Today I’ll be reviewing BetaShares new Diversified All Growth ETF (DHHF). In this DHHF review, I’ll be covering what DHHF is, what its underlying holdings are, the pros and cons of investing in DHHF and how it compares to the Vanguard Diversified High Growth Index ETF (VDHG).
Since the 1990s, exchange traded funds (ETFs) have emerged as one of the most efficient, cost-effective investment vehicles. This is due to their ability to provide diversification across different asset classes, markets and sectors. However, in recent years, there has been an emergence of diversified ETFs that consist of several different underlying ETFs. These diversified ETFs are designed as set and forget investment vehicles that offer a predetermined allocation of various asset classes that are dispersed across different markets.
Previously, these ETFs have typically consisted of a mixture of Australian equities, international equities, bonds, cash and properties. Although, BetaShares new Diversified All Growth ETF (DHHF) has changed this mixture by offering the first pure equities diversified ETF, with an emphasis on maximising growth. As such, the lack of defensive assets such as bonds and cash make this the most high-risk, high-reward diversified ETF available to Aussie investors.
DHHF consists of four different ETFs that make up a 37% Australian Equities and 63% International Equities split. The four funds included are:
|Funds||Target Percentage Allocation|
|BetaShares Australia 200 ETF – A200||37%|
|The Vanguard Total Stock Market ETF – VTI||35.1%|
|The SPDR Portfolio Developed World ex-US ETF – SPDW||20.3%|
|The SPDR Portfolio Emerging Markets ETF – SPEM||7.6%|
BetaShares Australia 200 ETF or A200 is an ETF that tracks the performance of an index consisting of the 200 largest companies by market capitalisation on the ASX. Its largest portfolio holdings are CSL LTD, CBA, BHP, NAB and WBC. Sector-wise, it is primarily allocated towards Financials, Materials and Healthcare.
The Vanguard Total Stock Market ETF or VTI is an ETF that tracks the performance of the CRSP US Total Market Index. Of its 3590 portfolio holdings, the largest are Apple, Amazon, Microsoft, Alphabet (Google) and Facebook. Sector-wise, it is primarily allocated towards Technology, Consumer Discretionary and Healthcare.
The SPDR Portfolio Developed World ex-US ETF or SPDW is an ETF that tracks the performance of the S&P Developed Ex-U.S. BMI Index. Of its 2099 portfolio holdings, the largest are Nestle SA., Samsung, Roche Holding AG, Novartis AG and Toyota Motor Corp. Sector-wise, it is primarily allocated towards Industrials, Financials and Healthcare. The top-weighted countries are Japan, the United Kingdom, Canada, France and Switzerland.
The SPDR Portfolio Emerging Markets ETF or SPEM is an ETF that tracks the performance of the S&P Emerging BMI Index. Of its 2477 holdings, the largest are Alibaba, Tencent Holdings, Taiwan Semiconductor Manufacturing Co, Meituan Dianping Class B and Reliance Industries Limited Sponsored GDR144A. Sector-wise, it is primarily allocated towards Consumer Discretionary, Financials and Technology. The top-weighted countries are China, Taiwan, India, Hong Kong and Brazil.
Each one of the four underlying ETFs offers different incentives for people to invest in them.
A200 provides exposure to the largest 200 companies on the ASX. While the Australian market only accounts for roughly 2% of the world’s global economy at the time of writing this, a lot of Australians choose to invest heavily in Australian assets. Through investing in the Australian market, Aussie shareholders receive higher dividends than those offered by other markets, in addition to receiving tax benefits through the franking system. This often makes investing in the ASX an appealing prospect for Aussies.
VTI is currently the highest performing ETF offered through DHHF, which does not come as a surprise given that it holds major tech giants such as Apple, Amazon, Google and Microsoft. This ETF provides exposure to the large, mid and low-cap companies in the US. The US accounts for almost one-quarter of the world’s global economy and has remained the largest economy since 1871. As such, investing in the US market is a common practice, due to its prior performance and its high exposure to the tech sector.
