Two of the most popular ASX ETFs investors choose to form part of the core of their portfolio are the BetaShares Australia 200 ETF (ASX: A200) and the Vanguard Diversified High Growth Index ETF (ASX: VDHG).
Let’s compare these leading ETFs.
What’s an ETF?
An ETF stands for exchange-traded fund. If you don’t know what an ETF is then it could be a smart idea to look at Rask Education’s free beginner ETF course.
ETFs basically let you invest in a whole bunch of different businesses with a single investment. It’s very handy if you want to get good diversification, but you don’t want to buy 50, 100 or 1,000 businesses individually yourself. In fact, I’d say buying 1,000 different companies yourself would be a poor choice for all the brokerage costs alone.
What is the A200 ETF?
A200 is a very good option if you’re focused on investing in S&P/ASX 200 (INDEXASX: XJO) shares – that is, the largest 200 public companies in Australia in terms of market capitalisation.
The A200 ETF is over $1.1 billion in size, so it has a lot of good scale. It is also the cheapest way to invest in ASX shares, with an annual management fee of just 0.07%.
If you’re looking for ASX blue chips then the A200 ETF is full of them – think companies like Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), CSL Limited (ASX: CSL), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group Ltd (ASX: ANZ), Wesfarmers Ltd (ASX: WES) and so on.
Why I’d prefer VDHG over A200
A200 isn’t a terrible idea, I just think VDHG is better for multiple reasons.
The Australian share market provides a decent level of diversification, but the ASX is made up of a large number of banks, miners and other cyclical businesses. They haven’t been doing very well in recent years.
What’s more, because it’s an Australian investment, it is largely limited to earnings from Australia and New Zealand.
The historical returns of the A200 ETF have been somewhat disappointing – since inception in May 2018, the ETF has only made returns of an average of 7% per year.
In contrast, VDHG is much more diversified. It offers exposure to several ETFs within a single investment.
Those other ETFs within VDHG give exposure to Australian shares, international shares, international small companies, emerging market shares, global bonds and Australian bonds. You get a large amount of diversification from one investment. Even so, there’s still a major allocation to Australia shares with a weighting of around 35.6%.
With the international shares element, I think you’re getting more growth potential over the long term. Over the past three years, the VDHG ETF has returned a net return of 8.4% per annum (after 0.27% per annum costs) – this is better than the ASX 200 return by around 1.7% per annum, which adds up when you’re talking about thousands of dollars.
However, my favourite investments of all are ASX growth shares with long term growth potential. Two of the ones I like right now are Pushpay Holdings Ltd (ASX: PPH) and Magellan Financial Group Ltd (ASX: MFG).
