VDBA ETF report

Vanguard VDBA ETF (ASX:VDBA)

The Vanguard VDBA ETF provides investors with exposure to a portfolio of other Vanguard funds. This ETF gives investors exposure to multiple asset classes with a single purchase, and is designed to be a diversified portfolio in itself.

This free report is issued by Best ETFs Australia, a division of The Rask Group Pty Ltd. It is not a recommendation. Speak to a financial professional before relying on this information and please read our Financial Services Guide (FSG).

VDBA ETF Fast Facts

Diversified ETF sector

Diversified strategy

Issuer: Vanguard


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Vanguard VDBA ETF (ASX:VDBA) key information

Ticker code: VDBA Exchange: ASX Yearly fee: See ETF list
Geography: Diversified Sector: Diversified ETF Distribution frequency: Quarterly
DRP: Full Domicile: Australia Issuer: Vanguard
Registry: Computershare ISIN code: AU00000VDBA6 IRESS code: VDBA

VDBA: Track Record Warning

When an ETF does not have a sufficiently long track record -- typically, we consider this to be at least 3 years -- the ETF is could be at a higher risk of being closed down (if it doesn't grow), and the historical performance and returns (if any) cannot be relied upon.

Some of the risks associated with an ETF that has a short or no track record include:

  • Performance - When a fund, ETF or investment firm does not have a track record, it is often difficult to know what to expect from the investment. This is not the case with all ETFs that are new, especially if the ETF follows a highly liquid benchmark that has been in existence for five years or more. However, we apply the track record warning as a reminder to investors that it's important to think long and hard about how this ETF will perform, and its role in a portfolio. Please note: at Best ETFs Australia we do not accept 'backtests' as a legitimate form of performance.
  • Funds under management (FUM) - Although some of the largest ETF providers have established marketing departments and distribution teams, and joint ventures between distribution experts and boutique fund managers are now more common, new funds often fail to get enough money invested into them in the first 1-3 years to make them very profitable for the issuer. One obvious reason for this is most funds management and ETF ratings agencies (like us), who provide the ratings on fund managers for financial advisers, demand a three-year track record. We will accept a shorter-term track record (i.e. under three years), but it must meet a range of criteria before we will consider it a worthwhile fund/ETF.
  • Buy-sell spread - The buy-sell spread, shown on our ETF listings page and in fund/ETF factsheet and quarterly reports, tells you how much it 'costs' to get your money in-and-out of a fund. Basically, it's an estimate of what it costs the fund manager to take your money and invest in whatever is inside the fund/ETF. Obviously, the lower/smaller the spread is the better it is for you. New ETFs/funds can have difficulty lowering the buy-sell spread to a reasonable level until they reach scale (e.g. having FUM more than $100 million).

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Diversified ETF sector

The Best ETFs Diversified sector includes ETFs and index funds which invest in multiple asset classes, including:

  • Australian shares
  • International shares
  • Fixed interest & bonds
  • Cash (including cash management trusts and ETFs)
  • Commodities, and
  • Currencies

Meaning, a diversified ETF invests in multiple ETFs or funds so the investor doesn't have to invest in, say, 5 ETFs of their own.

Who cares about diversified ETFs?

Diversified ETFs make investing, especially for beginners, quite easy because an investor could allocate, say, $2,000 to the diversified ETF and gain exposure to multiple ETFs within it. In turn, those ETFs (e.g. share ETFs) are also diversified across many different shares. It also makes tax reporting slightly easier (fewer annual tax forms) and rebalancing is taken care of (i.e. the diversified ETF will rebalance according to the schedule in its PDS).

How to analyse a diversified ETF

When we review diversified ETFs we're looking at the following (in addition to our established methodology):

  • Fees - all up, diversified ETFs charge a fee on top of the fees inside the ETF
  • Allocations - we look at how much is invested across sectors/asset classes (e.g. shares versus bonds), types of ETFs (rules-based or index) and geography (domestic versus international bonds)
  • Transparency - we look at ETFs inside the diversified ETF to make an assessment of the overall ETF and the provider
  • Rebalancing - how often the portfolio is rebalanced, who does it and when, will change the tax position for end investors and the returns of the diversified ETF.

We think you should consult a licensed, independent and trustworthy financial adviser if you need help understanding diversified ETFs.

What exactly does Diversified ETF invest in?

The VDBA ETF invests in a range of other wholesale and retail Vanguard funds, giving investors exposure to equities and fixed interest securities with a single purchase. This balanced ETF has a target weighting of 50% growth assets and 50% income assets.

Sector risks

Diversified ETFs are a relatively new development in the Australian ETF market and they are growing fast.

