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.
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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.
