Guess what average annual return the ASX Vanguard Diversified High Growth Index ETF (VDHG) has delivered over the past 3 years

The ASX VDHG exchange-traded fund is unusual in that it is comprised of 7 other ETFs.

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The Vanguard Diversified High Growth Index ETF (ASX: VDHG) is an unusual beast on our share market.

This is because the exchange-traded fund (ETF) is essentially an ETF of ETFs.

What that means is it doesn't hold a basket of individual stocks like most other ASX ETFs do.

Instead, it holds seven Vanguard index funds comprising 90% shares and 10% bonds.

The top ETF it holds is the ever-popular Vanguard Australian Shares Index Fund (ASX: VAS) with a 35.79% allocation.

The VAS ETF holds stocks like BHP Group Ltd (ASX: BHP), CSL Ltd (ASX: CSL), and Commonwealth Bank of Australia (ASX: CBA).

Next is the Vanguard International Shares Index Fund (APIR: VAN0003AU) at a 26.46% allocation.

This ETF holds stocks like Apple Inc (NASDAQ: AAPL), Microsoft Corp (NASDAQ: MSFT), and Amazon.com Inc. (NASDAQ: AMZN).

ASX VDHG also holds ETFs comprised of shares in emerging markets and international small-cap stocks, too.

The ASX VDHG has a market capitalisation of $2.07 billion.

Let's take a look at how VDHG has performed based on data recently released by the ASX.

How did VDHG perform over the past 3 years?

According to the data, the VDHG ETF has returned an average of 10.83% per annum over the past three financial years.

That's capital growth combined with reinvested dividends, which historically average 2.69% per annum.

The ASX VDHG fund has averaged 8.25% returns over five years.

That's a pretty good rate of return when you consider we had a global pandemic during this period.

Over the past 12 months, the total return has been 12.48%. Nice!

How does VDHG compare to VAS?

The VAS ETF is the largest ETF in Australia, with a market cap of $12.5 billion.

As we've already noted, it has the top allocation among the seven ETFs comprising the ASX VDHG.

The ASX VAS seeks to mirror the performance of the S&P/ASX 300 Index (ASX: XKO).

So, it's quite different to the VDHG in that it invests in Australian shares only, whereas VDHG has a mix of international shares, ASX shares, bonds, and fixed income.

Shall we compare the pair?

According to the ASX data, the VAS ETF returned an average of 12.32% per annum over the past three financial years.

Its dividends historically average 4.07% per annum.

The ASX VAS fund has averaged 8.45% returns over five years.

Over the past 12 months, the total return has been 15.54%.

Should you buy ASX VDHG shares?

There's a reason the word 'diversified' appears in this ETF's name.

Buying the ASX VDHG is certainly a quick route to portfolio diversification.

All up, the ASX VDHG provides exposure to a diversified global portfolio of more than 16,000 shares.

In terms of fees, the ASX VDHG charges a small fund management fee of 0.27%.

An extra benefit is that the ASX VDHG ETF pays its dividends four times per year.

So, that's all the plus-side stuff of buying the ASX VDHG.

On the risk side, we need to remember that this is a 'high growth' ETF investment.

That means it's primarily full of shares, with a relatively minor exposure to bonds and fixed income.

That means it's more suited to patient, long-term investors who want to prioritise growth over income.

As Vanguard says:

[ASX VDHG] … is designed for investors with a high tolerance for risk who are seeking long-term capital growth.

This might be why the ASX VDHG is currently a favourite ETF pick among millennial investors, who have a longer time horizon than Gen Xers or retirees, according to data from Selfwealth Ltd (ASX: SWF).

When considering buying this ETF, you also need to think about the yield.

VDHG's average distribution yield is only 2.67% per annum, which has little appeal for income investors.

These days, you could get near twice that by putting your money in a high-interest savings account.

ASX VDHG share price snapshot

The Vanguard Diversified High Growth Index ETF closed the session yesterday at $59.02, up 0.2%.

Over the past year, it has traded between a low of $50.29 per share and a high of $59.50 per share.

In the year to date, the ASX VDHG has risen 10.6%.

By comparison, the S&P/ASX All Ordinaries Index (ASX: XAO) has gained 5.4% over the same period.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Motley Fool contributor Bronwyn Allen has positions in BHP Group, CSL, Commonwealth Bank Of Australia, Vanguard Australian Shares Index ETF, and Vanguard Diversified High Growth Index ETF. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended CSL. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Amazon.com, Apple, and Microsoft. The Motley Fool Australia has recommended Amazon.com and Apple. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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