This article aims to resolve the controversy over the best all-in-one ETF option. So, we will compare the most popular ETF in the financial market, VDHG (owned by Vanguard), to its fast-growing rival, DHHF (owned by BetaShares). We’ll look into their distinctions, advantages and disadvantages, how to begin investing in each, and some alternatives worth considering.
Venture into trading isn’t always an easy decision. Then there is the issue of picking what to trade, which is even more difficult these days because there are plenty of diverse alternatives, including equities, bonds, real estate, and cryptocurrency.
What Are Exchange Traded Funds?
The all-in-one ETF concept comes into effect when you’ve got multiple digital assets to trade. Multi-asset Exchange-Traded Funds (ETFs) are designed to take care of all the legwork for investors. By investing in a small amount of funds, these funds combine defensive and growth assets such as bonds, equities, and money into one product. There are numerous classes of asset funds accessible. They are designed to cater to various risk profiles, such as balanced, conservative, and strong growth, comparable to the options provided by superannuation allocation.
An all-in-one ETF, also known as a multi-asset ETF, is a fund of funds or an all-in-one index. The contrast between a multi-asset ETF and a traditional ETF is that the latter monitors one index and will make investments in stocks to match that index. On the other hand, a multi-asset ETF does not invest directly in equities; instead, it invests in various ETFs or funds that hold stocks currently.
The “active” feature comes into the picture here, as you must make decisions about the funds to utilise and what amounts must be made. Whereas some people concentrate on stock selection or trade timing, asset allocations drive most of a multi-asset portfolio’s long-term results.
Can Consistently Investing Earn You More Money?
Even with the “active” feature, all-in-one funds are not the same as choosing individual stocks. Essentially, it’s the same principle as picking your ETF portfolio. It’ll be much easier to manage; you won’t have to stress over rebalancing or keeping to your predetermined ratio allocations.
Moreover, they eliminate any possible self-sabotage risk. For instance, you may learn that Australian markets are tumbling and decide to reduce your investment in Australian companies in your ETF holdings.
This may be clearer when looking at the performance of a typical trader who does their stock selecting and trading individually. Over 20 years, you’ll realise that the average trader underperformed in practically each asset category, with only over 2% annual return. Underperforming gold, bonds, and the S&P 500 returned about 10% each year during the same period.
Even most financial professionals who devote their whole time to outperforming the share market cannot continuously outperform it over a lengthy period. A twenty-year S & P study of all US funds observed that just about 14% of asset managers beat the index against which they were benchmarked. This is somewhat absurd when you realise that the charges they impose are routinely ten times the charges of passive ETFs or index funds.
While a fund trader may surpass the fund market for one to two years, the difference becomes smaller as the period is extended. For example, 64.5% of active multi-cap funds underperformed the index during one year, about 85% underperformed after ten years, and almost 90% underperformed over 15 years. This implies that if you stretched out the timeline even farther, you’d be approaching a tiny fraction of the funds that can regularly exceed the market.
That’s when the all-in-one EFTs feature comes in handy as the most straightforward way to make sure you maintain a diverse passive investment plan to monitor the market trend. As we previously stated, stock picking, like actively managed funds, will significantly underachieve the market over a long period.
VDHG ETF ASX
Vanguard’s VDHG ETF has been regarded as the best passive investment option for a while now. VDHG comprises other Vanguard options (seven); a crucial distinction is that the seven funds are Vanguard wholesale funds and not ETFs. We’ll learn the importance of this shortly.
The seven Vanguard funds in VDHG are:
- Vanguard Australian Shares Index Fund (Wholesale).
- Vanguard International Shares Index Fund (Wholesale).
- Vanguard International Shares Index Fund (Hedged) – AUD Class (Wholesale).
- Vanguard Global Aggregate Bond Index Fund (Hedged).
- Vanguard International Small Companies Index Fund (Wholesale).
- Vanguard Emerging Markets Shares Index Fund (Wholesale).
- Vanguard Australian Fixed Interest Index Fund (Wholesale).
