A Weaker Dollar and AI Skepticism Are Reshaping ETF Flows — and U.S. Investors Are Paying Attention

U.S. investors holding the Vanguard S&P 500 ETF (VOO) are watching their returns lag behind a surprising rival: the Vanguard FTSE Europe ETF (VGK). Year-to-date, VOO is down -3.05%, while VGK is up +0.69% — a rare reversal in a decades-long trend of U.S. equity dominance. The shift isn’t random. It’s the result of three converging forces: a weakening dollar, skepticism about AI-driven valuations, and a growing preference for lower-multiple markets.

VOO, with $1.42 trillion in assets, is heavily concentrated in the Magnificent 7 tech stocks. Nvidia alone accounts for 7.31% of the fund. That concentration has driven historic gains — but also left it exposed as AI valuations come under scrutiny. The fund trades at a 26.84 P/E ratio, well above historical norms.

VGK, by contrast, holds a more diversified portfolio across European financials, healthcare, and industrials. Its top holdings include ASML, Roche, and HSBC — companies with global reach but less exposure to speculative tech multiples. The fund trades at a 18.29 P/E ratio and has attracted inflows as investors seek balance.

The U.S. dollar’s decline is amplifying the effect. With federal debt nearing $40 trillion and BRICS nations reducing dollar use in trade, the currency’s value is under pressure. That weakens the dollar returns of U.S.-centric funds like VOO while boosting the relative performance of foreign equities held in stronger currencies.

Lower P/E ratios, currency tailwinds, and sector diversification are combining to make VGK outperform VOO in 2026.