When it comes to ASX ETFs, investors are spoiled for choice.
The record net flows of investor allocation to the sector have pushed providers to list more and more funds.
Today there are hundreds of exchange-traded funds. These cover everything from Australian shares and global equities to artificial intelligence, cybersecurity, uranium and gold.
For experienced investors, that variety provides more ways than ever to build a portfolio tailored to their goals.
But for many, all those choices can also lead to paralysis by analysis.
It can be difficult to decide where to start and how to diversify your portfolio.
According to Vanguard, a growing number of investors are turning to diversified ETFs, also known as ready-made, multi-asset or asset allocation ETFs to solve this problem.
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What is a diversified ETF?
Unlike traditional ETFs, which typically track a single market or sector, ready-made ETFs invest across multiple asset classes within a single fund.
They offer the advantage of providing diversification in one trade, instead of buying separate ETFs for Australian shares, international shares, emerging markets and fixed income.
Investors can generally choose between conservative, balanced or growth-oriented portfolios depending on their investment objectives, risk appetite and time horizon.
In simple terms, it also allows investors to not actively manage their portfolios. These kinds of ASX ETFs can be set-and-forget equities.
Why are investors choosing diversified funds?
According to a report from Vanguard, diversified ETFs are gaining traction.
At the end of June, Australia's diversified ETF category managed more than $9 billion across a range of funds. That's up from $6.3 billion a year earlier – an increase of around 44% – with the category now accounting for approximately 2.5% of total ASX-listed ETF assets.
The strong growth suggests more Australian investors are embracing ready-made portfolios as a simple way to build a diversified investment strategy without having to construct and maintain one themselves.
Australian investors also have billions of dollars invested in unlisted diversified funds, highlighting the longstanding appeal of professionally diversified portfolios.
For investors seeking a diversified portfolio in a single investment, diversified ETFs can provide exposure to a range of asset classes.
Vanguard's investing philosophy emphasises diversification, regular investing and staying the course through market ups and downs, while periodically reviewing investments to ensure they remain aligned with long-term goals and circumstances.
Why this could be the top option
For investors looking to target a diversified ASX ETF, one stellar option is the Vanguard Diversified High Growth Index ETF (ASX: VDHG).
Rather than investing directly in individual companies, VDHG invests in a range of underlying index funds and ETFs. Each provides exposure to a highly diversified mix of equities and bonds from around the globe.
At the time of writing, its exposure is:
- Australian Shares (36%)
- International Shares (26.5%)
- International Shares Hedged (16%)
- International Fixed Interest Hedged (7%)
- International Small Companies (6.5%)
- Emerging Market Shares (5%)
- Australian Fixed Interest (3%)
Overall, 90% of the portfolio is allocated to growth assets, while 10% is invested in defensive assets.
Rather than investors determining how much to allocate to each of these building blocks and when to rebalance them, the portfolio manager monitors and rebalances the portfolio to maintain its target asset allocation over time.
