Road test: BGBL vs. DHHF
5 minutes reading time
Investors are probably tired of hearing about the importance of diversification. However, it is almost universally regarded as an investment fundamental that a well-rounded portfolio should have core allocations diversified across and within asset classes.
Today, we’ll take a look at two possible ways of achieving this for the equities component of your portfolio.
We’ll focus on how you construct your allocation to equities – in particular we’ll look at a couple of convenient, highly cost-effective options using two Betashares ETFs:
What does a diversified, well-balanced equities allocation look like?
To be well-balanced, an Australian investor’s share portfolio should include an allocation to both domestic (i.e. Australian) and international equities. Australia’s sharemarket represents a very small proportion of global sharemarket capitalisation, and is heavily weighted to a couple of sectors (financials and materials). An investor who restricts themselves to just local shares will necessarily not enjoy the full benefits of country and sector diversification.
What is a simple, cost-effective way to achieve a diversified equities portfolio?
Option 1 – use two or more ETFs as portfolio building blocks
One option is to combine an ETF providing diversified exposure to Australian equities, with an ETF providing diversified exposure to global equities.
BGBL Global Shares ETF was launched in mid-May. In one ASX trade, BGBL provides exposure to an index comprising approximately 1,500 large and mid-cap companies from more than 20 developed market countries, at a low management cost of 0.08% p.a.1
Investors could, for example, consider combining an allocation to BGBL with an investment in the A200 Australia 200 ETF , which provides exposure to the top 200 companies listed on the ASX at a management cost of 0.04% p.a. (making it the world’s lowest-cost Australian shares ETF)1.
Option 2 – an all-in-one equities exposure
Simplifying things even more, you could invest in the DHHF Diversified All Growth ETF , which takes care of the allocation between Australian and international equities without you having to think about it.
DHHF is effectively a ‘fund of funds’, and is constructed using a passive blend of cost-effective ETFs from both Betashares and other ETF managers, rebalanced on a quarterly basis in line with the target allocations.
The result is a portfolio invested in a blend of large, mid and small-cap equities from Australia, global developed and emerging markets, offering the potential for high growth over the long term. The ETF provides exposure to approximately 8,000 equity securities listed on over 60 global exchanges, in one ASX trade.
Management fees are 0.19% p.a.– the lowest fee amongst all-in-one diversified ETFs currently available on the Australian market1.
So which option is better?
There’s not a simple answer to this question. Let’s look at the key differences between the two approaches.
Control over your Australian/international equities split
DHHF takes the geographic allocation out of your hands. For some investors this is a plus, as it’s one less thing to worry about. DHHF’s asset allocation, as of 28 April 2023, is shown below:
Source: Betashares, as at 28 April 2023
Other investors may prefer to have control over their geographic allocation. If this is you, you may choose to invest in A200 and BGBL in the proportions you want.
Emerging markets exposure
You’ll notice from the above chart that around 6.5% of DHHF’s exposure is currently allocated to emerging markets companies. BGBL’s portfolio includes only companies in developed markets. Some investors may prefer to include emerging markets exposure, others to exclude it. Of course, investors who want to use the ‘separate building block’ approach can also consider an allocation (as part of a broader portfolio) to a separate fund to achieve their emerging markets exposure, such as the EMMG Betashares Martin Currie Emerging Markets Fund (managed fund)
Both options are highly cost-effective. Building your own equities allocation using A200 and BGBL will be slightly cheaper, with your overall costs somewhere between 0.04% p.a. (A200’s management cost) and 0.08% p.a. (BGBL’s management cost) – depending on the proportions you allocate to the two ETFs. DHHF’s fee is a little higher at 0.19% p.a. In dollar terms, whichever option you choose, you are looking at annual management costs of less than $20 for each $10,000 you invest.
Constructing the equities component of your portfolio has never been easier. Cost-effective ETFs are compelling candidates for your core allocations to both Australian and global shares. DHHF may suit investors looking for an all-in-one solution, while BGBL is a low-cost global shares ETF that can be used in combination with a broad-based Australian shares ETF by investors who prefer to have more control over their Australian/international equities mix.
1. Other costs, such as transaction costs, may apply. Refer to the Product Disclosure Statement at www.betashares.com.au for more information.
Manager – Investment CommunicationRead more from Richard.