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

Happy man holding Australian dollar notes, representing dividends.
ETFs

How $1,000 a month in this ASX ETF could turn into $500,000

This could be a simple way to build serious wealth in the share market.

Read more »

Woman on her laptop thinking to herself.
Index investing

Here's my big problem with the ASX's Vanguard International Shares ETF (VGS)

This popular ETF has one major caveat that investors should know about.

Read more »

Woman relaxing on her phone on her couch, symbolising passive income.
Dividend Investing

Own IVV ETF or other iShares ASX ETFs? It's dividend payday for you!

Thinking TGIF? There's a better reason to celebrate. It's dividend payday for iShares investors!

Read more »

Man holding out Australian dollar notes, symbolising dividends.
ETFs

5 excellent ASX ETFs to buy with $2,500 today

Let's see why these funds could be worth a closer look.

Read more »

The letters ETF sit in orange on top of a chart with a magnifying glass held over the top of it.
ETFs

How did the Vanguard Australian Shares Index ETF go in FY25?

Investors in Australia's biggest ASX ETF enjoyed solid returns last financial year.

Read more »

A bearded man holds both arms up diagonally and points with his index fingers to the sky with a thrilled look on his face over these rising Tassal share price
ETFs

Top ASX ETFs to supercharge your portfolio in FY26

Let's see what could make these funds top picks for Aussie investors in the new financial year.

Read more »

A woman on a green background points a finger at graphic images of molecules, a rocket, light bulbs and scientific symbols as she smiles.
ETFs

Is there a Magnificent 7 ASX ETF?

Nvidia just became the world's first US$4 trillion company.

Read more »

Man looking at an ETF diagram.
ETFs

These Vanguard ASX ETFs rose more than 15% in the last year

This ETF provider has had some winning funds in the last 12 months. 

Read more »