Over 7,000 firms are diversified throughout these seven funds and a 10% bond allocation. While it may appear confusing, you are simply gaining exposure to Aussies big-caps, global large-caps, small caps, emerging markets, and bonds at a high level. Or, if you wish to break it down further: 36% Australian shares account, 54% international, 10% bonds and equities. However, they lack direct exposure to the asset market through their VAF (Vanguard Australian Property Fund).
According to their most recent financial reports in August 2021, VDHG performed exceptionally well throughout the past year’s bull market; they realised a return of more than 26%. The fund’s ETF version debuted in 2017, while the similar unlisted wholesale portfolio dates back to 2002. It has returned about 12.2% in the last ten years and roughly 7.66% in the last 15 years.
VDHG has a yearly fee of about 0.27%, equating to $2.70 for each $1,000 invested. And, in case you’re in doubt, Vanguard isn’t double-dipping on prices. You won’t incur a management charge for the assets in VDHG and a cost for VDHG.
Since the funds are allocated to a range of underlying funds, Vanguard’s management charge is entirely refunded to the funds. As a result, investors don’t pay double fees.
All VDHG does is invest in other highly accessible Vanguard funds, which means nothing prohibits you from directly trading in them. If you did this, you’d wind up with a combined management charge of roughly 0.19% each year, significantly improving from 0.27%. Vanguard uses the 0.08% p.a. differential to balance your accounts and seamlessly eliminate potential human errors.
As previously stated, VDHG doesn’t hold ETFs but instead opts for its unlisted wholesale funds. This is vital since unlisted managed funds have a turn-down tax impact.
All assets inside managed funds, such as the Vanguard wholesale funds, are merged. Thus, any investor selling units initiate a capital gain event for all asset traders. This implies that even if you haven’t sold out of your fund, you’ll still have to pay capital gains taxes. On the other hand, ETFs have a different tax structure, and you only realise the capital received after selling your ETF portfolio.
DHHF ETF ASX
Thanks to the enormous reputation of VDHG and its passive investing approach, it didn’t take long before another rival joined the fray and wreaked chaos. This rival is the DHHF ETF (from BetaShares), which takes a different approach to the all-in-one set-and-forget ETF.
DHHF has four underlying funds, which are ETFs, with almost 8,000 different stock holdings amongst them. They include:
- BetaShares Australia 200 ETF – A200.
- The SPDR Portfolio Developed World ex-US ETF (SPDW).
- The Vanguard Total Stock Market ETF (VTI).
- The SPDR Portfolio Emerging Markets ETF (SPEM).
A200 exposes the top 200 ASX firms, and DHHF includes a 37% allocation. Since the Australian ETF market contributes to around 2% of the world economy, this may appear to be an overall location. However, Australian shareholders earn more significant returns than shareholders in other economies and receive tax breaks via the franking setup. As a result, trading in the ASX is frequently enticing to Australians.
VTI covers the whole US market and offers exposure to the big, medium, and small-cap businesses in the United States, with DHHF investing 34.9%. The United States makes up over 25% of the world’s economy and has remained the biggest economy since 1871. Therefore, it makes more sense for diverse portfolios to contain a high US allocation.
SPDW exposes developed markets besides the United States, and DHHF allocates about 20.7% of its assets to this domain. This reduces excessive concentration on the US market and technology sector, which may initially appear silly but is an element of a balanced approach because it’s never sure which investments will prosper in the coming days.
SPEM provides exposure to developing markets and balances out the DHHF fund with an allocation of 7.4%. China, Taiwan, Hong Kong, India, and Brazil are the top-weighted nations in SPEM. Because these markets are young and have a smaller aggregate market size, their potential growth is often more significant than mature markets.
At a higher level, this would mean that DHHF has a 37% exposure to Australian shares and a 63% exposure to international equities.
At 0.19% per year (or $1.90 per $1,000 invested each year), DHHF offers the lowest management fee of a diversified ETF directly accessible on the Australian trading market. But due to the formula of tax drag, this cost is essentially closer to 0.28%.
BetaShares clarified via Reddit that the 0.19% per annum fee includes the underlying ETFs’ expenses. Unlike VDHG, DHHF does not double count costs.
