–72% allocation to a single country, in a portfolio you believe is globally diversified, carries more risk than most investors realise.

What is an ex-US ETF?

An ex-US ETF is a fund that tracks a global index that explicitly excludes the United States. Instead of giving you exposure to 3,700 companies across 50 countries (VWCE), it gives you exposure to those same 50 countries minus the American ones.

The most common benchmarks are:

• MSCI World ex USA — large and mid-cap stocks across 22 developed markets (Europe, Japan, Australia, Canada, etc.), excluding the US
• FTSE Developed ex North America — similar, sometimes used by Vanguard funds
• MSCI All Country World ex USA — adds emerging markets on top of the developed-market ex-US basket

These funds are straightforward. They're not "bearish US" bets — they're simply a way to have explicit control over your geographical allocation rather than letting market caps decide it for you.

UCITS ex-US ETFs available to European investors

European investors need UCITS-compliant ETFs. Here are the main options available on European exchanges:

Developed markets only (ex-US)

The Xtrackers MSCI World ex USA (EXUS) is currently the largest and cheapest option in this category with nearly €5 billion in assets under management. It provides full physical replication across ~22 developed markets.

Developed + emerging markets (ex-US)

If you want to replicate a full VWCE-style global exposure but with zero US weight, you can combine a developed ex-US fund with an emerging markets fund:

Pairing EXUS + EIMI in roughly a 90/10 or 85/15 ratio gives you global developed + emerging market exposure with no direct US allocation.

How much ex-US exposure makes sense?

This is the key question, and there's no single right answer. Here are three sensible approaches depending on your situation:

Option 1: Stay with VWCE/IWDA (no change)

If you're a long-term passive investor comfortable with market-cap weighting, there's no urgent reason to change. VWCE's 62% US allocation is not a flaw — it's a reflection of current market sizes. The case for ex-US is a case for deliberate deviation from the market consensus, which requires conviction.

Option 2: Add EXUS as a satellite position

Hold your core VWCE position and add an EXUS allocation (10–25% of the total portfolio) to deliberately reduce US concentration. This is the simplest approach and doesn't require selling your existing position or triggering a capital gains event.

Example: €70,000 in VWCE + €30,000 in EXUS gives you a blended portfolio where US exposure drops to roughly 43% instead of 62%.

Option 3: Build a two- or three-fund portfolio from scratch

Rather than using VWCE as your core, some investors prefer to construct their own global exposure from separate components, giving them full control over regional weights.

A simple example:

• 50% EXUS (developed ex-US)
• 30% an S&P 500 ETF (e.g., iShares Core S&P 500 UCITS — CSPX)
• 20% EIMI (emerging markets)

This approach results in roughly 30% US allocation — half of what VWCE gives you by default — while maintaining full global diversification.

What about currency risk?

One nuance worth noting: when European investors hold ex-US ETFs, most of the underlying positions are priced in local currencies (yen, pounds, Swiss francs, Swedish kronor, etc.) and converted to euros at the fund level. This means you're exposed to currency movements across multiple currencies simultaneously.

This is true of VWCE as well — you already have currency exposure via your US holdings. The difference with ex-US is that dollar movements stop affecting your portfolio as directly, which may or may not be desirable.

Currency-hedged versions of EXUS exist but carry a higher TER (usually 0.25–0.35% more). For long-term investors, hedging currency risk is generally not recommended — currency effects tend to average out over decades, and the hedging cost compounds against you.

For a deeper look at how to choose the right fund structure for your situation, see our guide on accumulating vs distributing ETFs in Europe.

Practical steps to add ex-US exposure

1. Check your current US allocation. Open your brokerage account or use a portfolio tracker to see what percentage of your holdings is in US stocks. If you hold VWCE, the answer is roughly 62%. If you hold IWDA, it's closer to 72%.

2. Decide on a target. There's no formula here. Some investors are comfortable with 50% US. Others want to track the world economy more evenly and aim for 40% or below. Pick a number you can stick with.

3. Buy EXUS (or a similar ex-US ETF) on your next contribution. You don't need to sell VWCE. Just allocate new money toward EXUS until you reach your target blend.

4. Track your blended allocation going forward. As markets move, your US weight will drift. Check it periodically and rebalance when it strays significantly from your target.

The bottom line

The case for ex-US ETFs is not that the US is a bad place to invest. It's that a 62–72% allocation to any single country in a portfolio you call "globally diversified" is worth examining — especially when that concentration has never been higher, and especially after a year in which international markets demonstrated they can meaningfully outperform.

You don't have to make dramatic changes. Adding a small allocation to EXUS alongside your core VWCE or IWDA position is a straightforward way to get more genuine geographic diversification without abandoning your existing strategy.

Whether you decide to adjust your allocation or not, the most important thing is that the choice is deliberate — not a default.

If you want to understand what your portfolio really looks like today, track it for free on arfin. You might be surprised by what you find.