As U.S. Debt Surpasses GDP, These 2 ETFs Are Emerging Winners in the “Sell America” Trade

Key Points

• U.S. federal debt has exceeded 100% of GDP for the first sustained period since 1946, with total national debt topping $39 trillion.
• Two international ETFs, VXUS and IXUS, offer investors a hedge against U.S. sovereign risk by covering 99% of global market capitalization outside the United States.
• Both funds have outperformed the S&P 500 over the past year with gains exceeding 29%, while paying dividend yields above 2.6%.

America has a massive debt problem, and it isn’t record-high auto loans and credit card delinquencies that are fueling the crisis. As of March 31, U.S. federal debt held by the public exceeded 100% of the country’s gross domestic product (GDP) for the first sustained period since 1946.

According to the U.S. Debt Clock, the national debt has now topped $39 trillion, and the interest on that debt exceeds $1 trillion. Meanwhile, Federal Reserve data indicates that in Q1 2026, U.S. GDP was nearly $32 trillion.

As sovereign risk increases, conservative-minded investors can turn to two exchange-traded funds (ETFs), both of which serve as a hedge against the possibility that the federal government will default on its debt obligations.

How U.S. Federal Debt Got So Bad

Save for a very brief period during the pandemic when GDP plummeted, the last time the United States found itself in this situation was in the wake of World War II. But unlike post-war America, the drivers and implications today are far different.

According to the Peter G. Peterson Foundation, a nonpartisan, nonprofit organization that aims to build support for solutions to put America on a sustainable fiscal path, today’s federal debt crisis is being driven by a combination of factors. A series of tax cuts (and subsequently lower tax revenue), increased government spending, interest payments, and the costs associated with America’s aging population have fueled a rise in both Social Security and Medicare outlays.

The Congressional Budget Office (CBO) anticipates that federal spending will rise from 23.3% of GDP in 2026 to 27.9% in 2056. The CBO has also found that while tax revenue will also increase during that forecast period, it will do so more slowly, climbing from 17.5% of GDP in 2026 to 18.8% in 2056.

While the United States has yet to default on its debt, government shutdowns spurred by deficit spending debates have contributed to the country’s credit rating being downgraded three times. Most recently, Moody’s lowered the U.S. rating from Aaa to Aa1 in 2025, citing rising debt and the interest costs of servicing that debt. Previously, Fitch Ratings and Standard & Poor’s downgraded the United States’ credit rating in 2023 and 2011, respectively.

For investors who are growing increasingly wary of sovereign risk in the United States—which could adversely affect U.S.-based companies—ETFs that specifically target global exposure can provide a layer of safety.

Vanguard’s Global Diversification Play

The Vanguard Total International Stock ETF NASDAQ: VXUS is designed to track the FTSE Global All Cap ex US index, a market-cap-weighted index of global stocks covering 99% of the world's global market capitalization outside the United States.

Launched in January 2011, the ETF has performed particularly well since COVID-19 disrupted global markets. Since the fund’s March 2020 pandemic low, it has gained 120%.

But since the “Sell America” trade emerged in April 2025 and accelerated through the fall as the market rotated out of high-flying tech stocks and mega-cap U.S. equities, the fund has performed particularly well.

Over the past year, the Vanguard Total International Stock ETF has gained around 25%, outperforming both the S&P 500 and the Dow Jones Industrial Average. That’s been driven by lopsided institutional ownership, with 1,342 buyers injecting more than $10 billion into the fund over the past 12 months compared to 671 sellers pulling out just over $4 billion.

Particularly alluring to income investors, VXUS pays an annual dividend of $2.28 per share. Current short interest is negligible at 0.48 of the float, or just 8.4 million shares of the 1.73 billion shares outstanding.

While the absence of U.S.-listed equities may suggest limited growth prospects, VXUS's top-10 holdings include growth stocks like Taiwan Semiconductor Manufacturing Company NYSE: TSM and new trillion-dollar market cap member Samsung OTCMKTS: SSNLF, in addition to global Big Pharma mainstays Novartis NYSE: NVS and AstraZeneca NYSE: AZN.

BlackRock’s International Equity Hedge

Like the VXUS, the iShares Core MSCI Total International Stock ETF NASDAQ: IXUS is designed to provide exposure to global stocks by covering 99% of the global market cap outside of the United States.

Since its debut in October 2012, it has tracked the market-cap-weighted MSCI AC World ex USA IMI Index.

Since the fund’s pandemic low, it has gained nearly 129%. The fund has outperformed the S&P 500 over the past year, having compiled a gain of around 25%. IXUS pays an annual dividend of $2.74, pays slightly more than its VXUS counterpart.

But the spread between institutional buying and selling is even more pronounced for the IXUS. Over the past year, the fund has seen inflows of over $1 billion versus outflows of less than $228 million. Current short interest of 1.32% of the float is higher than the VXUS, but still indicative of a fund that isn’t on bears’ radar.

The ETF’s top-10 holdings also include Taiwan Semiconductor, Samsung, Novartis, and AstraZeneca, while providing additional Asian exposure via Alibaba NYSE: BABA and Tencent Holdings NYSE: TME.