The Vanguard Diversified Balanced Index ETF (ASX: VDBA) may just be one of the best diversified ETFs on the market. So, what’s actually in it?
What Are ETFs?
Exchange-traded funds, or ETFs, are investment funds that are listed on a stock exchange and provide exposure to a range of shares or assets with a single purchase.
The Rask Finance video below explains ETFs in more detail:
Vanguard VDBA ETF
The Vanguard Diversified Balanced Index ETF is a passive fund that invests in unlisted Vanguard funds. The VDBA ETF aims to match the weighted average return of the indices that the underlying funds follow.
Vanguard says this ETF is designed for investors seeking a balance between income and capital growth, which is clear to see when you look at the underlying funds.
At 31st July 2019, 50.2% of the ETF was split between global bonds and Australian fixed interest through the Vanguard Global Aggregate Bond Index Fund (Hedged) and the Vanguard Australian Fixed Interest Index Fund (Wholesale).
This gives investors exposure to Australian and global government bonds, as well as some corporate bonds and other fixed-interest investments.
The remaining 49.8% of the ETF is allocated across five Vanguard funds which provide exposure to different equities markets. 20% of the total ETF is allocated to Australian shares and another 29.8% to international shares. 3.5% is allocated to small-cap companies and another 2.9% is allocated to emerging markets.
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 taking the first two dividends from this year and multiplying by two, the ETF offers a trailing dividend yield of around 1.98%.
Fees And Risks
The VDBA ETF is relatively low cost with a management fee of 0.27%. While 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 more information on potential risks.
My Take
Vanguard has developed a reputation for creating high-quality, low-cost ETFs and this appears to be another one. The fund is diversified and offers exposure to a range of asset classes investors would typically consider. My only concern would be that the ETF is relatively new so it can be difficult to judge what long-term performance may look like.
For our number one ETF pick, check out the free report below.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.