SPDW provides further diversification by moving away from the US market, which is dominated by the tech-sector. Through gaining exposure to different world markets and sectors such as Industrials, Financials and Healthcare, holders can increase their diversification. This prevents an over-concentration of the US market and tech sector. While this may seem disadvantageous at first, given their high prior performance, it is an important investing principle to acknowledge that past performance isn’t indicative of future results. As such, diversifying away from the US is a useful investment strategy, as it prevents concentration bias and provides exposure to a range of markets and assets that may out-perform the US and tech in the future.
SPEM is the riskiest asset of DHHF, as it comprises of emerging markets. These markets are more susceptible to currency swings, political corruption and economic volatility, due to things such as natural disasters. However, given that these economies are new and have a lower overall market cap, their growth potential is significantly higher than in developed markets. For this reason, SPEM can be a useful asset to hold if you’re willing to tolerate the high-risk, high-reward potentiality of emerging markets.
One of the main benefits of investing in DHHF and similar investment vehicles is their immense diversification. By investing in DHHF, you are receiving exposure to over 8,000 stocks spread across the global market. This provides exposure to every sector in virtually every economy. Diversification also acts as a way of mitigating against any significant losses. As while one or two of the underlying holdings may under-perform on a given year, it is unlikely that every holding will underperform. Unless there is a significant global event.
Conversely, it’s important to note that this diversification while useful for mitigating against significant losses, can also offset significant gains. However, ETFs are used primarily for their risk-mitigation, so this diversification is often regarded as a pro, particularly by passive investors.
Probably the main attraction to DHHF is the convenience. You don’t have to worry about rebalancing your portfolio, you don’t have to worry about your asset allocation, and you don’t have to spend hours of research each day or week researching individual stocks or market indexes. Its simplicity makes it a set and forget type of investment. This is particularly useful for investors with a long-term investing horizon, as you can simply buy DHHF, make frequent or semi-frequent contributions, set up DRP and watch it compound over time.
A significant benefit of DHHF that separates it from other popular diversified funds is that the fund exclusively holds ETFs. DHHF’s main competition, VDHG for example, contains managed funds. With managed funds, if more units are sold than purchased, the fund is required to sell assets. This results in capital gains for all investors of the fund, which means that investors can realise gains without selling their units. Alternatively, the structure of ETFs means that capital gains are offset until the investor sells them, making ETFs and DHHF inherently, more tax-efficient than diversified funds that rely on managed funds.
passiveinvestingaustralia summarises this laconically with the following:
“In plain English, pooled funds (with the exception of ETFs) pay tax at the fund level and therefore are taxed gradually in small amounts each year, whereas, with ETFs, you don’t realise those gains until you actually sell“.
For more information on the issue with pooled funds and the tax implications of holding ETFs and managed funds, I highly recommend passiveinvestingaustralia’s guide
Currently, DHHF is the only diversified ETF that consists entirely of equities. Equities are often regarded as the highest consistent growth asset class, as historically most market indexes have outperformed other asset classes over a long-term horizon. This is reflected in the current yearly reports, which have the above funds yielding 2-13% during this year. This says a lot given the severe damage COVID has caused to most industry sectors. Based on the pure equity asset allocation, DHHF is currently the highest risk diversified ETF with the highest growth potential. As such, it has the potential to outperform its competition during long investment horizons.
While cash and bonds typically underperform equities over the long term, they do provide more reliable, stable returns. This can act as a hindrance for people with long-term investment horizons (10+ years). However, risk averse investors or people closer to retirement may prefer these more stable, lower-yielding options, as they can hedge against market corrections and recessions. Subsequently, DHHF provides a much higher risk, higher return investment option than what some traditional investors are used to.
For these reasons, risk averse individuals or people who are planning to sell down their holdings within a 10-year time frame may prefer more defensive diversified ETFs such as VDHG, DZZF, DGGF, DBBF or VDCO.
Alternative Diversified ETFs That Include Defensive Assets:
|Fund Name||Equities Allocation||Defensive Assets Allocation|
However, should you decide that you want more defensive assets later down the line, you can still maintain DHHF holdings while diversifying into a bond ETF such as VGB or GBND. An added perk to holding a separate bond fund is that you can sell them independently. Subsequently, with this portfolio design, you can avoid selling equities when the market is down. This is contrary to diversified funds that contain mixes of both asset classes that require the selling of both assets due to their fund structure.
