The Vanguard Diversified High Growth Index ETF (ASX: VDHG) is trading at $73.66 per unit, down 0.24% on Tuesday.
This ASX exchange-traded fund (ETF) is all about growth, and it's a bit unusual in how it invests its funds.
Instead of seeking to track the performance of single index, like most ETFs do, it invests in scores of other ETFs.
This compounds the number of stocks that it's exposed to. In the end, it's actually invested in more than 16,000 shares.
Talk about diversification!
Some investors may feel this is too much diversification, while others may feel this lowers the risk.
The VDHG ETF has a strategic allocation of 90% growth assets, such as shares, and 10% defensives, such as bonds.
Vanguard explains the ETF's purpose:
The ETF provides low-cost access to a range of sector funds, offering broad diversification across multiple asset classes.
The ETF invests mainly into growth assets, and is designed for investors with a high tolerance for risk who are seeking long-term capital growth.
VDHG ETF's make up is 36% ASX shares, 26.5% unhedged international shares, 16% hedged overseas shares, 7% international fixed interest (hedged), 6.5% international small companies, 5% emerging markets, and 3% Aussie fixed interest.
There's a management fee of 0.27% per year.
So, if you invested $10,000 in the VDHG ETF five years ago, where would your investment be today?
Let's do the maths…
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$10,000 in VDHG ETF 5 years ago…
On 9 December 2020, the VDHG ETF closed at $57.98 apiece.
If you had put $10,000 into VDHG then, it would have bought you 172 units (for $9,972.56).
There's been a capital gain of $15.68 per unit since that time. This equates to $2,696.96 in dollar terms.
Thus, your VDHG holding is now worth $12,669.52.
Although this ETF is focused on growth, it still pays distributions (or dividends) every quarter.
Since 9 December 2020, VDHG has paid distributions of just over 1,439 cents per unit.
So, you've also received $2,475.08 in income over the past five years.
In this example, we've assumed you took your dividends as cash.
But the VDHG does have a dividend reinvestment plan (DRP) if you prefer to keep reinvesting your dividends in more stock.
Total annual returns…
Your capital gain of $12,669.52 plus $2,475.08 in dividends gives you a total dollar return of $15,144.60 over the past five years.
As stated earlier, you invested $9,972.56 buying your 172 VDHG ETF units in 2020.
This means you have received a total return, in percentage terms, of just over 51%, or an average annual return of 10.4%.
This fits with VDHG's long-term pattern.
Since its inception date on 20 November 2017, the ETF has produced a gross average annual total return of 10.1%, or 9.8% after fees.
