Exchange-traded funds, or ETFs, are investment funds that are listed on a securities exchange and provide exposure to a range of shares or assets with a single purchase. ETFs can be ‘managed funds’ or ‘index funds’, or in other words, active or passive.
The Rask Finance video below explains index funds:
What Is The Vanguard VDBA ETF?
The Vanguard Diversified Balanced Index ETF is a passive fund that invests in unlisted Vanguard funds. The VDBA ETF seeks to track the weighted average return of the indices that the underlying funds follow.
Vanguard says this ETF is designed for investors seeking a balance between capital growth and income, which is evident when you look at the underlying funds. The ETF targets a 50% allocation to income asset classes and a 50% allocation to growth asset classes.
What Does The ETF Invest In?
At 31st August 2019, 49.8% of the ETF was split between global bonds and Australian fixed interest through the Vanguard Global Aggregate Bond Index Fund (Hedged) [34.8%] and the Vanguard Australian Fixed Interest Index Fund (Wholesale) [15%].
This gives investors exposure to Australian and global government bonds, as well as some corporate bonds and other fixed-interest investments.
The remaining 50.2% of the ETF is allocated across five wholesale Vanguard funds which provide exposure to different equity markets. 20.1% of the total ETF is allocated to Australian shares while the remaining 30.1% is allocated to international shares through the Vanguard indices of International Shares (23.6%), International Small Companies (3.6%) and Emerging Markets (2.9%).
Year-to-date, the VDBA ETF has returned 13.8%, and it has returned 8.35% over the last 12 months. The ETF pays quarterly dividends and by taking the first two dividends from this year and multiplying by two, the ETF offers a trailing dividend yield of roughly 1.98%.
Fees & Risks
The VDBA ETF is relatively low cost with a management fee of 0.27%. However, although the ETF is well-diversified, it still comes with risks. Vanguard categorises this ETF as medium-risk and recommends a minimum investment time frame of five years.
Some of the risks the ETF is exposed to include interest rate risk, currency risk, currency hedging risk and emerging markets risk. The product disclosure statement is a must-read and provides further information on potential risks.
Vanguard has developed a reputation for creating high-quality, low-cost ETFs and VDBA appears to be another one. The fund is diversified and offers exposure to a range of asset classes that investors would typically consider. My only concern is that the ETF is relatively new so it can be difficult to get a handle on what long-term performance may look like.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.