While having a pre-determined portfolio offers convenience, it can be viewed as a con by more active investors. For example, if you aren’t a fan of one of the underlying portfolios, then you are stuck with a fixed allocation of your investments going towards that ETF. Similarly, should you decide that you want to lower one of your holdings down the line, you are locked in at the pre-determined allocations offered through DHHF. If you would like to increase one of the underlying holdings, you can do so by purchasing more units of that specific ETF. However, that requires manual rebalancing and will incur additional MER and brokerage fees.
For investors wondering tossing up between using a diversified fund such as DHHF or creating their own portfolio, I weigh up the pros and cons here: Diversified Funds or DIY Investing
Hedged investments are investments where the fund manager takes active steps to attempt to offset the impact of currency fluctuations. The intent behind this is to prevent changes in currency values altering the overall returns of the underlying asset classes. As 63% of DHHF holdings are international equities, some investors may wish to hedge part or all of these holdings for these reasons.
|Growth Allocation (Equities)||100%||90%|
|Defensive Allocation (Bonds)||0%||10%|
|Hedging to AUD||No||Yes (16% Equities, 7% Bonds)|
|Australian Equities Allocation||37%||36%|
|International Equities Allocation||63%||54%|
|Emerging Markets Allocation||7.6%||5%|
|Small-Cap Market Allocation||8.31%||6.5%|
|MER (Management Fees)||0.28% p.a. (effective cost)||0.27% p.a.|
Defensive assets serve as a hedge against volatility as they provide lower, yet more consistent returns. In the event of market corrections and recessions (events that cause equities to take significant hits), these defensive allocations can often increase in value. This is due to bond prices typically increasing as a result of lowered interest rates, which is a common strategy utilised by the government during recessions to provide people with more money to spend on goods and services.
However, while defensive assets such as bonds provide more stability during things such as market corrections and recessions, they can result in performance drag over long investment horizons. This is particularly true when compared to equities, which are one of the highest growth assets. As such, if you plan on investing for a long time (10+ years), the additional growth assets in DHHF may yield higher returns. Conversely, VDHG is likely more suited to investors who wish to diversify into defensive assets or investors with lower risk tolerances.
On paper, DHHF has a MER of 0.19% p.a., which makes it appear to be a cheaper option than VDHG’s MER of 0.27% p.a. However, DHHF contains SPDW and SPEM, which are US domiciled funds that contain non-US assets. These funds incur a thing called tax drag, which Eli from passiveinvestingaustralia.com summarises as:
When an Australian fund holds a US fund which holds stocks from companies in non-US countries, you cannot claim the dividend withholding tax credits paid by the fund that you could claim if the Australian fund held them directly.
As such, the Reddit user HockeyMonkey_19 did the calculations And determined that the combined cost of MER when factoring in tax drag brings the total to approximately 0.28% p.a.
For more information on tax drag, please refer to passiveinvestingaustralia’s guide: Fund Domicile and Avoidable US Taxes.
Hedging is an investment strategy in which the fund manager takes active steps to offset the impact of currency fluctuations. The intent behind this is to ensure that the returns (income and capital appreciation) are not impacted by currency fluctuations. VDHG has a 16% allocation to VGAD, which tracks an international shares index that is hedged into Australian dollars.
Similarly, VDHG also hedges its entire international bonds allocation of VBND. This acts as a safety buffer and added precaution against currency fluctuations, which can impact the income and capital appreciation of VGS. Also, if the Australian dollar were to increase in relation to the USD by the time that you wish to sell down your underlying funds, having hedged options would yield greater returns.
Conversely, DHHF has no allocation to hedged investments. This can be viewed as beneficial for two main reasons. Firstly, it reduces concentration risk to the Australian market. While both portfolios contain similar allocations to the Australian market, VDHG has additional hedging that is linked to the Australian dollar. This can lead to market concentration, which occurs when one person is heavily invested in a singular market.
