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Featured Tickers:

NAESX ,

PESPX ,

SWISX ,

VEIEX ,

VEMAX ,

VFIAX ,

VFINX ,

VFISX ,

VFITX ,

VIMAX ,

VSBSX ,

VSIGX ,

VSMAX ,

VTMGX

International (developed country) stocks saw their returns bounce back in a big way last year. The asset class soared 35.2% in 2025, its largest return in at least 19 years. Emerging markets stocks also did well in 2025 with a 24.7% gain.

Economic growth was a contributing factor. Rising prices for gold and copper helped emerging markets countries. The declining U.S. dollar also played a role by inflating the value of foreign assets for U.S. investors.

Annual returns for international and emerging markets stocks are displayed below in the pink and dark grey boxes, respectively, on the updated “heat map.” Their returns are based on the performance of Vanguard Developed Markets Index Admiral fund (VTMGX) and Vanguard Emerging Markets Index Admiral fund (VEMAX), respectively. The heat map shows how the returns for the seven asset class groups that comprise the AAII Asset Allocation Models have compared over the past several years.

Annual Returns for Each Asset Class Group (2016–2025)

The figure below shows the annual returns for each of the asset class groups used in the AAII Asset Allocation Models. The asset class groups are sorted in descending order of return (left to right) for each calendar year. As you can see, the best-performing asset class frequently changed from year to year, demonstrating the benefits of diversification.

Prior to December 2020, the following mutual funds were used as proxies for calculating historical performance: Vanguard 500 Index Investor (VFINX), BNY Melon Mid Cap Index Investor (PESPX), Vanguard Small Cap Index Investor (NAESX), Schwab International Index (SWISX), Vanguard Emerging Markets Stock Index Investor (VEIEX), Vanguard Intermediate-Term Treasury Investor (VFITX) and Vanguard Short-Term Treasury Investor (VFISX).

As of December 2020, the following funds are used to calculate historical performance: Vanguard 500 Index Admiral (VFIAX), Vanguard Mid-Cap Index Fund Admiral (VIMAX), Vanguard Small Cap Index Admiral (VSMAX), Vanguard Developed Markets Index Fund Admiral (VTMGX), Vanguard Emerging Markets Stock Index Admiral (VEMAX), Vanguard Intermediate-Term Treasury Investor (VSIGX) and Vanguard Short-Term Treasury Admiral (VFISX).

Effective January 2025, Vanguard Short-Term Treasury Index Admiral (VSBSX) is being used for short-term bonds.

Source: Morningstar. Data as of 12/31/2025.

Each asset class group is ranked by its calendar-year performance in descending order from left to right. The groups are color coded so you can track their relative performance.

This is the first time international stocks have had the highest calendar return since 2012, when they rose 18.9%. Emerging markets stocks last had the highest return in 2017 (31.2% gain). Even with last year’s good performance, foreign stocks as a group remain undervalued relative to their domestic counterparts.

Small-cap U.S. stocks also remain undervalued relative to large-cap U.S. stocks. This is partially attributable to the growing concentration of technology-related stocks in the S&P 500 index. At the end of last year, the 10 largest stocks in the S&P 500 accounted for almost 41% of the index’s total market capitalization, according to J.P. Morgan Asset Management.

Take note of the year-by-year shifts in the best-performing categories. Six different asset class categories have led over the last 10 years. While large-cap stocks have done very well over the past 10 years, they mostly underperformed for several years prior to 2016.

Diversification increases the odds of being allocated to the right asset class at the right time.

Returns for Asset Class Groups: Big Back-to-Back Gains for Large-Cap Stocks

Dispatches

Discussion

ROBERT A from NC posted 6 months ago:

I'd like to see the asset classes ranked by 10-year return. I'd also like to see all the ETF and Mutual Fund categories in this month's Journal be ranked that way too. I think that would be much more informative and helpful to us long-term investors. Longer returns (say 15 or 20 years), where available, would also be interesting.

CHARLES R from IL posted 6 months ago:

Hi Robert,
Both the expanded ETF guides and the expanded mutual fund guides allow you to sort funds on the metric of your choice.
The reason we publish both the ETFs and mutual funds in alphabetical order in the .pdf pages is to make it easier for members to find the fund they own or are interested in.
-Charles

ROBERT A from NC posted 6 months ago:

Thank you, Charles. Those are excellent tools!

BARRY J from TX posted 6 months ago:

Charles, Thanks to you and MORN for binging this quilt chart to us. (#1) These 7 Vanguard funds would make a low ER (cost), high AUM (liquidity), low turnover, very nicely diversified PF for the uncertain times we face. The 3 US funds and the 2 EX-US funds have similar variances. The 2 FI funds at ST and IMED segments of the yield curve minimizes interest rate change risks, which is a very real possibility in a world of increasing social welfare demands and increasing national budget deficits and interest payments. (#2) The chart shows how the 7 BASIC asset classes in this “QUILT PF” have been shuffled YOY into a NEW ranking each year just like in most gambling games before each hand to create randomness. The good news is the 3 US and 2 EX-US funds have very similar variances (a proxy for risk) (#3) In addition to INTL markets risk, you have to accept the risks created by governments, large unions, central banks, multiple anti-US regulatory groups, a thug next-door, and it’s history of internal enmity. (#4) Quilt charts rankings are VISUALLY equal, but they hide the MATHEMATICAL distances between rankings ... and the relative and TOTAL distances (amounts/percentages) as each asset class rises/falls YOY. These up/down movements are a good PROXY for RISK (price “variation”) and therefore the variation of returns. (#5) The “color spectrum blind” color coding doesn’t help either. (#6) All in all, the INTL market had 1 hot (as in “outlier”) year, 2025, in the last 10. And this was primarily due to DT2 interventions. (#7) There is no evidence that the INTL market can repeat in 2026. The laws of randomness predict it’s still a random 50%/50% coin flip each year. Remember, Mr. Market reshuffled the deck on NY Eve and has called a new game for 2026. (#8) These are BIG clues to understanding the RISKS (plural) of investing internationally.