Most index exchange-traded funds (ETFs) on the ASX work in a similar way. The fund tracks a single index, perhaps the S&P/ASX 200 Index (ASX: XJO), and by doing so, holds every share that the index tracks in the correct proportion. But the Vanguard Diversified High Growth Index ETF (ASX: VDHG) is a little different.
This ETF from provider Vanguard doesn't track a single index. Rather, it holds a collection of other Vanguard ETFs within it. As such, it effectively functions as an 'ETF of ETFs'.
Vanguard runs a few of these unique funds. Each one represents a level of risk that an individual investor may be comfortable with. The Vanguard High Growth ETF is on the upper end of the scale, as its name implies.
It invests in seven other Vanguard index funds. These cover a range of assets, including Australian shares, international shares (hedged and unhedged), Australian bonds, international bonds, emerging markets, and international small companies. So in this way, this ETF functions as an ETF of ETFs.
An ETF of ETFs?
Being a high-growth iteration, the Vanguard High Growth ETF allocated most of its weighting to share assets. An investment in this fund will be weighted 35.75% towards Australian shares, with another 42% or so going towards international shares.
Small companies and emerging markets account for another 6.4% and 5% respectively, while exposure to bonds and fixed-interest investments make up the final 10% of this ETF's allocation.
Some of the other composite ETFs in this family change these allocations to lower the risk of losing capital. For investors who wish to be a little more conservative, other products like the Vanguard Diversified Conservative Index ETF (ASX: VDCO) have a higher exposure to bonds at the expense of shares to this end.
So the idea with this ETF is to provide a 'one-stop shop' for any investor who wants a broadly diversified passive investment that requires little ongoing effort to maintain.
For this reason, it would be hard to find a single investment that provides more diversification than the Vanguard High Growth Index ETF. According to the provider, this ETF gives exposure to more than 16,000 individual investments from all corners of the globe.
What kind of returns has the Vanguard High Growth Index ETF delivered?
So what kind of returns has this ultra-diversified approach netted for investors?
Well, as of 31 March, this ETF has returned an average of 12.6% per annum over the past three years, and 7.96% per annum over the past five:
That includes dividend distribution returns. This ETF pays out quarterly dividend distributions and currently has a trailing yield of 3.73%.
This Vanguard High Growth Index ETF charges a management fee of 0.27% per annum, or $27 a year for every $10,000 invested.
