SMB vs. SCHO: The Short-Term Bond Decision That Starts With Your Tax Return
Key Points
Schwab Short-Term U.S. Treasury ETF features a lower expense ratio and higher trailing-12-month yield than VanEck Short Muni ETF.
VanEck Short Muni ETF focuses on tax-exempt municipal bonds while the Schwab fund tracks the short-term Treasury market.
Schwab Short-Term U.S. Treasury ETF has a significantly larger asset base and lower volatility as measured by its beta profile.
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VanEck Short Muni ETF (NYSEMKT:SMB) offers tax-exempt income for bond investors, whereas Schwab Short-Term U.S. Treasury ETF (NYSEMKT:SCHO) provides a lower-cost, higher-yielding alternative through sovereign U.S. debt and significant liquidity.
Both funds serve as defensive portfolio anchors designed for capital preservation and liquidity. They operate on the short end of the yield curve, yet they differ fundamentally in their underlying credit exposure and the tax treatment of their interest distributions for investors.
Snapshot (cost & size)
| Metric | SMB | SCHO |
|---|---|---|
| Issuer | VanEck | Schwab |
| Expense ratio | 0.07% | 0.03% |
| 1-yr return (as of June 3, 2026) | 4.0% | 3.3% |
| Dividend yield | 2.7% | 3.9% |
| Beta | 0.10 | 0.05 |
| AUM | ~$304.4 million | ~$12.8 billion |
Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.
The Schwab fund is the more affordable choice with a 0.03% expense ratio. It also offers a higher yield, paying 3.9% over the trailing 12 months, which is 1.21 percentage points higher than the VanEck fund payout.
Performance & risk comparison
| Metric | SMB | SCHO |
|---|---|---|
| Max drawdown (5 yr) | (7.4%) | (5.7%) |
| Growth of $1,000 over 5 years (total return) | $1,063 | $1,094 |
What's inside
The Schwab Short-Term U.S. Treasury ETF focuses on the short-term U.S. Treasury market and currently holds 99 positions. Its portfolio composition is dominated by cash and others at 98%, with minor 1% allocations to technology and communication services. This fund launched in 2010 and has a trailing-12-month dividend of $0.94 per share.
In contrast, the VanEck Short Muni ETF tracks the ICE Short AMT-Free Broad National Municipal Index and manages 335 holdings. The portfolio consists of 100% cash and others, which reflects its focus on tax-exempt municipal bonds rather than corporate debt. The fund launched in 2008 and paid $0.47 per share over the trailing 12 months.
For more guidance on ETF investing, check out the full guide at this link.
What this means for investors
Most bond fund comparisons come down to yield, risk, and cost. This one adds a fourth variable that changes everything: taxes. SMB holds short-term municipal bonds whose income is generally exempt from federal taxes. SCHO holds short-term U.S. Treasuries whose income is fully taxable at the federal level. That distinction makes a direct yield comparison misleading.
SCHO yields more than SMB on paper, but an investor in the 32% or 37% federal tax bracket keeps significantly less of that income after taxes, which is enough to make SMB's lower stated yield the more attractive after-tax proposition. For investors in lower brackets, the math flips and SCHO's higher yield wins decisively.
SCHO also charges less than half of what SMB does and manages roughly 40 times the assets, giving it unmatched liquidity and scale among short-term bond funds. Both funds carry minimal interest rate risk given their short durations, and SCHO carries zero credit risk as a pure Treasury fund.
The right answer here simply comes down to which tax situation you are in. Run the after-tax yield calculation for your specific bracket before making a choice. That’s the most important step to take in this comparison.
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Sara Appino has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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