However, there are a number of risks you should be aware of and monitor before you buy into a diversified ETF, and afterwards:

  • Allocation rebalancing. In our opinion, one of the best features of a diversified ETF is the automatic rebalancing. However, many diversified ETFs fail to adequately disclose how often they 'reset' or 'rebalance' the ETF to their target allocation. This lack of disclosure creates potential taxation risks and your portfolio could become unbalanced (i.e. not what you thought you were invested in) over time.
  • Issuer risk. So far, only BetaShares and Vanguard have offered diversified ETFs to the market. Many are still not profitable for the issuers. Of those diversified ETFs which are large and established (e.g. Vanguard's diversified ETFs), the investments inside the ETF predominantly come from just one ETF issuer. In our opinion, this lack of diversification could expose investors to the risks of having a majority, or in some case all, of the 'core' of their portfolio invested by just one investment firm.
  • Sub-scale. Many of the currently available diversified ETFs are not yet profitable because they are small (in terms of FUM) and have low fees. This can increase the probability that an ETF issuer is forced to close the ETF. For the currently available ETFs, we consider this risk to be a low risk.
  • Performance. It can difficult to track the performance and returns of a diversified or multi-asset ETF, especially when the target allocation is not regularly adhered to. However, we're confident diversified ETFs will become more transparent in time.
  • Track record. Most diversified ETFs have not been operating for at least three years. This is our typical minimum standard for providing a rating on an ETF.

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What you need to know about Vanguard

Vanguard Australia is one of Australia's largest ETF providers, both by number of ETFs and total money invested (called 'funds under management'). Part of the global Vanguard Group Inc, Vanguard's history dates back to the mid-1970s.

Globally, Vanguard has nearly $7 trillion invested in its ETFs and unlisted index funds. It also offers rules-based investment strategies -- Vanguard calls them 'active strategies' but we categorise them as rules-based.

Vanguard Group Inc manages $7 trillion of investor money

One of the things that makes Vanguard unique in the finance industry globally is that it is investor-owned ("mutual"). The US-based Vanguard Group Inc is, therefore, funded by the very investors it serves.

We believe this unique ownership structure is one of the key reasons why Vanguard has become the global leader in low-cost ETFs and index funds and will continue to be so.

Potential allocation for VDBA

This ETF might be used as part of a 'core' allocation in a diversified long-term portfolio because of its diversified and transparent investment strategy, low costs, risk profile and the expectation of long-term returns.

What is The Core-Satellite Approach?

A core-satellite approach puts investments into two 'buckets' depending on the expected risk and returns.

Bucket 1: Core Investments

The 'core' is the larger part of an investment portfolio and could be reserved for more conservative investments. For example, this might include diversified, low-cost and easy to understand funds, bonds, shares or ETFs.

If you're new to investing, the core is a good place to start.

Core ETFs might include:

  • Australian shares (index strategies)
  • Australian bonds and global bonds
  • Cash

Bucket 2: Satellite/Tactical Investments

The 'satellite' or tactical bucket is the smaller part of a portfolio (e.g. 0% to 30% of your entire portfolio). In this section, investors might decide to take more risk, invest in unique or unproven strategies, buy fast-growing individual shares, etc.

Tactical strategies could be higher risk, higher cost and more complicated strategies that are used in the hope of outperforming the averages (e.g. ASX 200, S&P 500, etc.).

Tactical ETFs might include:

  • Australian shares (rules-based strategies)
  • Global shares (rules-based strategies)
  • Commodity ETFs
  • Currency ETFs
  • Cash ETFs
  • Hedge funds

Typically, what is VDBA used for?

The VDBA ETF might be used by investors who are wanting a simple way to establish a diversified portfolio with balanced weightings. This ETF may suit investors who are looking for both capital growth and a regular income stream.

How do I invest in the Diversified Balanced Index ETF ETF?

The easiest way to buy an ETF is through your online share brokerage account. Just search for the ticker code and buy it. The following podcast explains how to buy shares and ETFs for the first time.

Meaning, you can follow the exact same process for ETFs as you do for shares -- both can be purchased in one account.

Australian Investing 101

Don't have a brokerage account for ETFs?

Read our tutorial on understanding how share brokerage accounts work.

Is VDBA a good ETF?

We believe that knowing whether or not to invest in an ETF requires a lot of research, even for an ETF like this one. ETFs are long-term investments, so it's important to do the right amount of research into the ETF before you invest, and consider how it fits with your risk profile, strategy and the other investments in your portfolio.

Where you can go to find more research on this ETF:

Reports like this one on the Best ETFs Australia website were built to help you understand ETFs and to provide free access to news and research across all Australian ETFs, index funds and selected managed funds.

This report is the free version of our ETF reserach and it contains general information and should not be considered as a recommendation or personal financial advice. If you want to receive personal financial advice and have someone tailor the ETF research to you, you should speak to a financial adviser.

If you don't want to pay a financial adviser, here's what you can do:

  • Before doing anything, you should always read the ETF's Product Disclosure Statement (PDS), which should be available on the ETF provider/issuer's website. The PDS explains some of the risks, the fees and other important information.

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Disclaimer: Any information contained in this report is limited to general financial advice/information only. The information should not be relied upon because it has not taken into account your specific needs, goals or objectives. Please, consult with a licenced and trusted financial adviser before acting on the information. Past performance is no guarantee of future performance. Nothing in this article should be considered a guarantee. Investing is risky and can result in capital loss. By reading this website, you acknowledge this warning, having read our Financial Services Guide (FSG) and agree to our terms & conditions available here. This article is authorised by Owen Raszkiewicz of The Rask Group Pty Ltd.

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