While there’s nothing wrong with staying fully invested domestically (investing in America has been a winning bet time and time again), I do think that value investors who, like Warren Buffett, are having trouble finding value in the U.S. stock market should strongly consider looking overseas for bang for the buck.

Indeed, the U.S. market is expensive on a lot of measures, whether it be the price-to-earnings (P/E) ratio, CAPE, or the Buffett indicator, which tracks market cap-to-GDP. Undoubtedly, higher valuations are not indicative of trouble ahead, but it’s less than desirable for the value-conscious crowd who demand a fairly wide margin of safety with every investment they make.

U.S. stocks look expensive on many measures. 

That’s not to say there’s no value in the U.S. If you look far enough, you’re sure to find something that’s going for a slight discount to its intrinsic value. And while there may be expensive-looking stocks that can grow into their valuations (like how the great Nvidia (NASDAQ:NVDA) did in these past three years), not everybody is a pro on valuing high-growth tech companies.

Indeed, if you overshoot with your growth estimates, the risk for vast overpayment of a stock is there. And a correction and much pain could be in the cards.

Either way, I see great value in diversifying internationally. As you’re probably aware by now, Vanguard is my go-to when it comes to branded ETFs. They have something for everyone and on the cheap (lower fees than most rival ETFs). 

So, if Warren Buffett’s latest annual shareholders letter, which expressed intent to add to his position in the big Japanese trading companies (those are incredibly cheap right now), has you convinced to look beyond the U.S. for value, the following ETFs are a great start.

Vanguard FTSE All World ex US ETF

The Vanguard FTSE All World ex US ETF (NYSEARCA:VEU) is an international ETF that provides exposure to developed and emerging markets outside of the U.S. Undoubtedly, you’re gaining exposure to a wide range of corporations (more than 3,800 of them) that you wouldn’t with the S&P 500. As the name suggests, it’s a vast “all world” fund that can help Americans take advantage of opportunities beyond the U.S. border.

Notably, most of the ETF (around 40%) invests in Europe, a “cheaper” market that has established and easy-to-understand businesses that are every bit as good as their U.S. counterparts. The most striking difference between the VEU and a U.S.-focused ETF, though, has to be the relatively low valuation. At the time of writing, the VEU goes for 16.0 times trailing price-to-earnings (P/E) and 1.9 times price-to-book (P/B).

While the VEU is good enough to get the job of diversifying internationally done, some may prefer a more targeted approach (think a preference for emerging or developed nations). After all, nearly 4,000 holdings is pretty excessive, and not exactly conducive for better returns. In fact, the VEU has lagged the S&P 500 for as long as I can remember.

Though there are few reasons to believe things will change, I do believe that a growth-to-value rotation would work in the favor of the VEU versus the S&P 500. With a 3.13% dividend yield, you’re also getting paid to wait for such a rotation, which may ultimately happen once the next big slide comes the way of the U.S. markets.

Vanguard Emerging Markets Stock Index Fund ETF

The Vanguard Emerging Markets Stock Index Fund ETF (NYSEARCA:VWO) gives international investors a more targeted approach. It’s an emerging markets ETF that’s fit for investors who want better growth potential. Unlike the VEU, which invests in thousands on names (shares of high-growth, low-growth, and no-growth companies), the VWO has more of a tilt towards growth.

This higher growth potential entails more upside potential, but also more downside on the way down. Compared to the VEU, the VWO has lagged badly, with a mere 11% gain in five years compared to 26% by the VEU and a whopping 100% by the S&P 500. In a prior piece, I praised the more “aggressive fund” as a great supplement to a U.S.-heavy stock portfolio despite its lackluster track record.

With more than 70% of the fund allocated towards companies in China, India, and Taiwan, I view considerable upside potential once the emerging nations return to the fast lane, likely due to profound innovations in tech and AI. With the ETF, you’re getting close to 6,000 names, making it broader than the VEU. Despite the higher growth potential, the P/E ratio sits at 14.8 times. 

The better buy?

Though riskier, I like the VWO better, especially for younger investors focused on growth. It’s cheaper, has more names, and provides exposure to corners of the market that may very well be a source of significant gains relative to the S&P 500 if the right cards fall into place over the next decade. Either way, AI’s impact on emerging markets could be significant, making the VWO a very interesting international ETF to consider for the long haul.

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