Choosing between the Vanguard Diversified High Growth Index ETF (VDHG) and the BetaShares Diversified All Growth ETF (DHHF) can be challenging. Both ETFs are popular choices among Australian investors for building long-term diversified portfolios. But how do you choose between them? Let’s break down the key differences and help you decide if either investment fits with your investment strategy.
What is DHHF?
DHHF is designed for investors seeking high growth potential. It focuses entirely on shares, investing 100% of its assets in both Australian and international markets. It’s invested in a blend of small, mid and large cap equities from Australia, as well as international developed and emerging markets. Investors with money invested in DHHF get exposure to an ‘all-cap, all-world’ share portfolio . Unlike some other ETFs, DHHF doesn’t include bonds or fixed interest. This tends to make it a more ‘high growth’ investment option , with corresponding risk.
DHHF aims to provide strong long-term growth by capitalising on the performance of global share markets. Its lack of bonds means it can experience greater volatility. But that also means it has the potential for higher returns. This makes DHHF an option for investors who are comfortable with taking on more risk in pursuit of greater rewards.
What is VDHG?
VDHG is designed to provide high growth with a slightly lower risk profile compared to DHHF. Its goal is to track the weighted average performance of various ETFs it invests in. The ETF allocates 90% of its portfolio to shares and 10% to fixed interest or bonds. This allocation aims to offer a balance between growth and stability.
VDHG invests in a mix of Australian and global shares, as well as bonds. Including bonds can act as a buffer against market volatility. This can reduce the risk compared to a 100% share portfolio. As such, this ETF seeks to offer a more diversified approach, spreading investments across multiple sectors and regions.
By combining shares with bonds, VDHG aims to deliver solid returns while managing risk, appealing to investors who value both growth and stability in their portfolio.
What are the key differences between DHHF and VDHG?
When comparing DHHF and VDHG, knowing the key differences can help you decide which ETF fits your investment strategy better.
Here are some of those differences:
|
Feature |
DHHF |
VDHG |
|
Structure |
4 funds |
7 funds |
|
Number of holdings |
8,000 |
16,000 |
|
Asset allocation |
100% shares |
90% shares, 10% bonds |
|
Risk profile |
Higher risk, higher potential for returns |
Comparatively lower risk and more balanced returns |
|
Number of holdings |
Fewer funds, more concentrated risk |
More funds, greater diversification |
|
Market exposure |
Australian and international shares |
Australian and international shares and bonds |
|
Tax considerations |
Includes US-domiciled funds |
Includes unlisted managed funds |
Based on these differences, DHHF may appeal to investors with a higher risk tolerance who want maximum growth in their portfolio. On the other hand, investors wanting a mix of growth and stability might prefer VDHG.
But both ETFs have their strengths and weaknesses:
|
|
DHHF |
VDHG |
|
Pros |
|
|
|
Cons |
|
|
Considering the differences, pros and cons can help you understand how each ETF aligns with your investment goals and risk tolerance.
How can I choose between DHHF and VDHG?
Choosing between DHHF and VDHG depends on your individual circumstances. What’s right for one investor may not suit you and your investment objectives. Here are the various factors to consider:
- Risk tolerance: Think about how comfortable you are with market ups and downs. DHHF tends to pose a higher risk due to its full exposure to shares. Thus, it can be more volatile, but might also offer higher returns. VDHG, meanwhile, includes bonds which can reduce risk and provide more stability.
- Investment goals: Define what you want to achieve with your investments. Are you aiming for maximum growth, or do you prefer a balance between growth and stability? DHHF might suit those seeking maximum growth, while VDHG could be better for those who want some stability with their growth.
- Time horizon: Consider how long you plan to invest. If you have a longer time horizon, you might be more comfortable with the volatility of DHHF. For a shorter time frame, the stability of VDHG might be more appealing.
- Tax implications: Understand the tax implications of each ETF. DHHF holds US-domiciled funds, which might have different tax consequences than VDHG’s unlisted managed funds. It's a good idea to consult a tax professional to see how each option fits your tax situation.
- Diversification needs: Decide how much diversification you want in your portfolio. VDHG offers a more diversified approach with its mix of shares and bonds. DHHF, with fewer funds, provides concentrated exposure to shares.
Consider these factors in light of your personal preferences and financial situation. Some investors prefer the simplicity of an all-share portfolio like DHHF, while others might appreciate the relatively more balanced approach of VDHG.
Do your research
There’s no one-size-fits-all answer when choosing what to invest in. Do your research to decide which ETF best suits you. It could be one, both or neither. Researching the two investments may seem like hard work, but there are useful tools at your disposal, like Pearler’s Compare tool . This feature allows you to look more closely into the two investments, comparing both features and digging deeper into the numbers.
By considering the factors mentioned and doing your research, you can choose the ETF that aligns best with your investment strategy and personal goals. Remember, investing is a personal journey and what works for you might not work for another. And if you ever feel like you need personal advice, reach out to a financial adviser or tax accountant to help you out.
Get clued up, and enjoy the journey!
