Diversified exchange-traded funds (ETFs) are all-in-one investment solutions, providing low-cost exposure to multiple geographies and asset classes through a single ticker.
It’s a great option for new investors who want a one-stop solution that is diversified and can be contributed to on a regular basis.
Today, we’ll be taking a look at two of the more popular diversified ETFs on the Australian market: the Vanguard Diversified High Growth Index ETF (ASX: VDHG) and the BetaShares Diversified All Growth ETF (ASX: DHHF).
Composition
As the name suggests, VDHG targets a 90% allocation to growth asset classes (e.g. shares, property) and a 10% allocation to income asset classes (e.g. cash, bonds, and fixed income).
Around 36% of the fund invests in Australian shares, 54% in international shares, and 10% in bonds and fixed income.
DHHF goes one step further, allocating 100% of the fund across 8,000 shares listed on over 60 global exchanges.
Similar to VDHG, 36% of the fund is invested in Australia, in addition to 35% invested in the United States with smaller allocations to countries such as Japan and China.
Performance and dividends
Both ETFs have a relatively short product history. VDHG first started trading in November 2017, recording an annual performance of 8.34% since inception.
DHHF started in December 2019, recording returns of 4.14% per annum, but it adopted a new strategy at the end of 2020, increasing the growth allocation to 100% and reducing the management fee.
For comparison, over the last 12 months, VDHG has delivered a one-year fund return of 2.41%, compared to 0.35% for DHHF.
Each ETF pays quarterly distributions to shareholders, with VDHG yielding 6.76% and DHHF yielding 1.45% over the past year.
Management fee
VDHG’s management fee is 0.27% per annum, compared to 0.19% for DHHF. Small differences in management fees add up over time, however in this case, the superior past performance for VDHG could outweigh the additional cost.
Product issuer
One of the largest global asset firms and creator of the world’s first index fund, Vanguard, is the product manager of VDHG. The VDHG fund itself has Funds Under Management (FUM) of approximately $711 million.
DHHF is managed by BetaShares, another large ETF issuer in the Australian market. DHHF has around $21 million of FUM.
Low FUM isn’t necessarily a bad sign, especially in the case of DHHF as it is a newly-listed product. However, it can increase transaction costs as there may not be as many buyers and sellers compared to VDHG. Furthermore, the likelihood of the product being discontinued is higher.
Which ETF comes out on top?
Both of these ETFs are great starting points for investors who are new to the share market. In one ASX trade, you receive geographic diversification to a range of shares.
Given the longer history, better performance, and significantly higher FUM, I would opt for VDHG if I had to choose between the two. However, I think it will be interesting to review each in a year or two and determine if the lower-cost DHHF outperforms over a longer holding period.
If you would like to learn more about ETFs, I recommend signing up for our Beginner’s ETF Investing Course. It’s free and will assist you with the fundamentals of ETF investing.