Australian investors risk this inherently due to their location, as their salary, superannuation and housing values are typically already largely linked to the Australian dollar’s performance. When you provide additional exposure to the Australian market through direct investments and AUD hedged investments, you increase your reliance on this market doing well.
Subsequently, this can result in greater gains and losses, depending on how the Australian market compares with the rest of the world. As such, a lack of hedging to the Australian dollar can be viewed as a more diversified investment strategy. In a similar vein, should the AUD drop in relation to the USD by the time you plan to sell down your DHHF, having an unhedged portfolio will result in higher returns.
As mentioned in the pros section, DHHF’s underlying holdings are ETFs. Conversely, VDHG while also being a diversified ETF, contains managed funds as part of its underlying holdings. These managed funds are less tax-efficient, as if more units are sold than purchased, the fund will need to sell some assets. This results in capital gains. Subsequently, these pooled funds are taxed gradually in small amounts each year. It is also worth noting that these capital gains occur when there are more selling than buying across the entire fund, which is outside the control of the investor. This can offset long-term gains, as the realised capital gains could have otherwise been left to compound under a pure ETF structure.
By investing in a fund that exclusively holds ETFs however, such as DHHF, these gains are not realised until the investor sells. As a result, there is more potential for capital growth, due to the full fund being able to compound over time. Furthermore, by the time that investors draw down on the fund, it is likely that their tax bracket would be lower. This provides another layer of tax-efficiency, as it is likely that a financially independent person would be paying less tax on their capital gains.
DHHF and VDHG are both in cap weighted proportions once Australian equities are factored in. Therefore, the most fundamental difference between the funds is in their Australian and International equities split. DHHF and VDHG share similar equity allocations to the Australian market and 40% respectively. Subsequently, DHHF allocates 63% of its equity portion to the international market and VDHG allocates 60% of its equity portion to it.
While these splits are relatively similar, it is worth noting these differences. VDHG has a higher equity split towards the Australian market and DHHF has a higher equity split towards the international market.
DHHF is a pioneer, being Australia’s first pure equities diversified ETF. It provides exposure to 8000 + stocks in the Australian, US, developed and emerging markets. Therefore, this diversified ETF offers a cost-effective way to diversify across multiple economies and sectors. For people with a long-term investment horizon, DHHF may be a useful, set and forget-type investment vehicle. Assuming that they are happy with the underlying holdings and their percentage allocations.
However, for risk averse investors and those wishing to hedge foreign investments, the alternative diversified ETFs mentioned in the review may be more suited to your investment goals. Similarly, investors who want to take a more active role in their investment journey may prefer to roll their own portfolio with individual ETFs.
Currently, its main competition is VDHG which while similar, differs in a few ways. Both are suited to growth-oriented investors with a long investment horizon. However, the difference in underlying allocations and factors such as hedging and whether you want underlying managed funds or ETFs, will likely be the deciding factor on which one you choose. Investors who want exposure to defensive assets and AUD hedging will gravitate towards VDHG.
Conversely, investors who want a pure growth portfolio without AUD hedging will lean towards DHHF. Regardless of which one you pick, both investment vehicles are great long-term investments that provide a convenient and cost-efficient way of diversifying into the global economy.
As previously mentioned, DHHF’s main competition is Vanguard’s VDHG. For those of you who wish to learn more about VDHG and how it compares, I have attached my in-depth review of it below:
If you would like to invest in DHHF or any of the aforementioned diversified ETFs, I recommend using SelfWealth. As it this CHESS-sponsored trading platform offers low flat-rate brokerage fees. For more information, you can find my in-depth review on SelfWealth Here.
If you would like to sign up and receive 5 free trades during your first month, you can also use my referral link.
The Reddit user Hockey Monkey provided valuable input that was essential for creating this review. I would like to take this opportunity to thank him for reviewing the content. As he helped me amend it to reflect the most relevant content. His knowledge on tax drag, equity splits and DHHF, in general, made this review as accurate as possible.
passiveinvestingaustralia also provided great resources with the following:
These posts expand upon several points raised during my review and I encourage anyone who wants further clarification on these topics to read over them.