The Vanguard Diversified High Growth Index ETF (ASX: VDHG) is one of the most diversified exchange-traded funds (ETF) on the ASX. In this article, I'm going to look at some of the positives and negatives of the VDHG ETF.
For readers who don't know what this ASX ETF does, it's invested in a number of other Vanguard funds, across shares and bonds.
Positives
At the end of July 2023, these were the weightings to the growth/share funds:
- Australian shares (35.7%)
- International shares (26.5%)
- International shares (hedged) (16.2%)
- International small shares (6.6%)
- Emerging markets shares (5%)
That's a total of 90% allocated to shares across the world within the VDHG ETF. The other 10% is invested in bond funds:
- Global bonds (7%)
- Australian bonds (3%)
For people who like investing to be as simple as possible, this could do quite well at ticking the box because of the diversification the fund offers. We can invest in just this one ETF and get an allocation to ASX shares, larger international shares, smaller international shares, shares listed in emerging markets, as well as local and global bonds.
One could say the percentages of the allocations should be different between the markets, but this is what Vanguard has gone with.
To me, it's a good thing the VDHG ETF is largely invested in shares because, over time, I think shares are capable of producing stronger returns than bonds.
For all of this diversification, it has a pretty low annual management fee of 0.27%.
Returns since the COVID-19-hit year of 2020 have been solid. In the three years to July 2023, the ASX ETF has achieved an average return per annum of 10.4%.
Negatives
The VDHG ETF's diversification is so widespread that its returns have probably led to underperformance compared to other ETFs based just on shares that an investor could have gone with. Certainly, there has been an opportunity cost.
Over the past five years, the VDHG ETF has only returned an average per annum of 7.8%. That compares to an average return per annum of 11.5% for the Vanguard MSCI Index International Shares ETF (ASX: VGS) and 19.5% for the Betashares Nasdaq 100 ETF (ASX: NDQ) over the past five years.
Of course, past performance is not a guarantee of future performance (or outperformance). But I think it shows the ETFs that are just focused on larger international shares have done better than other forms of shares and assets.
It's not the cheapest ETF out there either. As an example, the VGS ETF has an annual management fee of 0.18% and the Vanguard Australian Shares Index ETF (ASX: VAS) has an annual management fee of 0.07%.
Foolish takeaway
It's a solid option for a set-and-forget strategy, but I'd say there are other options that can provide better returns, are higher quality, and/or have lower management fees.
