How are they set up differently?
The VDHG ETF is invested in a range of different ETFs itself, hence the ‘diversified’ part of the name. It’s invested in ASX shares, international shares and bonds.
But the VTS ETF is much more specific. As the name might suggest, it is invested in the entre US share market.
It may sound like the VTS ETF is less diversified than VDHG. That might be the case in terms of asset classes, but VTS is invested in around 3,750 businesses – so it has a huge amount of diversification. However, it is invested in just US-listed businesses. But then again, lots of those businesses make profit outside of America, so as a shares investment it’s a solid idea in my opinion.
Vanguard is one of the world leaders in providing ETFs at a really low cost, so it’s not surprising that both of these options are cheap.
The VDHG ETF has an annual fee of 0.27% per annum. The VTS ETF has an annual management fee of 0.03% per annum, which is really great for how cheap that is.
Past performance is not a reliable indicator of future performance. But the VTS ETF has shown how strongly the American share market has performed over the last decade with a net return of almost 18% over the past 10 years.
Perhaps obviously, the VDHG hasn’t performed as strongly. The US share market has been a very strong performer, whereas bonds, ASX shares and emerging market shares, whilst decent, haven’t performed quite as well. An ETF can only perform as well as its underlying holdings.
Since inception in November 2017, the VDHG ETF has returned an average of 10.3%.
Which ETF is better?
I do like the all-in-one offering that VDHG has. It’s a simple way to invest and investors don’t need to worry about diversification or re-weighting – the ETF does all that.
But I think the VTS ETF could be the better long-term investment. Shares have proven to be good long-term investments and the bonds allocation could be a detractor for VDHG with how low interest rates are right now.
VTS gives a good weighting to some really high quality global businesses like Microsoft, Visa and Berkshire Hathaway.