Looking for a diversified ETF that offers high growth potential? Vanguard’s Diversified High Growth Index ETF (ASX:VDHG) could be the perfect investment for you! In this review, we’ll take a closer look at what this fund has to offer investors and find out if it is a good option for your portfolio.
Vanguard Company Profile
Vanguard is one of the largest ETF providers in Australia and around the world, offering a range of ETFs to suit different investment goals. The company was founded by legendary investor Jack Bogle who had an idea that index investing could be cheaper than actively managed funds through economies of scale. Not only was Jack right, Vanguards passively managed ETFs have been able to outperform fund managers 99% of the time. Vanguard now manages over 7 Trillion dollars (USD) in assets across more than 170 ETFs and managed funds.
Vanguard Diversified High Growth Index ETF Overview
Vanguard’s Diversified High Growth ETF is a really interesting fund, it is one of four diversified funds that Vanguard has put together. These funds are made up of other Index funds.. Indexception if you will. VDHG is Vanguards High Growth product that aims to give investors access to a diversified range of high growth assets over multiple different asset classes.
VDHG is made up of 7 different index funds with 90% allocated to growth assets and the other 10% to more stable income assets. With VDHG including some heavy hitting funds like VAS and VGS (wholesale managed versions) you might even look at VDHG as a pre picked portfolio of 7 index funds that is a one stop shop for investors.
What is VDHG made up of?
VDHG is made up of 7 Managed funds that aim to return high growth to the investor over a diversified portfolio of underlying assets. None of the funds are listed as they are wholesale managed funds but the below will give you an idea of what they equate to in the listed ETF world:
- Vanguard Australian Shares (ASX:VAS) – 36%
- Vanguard International Shares (ASX:VGS) – 26.5%
- Vanguard International Shares – Hedged (ASX:VGAD) – 16.2%
- Vanguard International Small Companies (ASX:VISM) – 7.1%
- Vanguard Emerging Markets (ASX:VGE) – 6.3%
- Vanguard Global Aggregate Bond (ASX:VBND) – 4.9%
- Vanguard Australian Fixed Interest Fund (ASX:VAF) – 3.0%
There are some absolute stonker underlying funds in the VDHG ‘wrapper’. In one trade you will be able to get access to over 5000 companies, providing investors with one holding that has huge diversity.
VDHG Performance
Since its inception in 2017 VDHG has provided investors with very healthy returns of 9.67% per annum. Being a new(ish) fund we can’t see how it has performed in the long run, but as most of the underlying funds have been around quite some time you can get an idea of their performance.
As you can see in the above ShareSight Share Checker graph if you had invested $10,000 in VDHG in 2017 you would have just under $15,000 only 4 years later. This equates to some pretty bloody good returns for the convenience of only having one stock to buy!
VDHG Fees
Vanguard charges a very modest 0.27% ($27 per $10,000 invested) Management fee on VDHG. When comparing fees from ETFs of a similar type it sits in the middle of the road. If you are after a lower fee alternative that still gives you access to the diversity of VDHG then we would recommend checking out BetaShares Diversified All Growth ETF (ASX:DHHF) which has a Management fee of only 0.19% ($19 per $10,000 invested) Per Annum.
When comparing these fees it does look like a tiny difference being only a fraction of a percentage but remember the goal is to maximise that compounding effect. The small fees add up over the years and as your portfolio grows so does the amount that you are paying in fees. The less that you pay in fees to the ETF provider the more money you get to use to grow your wealth.
Does VDHG pay a dividend?
Yes, VDHG pays a quarterly dividend. Like most ETFs these days you can either take this as Cash or you can enroll in the Dividend Reinvestment Plan and take your Distributions as more shares in VDHG. Reinvesting is our preferred method as it really unlocks the power of compounding and supercharges wealth growth.
Is VDHG a managed fund?
This is where it gets a little interesting. VDHG itself is a passive ETF, but the underlying assets are actually unlisted Vanguard Managed Funds (Wholesale). There are some differences between ETFs & Managed Funds, one of which is the tax structure and how they operate. ETFs are a lot more tax effective than a Managed fund. If you are interested in learning more be sure to check out this post.
Is VDHG an Australian ETF?
The good news for Australian Investors is that VDHG is domiciled in Australia. This simply means that you won’t have to fill out any annoying US tax forms – everything is handled right here in Australia on the ASX.
Is VDHG hedged?
Not all of VDHG is hedged against currency fluctuations with only 2 of the 7 funds having this feature. For those new to hedging, simply put it is protecting your investment from currency fluctuations. The ETF provider locks in a rate with a third party to keep stability. There are benefits to having both hedged and un-hedged ETFs – one key difference is hedged funds normally will have higher management fees as they are more complex than un-hedged.
How do I invest in VDHG?
Just like all other ETFs you are able to invest in VDHG through your chosen investment platform such as Pearler, Commsec or Selfwealth. Our preference would be Pearler due to the simplicity of the platform and the low brokerage fee of $9.50 per trade no matter the size of the trade.
Conclusion
VDHG is a great option for investors that want a ‘one stop shop’ ETF that provides access to an already diversified high growth portfolio in one trade. I love the fact that there is such a broad range of investments from Domestic to International to hedged.
While the fees are quite reasonable for the complexity of the product I would recommend looking at BetaShares DHHF fund which is cheaper and also offers some advantages over VDHG.