Road test: BGBL vs. DHHF

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)

Fees

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.

Summary

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.

There are risks associated with an investment in the Betashares Funds, including market risk, currency risk and international investment risk (for EMMG, BGBL and DHHF) and index tacking risk (for A200 and BGBL), as well as underlying ETF risk and asset allocation risk (for DHHF). Investment value can go up and down. An investment in a Betashares Fund should only be made after considering your particular circumstances, including your tolerance for risk. For more information on risks and other features of each Betashares Fund, please see the Product Disclosure Statement and Target Market Determination, both available on this website.


References:
1. Other costs, such as transaction costs, may apply. Refer to the Product Disclosure Statement at www.betashares.com.au for more information.

This article mentions the following funds

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Written by

Richard Montgomery

Senior Content Manager

Richard Montgomery brings over 25 years of financial expertise to Betashares, where he steers investor communication. Prior to joining Betashares, Richard worked as a communications consultant for various financial institutions, including the Australian Securities Exchange (ASX).

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8 comments on this

  1. Scott S  /  31 May 2023

    Hi Richard, Is BGBL hedged in AUD? It does not say yes or no on the fact sheet, and it does not have an H in its code, so I assume that it isn’t hedged? Thanks

    1. Patrick Poke  /  5 June 2023

      Hi Scott,

      BGBL is not currency hedged, though Betashares also offers HGBL which is currency hedged.

      Regards,
      Patrick

  2. dan  /  31 May 2023

    When will the currency hedged version of BGBL launch?

    1. Patrick Poke  /  5 June 2023

      Hi Dan,

      The currency hedged version, HGBL, is already live and available to trade with most ASX brokers.

      Regards,
      Patrick

  3. Max  /  26 July 2023

    Maybe I missed it, but can you point me to the text that specifies where the BGBL ETF is domiciled? Could not find it on the BGBL page or in the PDS. Thank you.

    1. Betashares Client Services Team  /  27 July 2023

      Hi Max,
      All Betashares ETF’s, including BGBL is Domiciled in Australia. We handle the administration and tax forms at the internal (fund) level. You therefore will not have to report any foreign income.
      Kind regards,
      Betashares Client Services Team

  4. Anthony YEH  /  29 February 2024

    Hi Richard, in terms of return wise, BGBL outperforms DHHF currently as per google chart; is it because of the huge allocation of BGBL to US equities?

    1. Betashares Client Services Team  /  29 February 2024

      Hi Anthony

      Just over 70% of BGBL’s portfolio is currently invested in US stocks, vs around 40% of DHHF’s. So, as your question suggests, in a period when the US stockmarket outperforms other global markets and the Australian sharemarket, this will have a particularly large positive impact on BGBL.

      Thanks

      Richard

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