One of the enduring appeals of using ASX exchange-traded funds (ETFs) to build an investing portfolio is an ETF's hands-off nature.
Simple index funds like the Vanguard Australian Shares Index ETF (ASX: VAS) aim to always mirror the holdings of the index they are tracking. In VAS's case, that's the S&P/ASX 300 Index (ASX: XKO). This means that, at any given time, VAS represents an investment in the largest 300 shares on the ASX.
These are rebalanced every three months to ensure that these holdings are accurate. In this way, the ETF investor never has to worry about stock picking themselves. They can just forget about the ETF entirely if they so wish, safe in the knowledge that they are ensured the average return of the Australian stock market.
However, just buying an ASX ETF or index fund isn't always the right move for an investor. After all, the Australian market is wonderful, but it only represents a minuscule sliver of what the global markets offer.
That's why many passive ASX investors choose to hold a portfolio consisting of three, four or even more index funds, in order to achieve a truly diversified portfolio. That's always an option, of course. But what if I told you there were funds out there that removed this additional step, and offered investors that true diversification through just one exchange-traded fund.
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An all-in-one ASX ETF
There are indeed funds on the ASX that offer that kind of experience. One of the most popular is the Vanguard Diversified High Growth Index ETF (ASX: VDHG).
This ASX ETF can look a little complex at first glance. But the easiest way to understand its structure is to think of it as an 'ETF of ETFs'. VDHG essentially represents an investment in around seven underlying Vanguard ETFs.
By allocating a percentage of investors' capital to each fund, VDHG allows investors to build a highly diversified portfolio using just one overarching ETF.
This particular iteration is aimed towards investors who are looking for a high-growth investing strategy. Roughly 90% of the fund is allocated towards Australian and international shares .The remaining 10% invested in defensive assets like cash and bonds.
Breaking that down further, about 36% of VDHG's portfolio is invested in a simple ASX index fund. Another 26.5% goes towards international shares from advanced economies (USA, Canada, Britain, Europe and Japan, amongst others), supplemented by another 16% that's hedged against currency movements. Another 6.5% of the fund is allocated to international small companies, with a further 5% dedicated to shares from emerging markets (including India, China and Taiwan).
Australian and international fixed-interest investments make up the 10% allocated to defensive assets.
Foolish takeaway
I think this ASX ETF is a perfect fit for those (and there are many) looking for the easiest, most hassle-free path to building wealth using the share market. It offers inherent and wide diversification and exposure to some of the best companies in the world. Of course, this convenience doesn't come free, though. The Vanguard Diversified High Growth Index ETF charges a management fee of 0.27% per annum.
