The pros and cons of the Vanguard Diversified Growth Index ETF (VDGR)

This fund gives a good mixture of shares and bonds.

| More on:
A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.

Image source: Getty Images

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

The exchange-traded fund (ETF) Vanguard Diversified Growth Index ETF (ASX: VDGR) is one of the most diversified options offered by Vanguard, though it may not be as well known as other ETF options.

At the end of July 2023, the VDGR ETF was $710 million in value, according to Vanguard, while the Vanguard Diversified High Growth Index ETF (ASX: VDHG) fund size was $2 billion at the end of July.

What is the Vanguard Diversified Growth Index ETF?

The ETF provides investors with low-cost access to a range of funds aimed at different assets from across the world, providing broad diversification.

The idea is that it's weighted towards growth assets, though not quite as much as the VDHG ETF.

VDGR ETF has a 30% allocation to income asset (bonds), while the other 70% is invested in growth assets (shares).

Which funds is the VDGR ETF invested in?

The ETF has its growth allocation spread across local ASX shares and international shares.

It has a target percentage for each Vanguard fund allocation, which it tracks close to:

  • Australian (ASX) shares fund – 28%
  • International shares fund – 20.5%
  • International shares fund (hedged) – 12.5%
  • International small companies fund – 5%
  • Emerging markets fund – 4%

That's a total allocation of 70% between these different shares funds.

Then there's the other 30% allocation for local and international bonds with the target percentage:

  • Global bond fund – 21%
  • Australian bond fund – 9%

Management fee

How much a fund costs can make a big difference to the overall returns that an investment is capable of producing.

The lower the annual management fee, the more of the return is left in the hands of investors.

The VDGR ETF has an annual fee of 0.27%, which is fairly low for how much diversification it can provide.

What have the Vanguard Diversified Growth Index ETF returns been?

Past performance is not necessarily indicative of future performance, but the Vanguard Diversified Growth Index ETF has delivered an average return per annum of 6.1% over the past five years. The VDHG ETF has achieved an average return per annum of 7.8% in the last five years.

The ETF's bond investments have been hampered by the low interest rate environment (generating a low interest yield), and then the rising interest rates have hurt bond valuations.

However, with bonds now offering a much higher yield and rate rises seemingly at (or close to) an end, the overall return of the VDGR ETF could be a bit stronger from here, assuming shares keep up a good average long-term return rate.

Foolish takeaway

As a shares guy, I'd prefer to have a higher allocation to shares than this ETF provides because of the stronger long-term return potential of businesses. However, for investors who want diversification but perhaps less volatility (in theory), then this could be a solid option to consider.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on ETFs

An older gentleman leans over his partner's shoulder as she looks at a tablet device while seated at a table.
ETFs

What is the Vanguard Australian Shares Index ETF (VAS) dividend yield?

This fund is known for paying sizeable income. But how big?

Read more »

Man looking at an ETF diagram.
ETFs

Why these ASX ETFs could be strong buys in August

Let's see why these funds could be worth adding to a balanced investment portfolio.

Read more »

Australian dollar notes in the pocket of a man's jeans, symbolising dividends.
Dividend Investing

Invested in ASX MOAT or other VanEck ETFs? It's dividend day!

Show us the money!

Read more »

female real estate agent stands proudly in front of house
ETFs

Can't break into the housing market? Here's 3 REIT ASX ETFs to consider

These three thematic funds focus on real estate 

Read more »

asx shares to buy and hold represented by man happily hugging himself
ETFs

5 fantastic ASX ETFs to buy and hold forever

These funds could be destined to deliver strong returns over the next decade and beyond.

Read more »

A woman looks questioning as she puts a coin into a piggy bank.
ETFs

The pros and cons of buying iShares S&P 500 ETF (IVV) units this month

Is this a good time to invest in this leading ETF?

Read more »

Ecstatic man giving a fist pump in an office hallway.
ETFs

5 ETFs to buy with $5,000 to build a winning portfolio

Let's see why these funds could help form a strong investment portfolio.

Read more »

A graphic illustration with the words NASDAQ atop a US city and currency
ETFs

5 reasons to buy the Betashares Nasdaq 100 ETF

This fund could be well worth a spot in your investment portfolio. But why?

Read more »