DHHF has only been in the market since December 2019; thus, it doesn’t have a proven record to scrutinise. However, judging from its underlying assets, it’s likely to perform quite similarly to VDHG, albeit somewhat more volatile (lower lows and higher highs) due to its lack of bond exposure. The DHHF has gained about 19.50% annually since its inception.
VDHG vs. DHHF Comparison
If you’re looking forward to picking the best EFT to invest in, consider these four significant distinctions between VDHG and DHHF:
|Aspect||VDHG from Vanguard||DHHF from BetaSpheres|
|Aussies Equity Allocation||36%||37%|
|Global Equity Allocation||54%||63%|
|Management Fees (Per year)||0.27%||0.19% (0.28% per effective cost)|
Bonds vs. 100% Equities
VDHG gives a 10% allocation to defensive assets such as bonds, whereas DHHF provides a 100% allocation to stocks. Bonds serve as a hedge against market volatility and downturns, as they frequently appreciate during these periods. But bonds can outperform stocks during growth periods, which is frequent in the stock market.
So, suppose you’re thinking of investing for a lengthy period, say seven years or more, 100% equities may well be the best option for you since the long-term returns will almost certainly be more significant than a 10% bond allocation.
The second most significant distinction between VDHG and DHHF is the fee—0.27% for VDHG and 0.19% for DHHF. However, as previously stated, DHHF incorporates SPDW and SPEM, US-based funds with non-US assets, making them incur the tax drag. This happens when an Australian fund holds US funds that invest in stocks from other nations. In this case, you won’t claim the reward withholding tax credits provided by the US fund. You would ordinarily be able to do this if your Australian fund invested directly in those non-US companies.
This indicates that the DHHF management cost is much closer to 0.28% p.a., which isn’t much different from the VDHG fee of 0.27%.
Tax Implications of ETFs vs. Managed Funds
The third important distinction is that VDHG invests in managed funds, whereas DHHF invests in exchange-traded funds (ETFs). Managed funds are far less tax-efficient than ETFs since you do not have any control over when capital gains are realised.
However, if you buy into a fund that holds ETFs, like DHHF, you will not realise these profits until the investor sells. Since the entire fund may compound over time, there is more possibility for capital development. And when you’re ready to sell your ETF units, you’ll almost certainly be at a lower tax rate than you were throughout the accumulation period.
Hedging is a significant distinction between VDHG and DHHF, with VDHG allocating to hedged assets, whereas DHHF does not. Hedging, like bonds, is a type of insurance policy used to mitigate the effects of currency changes. Currency changes usually balance out over time, and the increased expense in management fees is generally not worth it.
VDHG vs. DHHF — Which is Better?
Most people would prefer DHHF, thanks to its favourable tax policies and an excellent long-term investment period option. But irrespective of what you go for, they’re both excellent investment alternatives, implying that you’ll most likely gain more than an average investor who personally picks their stocks.
However, if you’re open to putting in a little extra effort to save money on fees, we’ll go through several options. The historical issues of balancing a multi-ETF portfolio are essentially gone now that auto investing solutions like Pearler are accessible.
How to Start Your ETFs Investment
This section is more beneficial to people who haven’t begun investing or want to learn how to start investing in ETFs. It’s not as difficult as most may assume. All you have to do is:
- Open an account with a stock brokerage firm.
- Deposit in your account.
- Buy your ETF.
Affordable and Easier Options for VDHG and DHHF
Getting a diversified portfolio with just two ETFs is more accessible and less expensive. This is done with a 25% allocation to the BetaShares A200 ETF and a 75% to the Vanguard International Shares Fund VGS. This is 75% international and 25% Australian exposure, offering you a good mix of exposure to Australian firms and their good franking credits. There’s no overlap because VGS doesn’t have any Australian holdings.
Moreover, there’s a relatively easy way to automate everything and place your investment on autopilot. The Pearler, an Australian-based investing site, has a feature called Autoinvest. This feature allows investors to set up pre-defined investment commands to automate their investing, similar to how an all-in-one ETF works. So all you have to do is instruct it to invest 25% in A200 and 75% in VGS, establish a deposit plan, and you’re good to go.