Which is the best Vanguard ETF? VAS, VGS and VDHG compared

VGS wins on returns, but the best ETF depends on you.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Vanguard ETFs have become a go-to choice for Australians seeking a simple, low-cost way to build long-term wealth. But with several popular options on the ASX, which Vanguard ETF deserves your money?

Three of the biggest choices are the Vanguard Australian Shares Index ETF (ASX: VAS), Vanguard MSCI International Shares ETF (ASX: VGS) and Vanguard Diversified High Growth ETF (ASX: VDHG).

Here's how they compare.

A businessman in a suit wears a medal around his neck and raises a fist in victory surrounded by two other businessmen in suits facing the other direction to him.

Image source: Getty Images

VAS: the Australian dividend favourite

VAS aims to track the S&P/ASX 300 Index (ASX: XKO), giving investors exposure to around 300 Australian companies.

Its portfolio is heavily weighted towards the country's biggest banks and miners. Commonwealth Bank of Australia (ASX: CBA) and BHP Group Ltd (ASX: BHP) each account for more than 10%, while Wesfarmers Ltd (ASX: WES), Macquarie Group Ltd (ASX: MQG), Rio Tinto Ltd (ASX: RIO) and Telstra Group Ltd (ASX: TLS) are also major holdings.

That concentration can be a strength and weakness. Investors get exposure to established Australian businesses and their dividends, but less geographic and sector diversification.

This Vanguard ETF charges a management fee of just 0.07% per year. It has returned around 4% year to date and 3% over the past year, with a five-year total return of roughly 16%.

VGS: the global growth option

VGS offers exposure to more than 1,200 companies across developed markets outside Australia.

This Vanguard ETF has just hit a record high of $164.45, delivering a 12% gain over the past year and around 62% over five years.

The United States makes up roughly 75% of the portfolio, while information technology accounts for about 30%. Its largest holdings include NVIDIA, Apple, Alphabet, and Microsoft.

That gives investors significant exposure to powerful trends such as artificial intelligence, cloud computing, digital advertising and e-commerce.

The trade-off? VGS can be more vulnerable to falls in US technology stocks and currency movements.

VDHG: the set-and-forget option

VDHG takes a very different approach. Rather than investing in one market, it combines several Vanguard index funds under one ETF. It includes VAS and VGS, alongside exposure to smaller international companies, emerging markets and bonds.

That means investors can gain exposure to thousands of shares and bonds through a single investment. The portfolio of this Vanguard ETF is regularly rebalanced, meaning investors don't have to constantly adjust their holdings.

For someone who wants a simple buy-and-hold strategy, that's a major attraction.

VDHG has returned around 8% over the past year and 26% over five years.

Which ETF is best?

On returns, VGS is the clear winner of the three top Vanguard ETFs, with its international exposure delivering significantly stronger gains over the past five years.

But the best Vanguard ETF depends on what you're after. VAS could appeal to investors seeking Australian shares, dividends and exposure to familiar local companies. VGS looks more compelling for those chasing international diversification and stronger growth potential.

VDHG, meanwhile, may suit investors who value simplicity and broad diversification above all else, combining shares and bonds under one ETF.

So while VGS has been the standout performer, VDHG could still be the better choice for investors who want a simple, set-and-forget portfolio.

Motley Fool contributor Marc Van Dinther has positions in BHP Group. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Apple, Macquarie Group, Microsoft, Nvidia, and Wesfarmers. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool Australia has recommended Alphabet, Apple, BHP Group, Macquarie Group, Microsoft, Nvidia, Vanguard Msci Index International Shares ETF, and Wesfarmers. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Exchange-Traded Funds (ETFs)

A laughing man standing next to a woman holds out his arm to a payments machine to pay with his smartwatch
Exchange-Traded Funds (ETFs)

3 strong ASX ETFs for smart investors to buy and hold

Looking to invest for the long-term? Here are three funds worth a closer look.

Read more »

ETF written in white on a multi coloured background.
Dividend Investing

Why I'd buy these 2 ASX ETFs for $10,000 a year in passive income

These two ASX ETFs provide a diversified means to earning a $10,000 yearly passive income.

Read more »

a man holds his hand to his chin with a furrowed brow, making an expression of puzzlement or confusion.
Exchange-Traded Funds (ETFs)

Too many ASX ETFs? You could be paying twice for the same shares

ETF overlap can mean higher fees and a false diversification illusion.

Read more »

A man with his back to the camera holds his hands to his head as he looks to a jagged red line trending sharply downward.
Exchange-Traded Funds (ETFs)

Down 21% in six weeks, what's happened to SEMI ETF?

SEMI invests in high-tech businesses, including semiconductor developers and manufacturers.

Read more »

Happy voter holding the US flag and a badge.
Exchange-Traded Funds (ETFs)

Why this NASDAQ-focused ASX ETF keeps outperforming

This fund provides simple high growth US diversification.

Read more »

ETF written in light blue on a chart.
Exchange-Traded Funds (ETFs)

3 strong Vanguard ETFs to buy with $3,000

One offers broad global exposure, another focuses on the US, and the third gives investors a way into Asia.

Read more »

two computer geeks sit across from each other with their laptop computers touching as they look confused and confounded by what they are seeing on their screens.
Exchange-Traded Funds (ETFs)

Australia finally has a quantum computing ETF. Should you invest?

A brand new theme, and a not-so-new set of risks.

Read more »

A heart next to a pink piggy bank and coins.
Exchange-Traded Funds (ETFs)

Why I would buy this safe ASX ETF with a 4% yield

There aren't many ETFs that offer a safe 4% yield and monthly payouts.

Read more »