SCHO's Short-Term Treasuries vs. SMB's Municipal Bonds: Which ETF Is a Better Fit for You?
Key Points
SCHO charges a slightly lower expense ratio and offers a higher yield than SMB.
SCHO is dramatically larger and more liquid, but both funds are ultra-low risk.
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Both the Schwab Short-Term U.S. Treasury ETF (NYSEMKT:SCHO) and the VanEck Short Muni ETF (NYSEMKT:SMB) are ultra-short bond funds targeting safety and liquidity, but with different approaches: SCHO tracks the short-term U.S. Treasury market, while SMB focuses on short-term, tax-exempt municipal bonds.
SCHO features larger assets under management (AUM), higher yield, and lower fees compared to SMB, while SMB has slightly outperformed over the past year and five-year periods. This comparison unpacks their differences in cost, yield, risk, and holdings to help investors weigh which may fit their needs.
Snapshot (cost & size)
| Metric | SMB | SCHO |
|---|---|---|
| Issuer | VanEck | Schwab |
| Expense ratio | 0.07% | 0.03% |
| 1-yr return (as of 2/27/2026) | 4.28% | 4.75% |
| Dividend yield | 2.6% | 4% |
| Beta | 0.34 | 0.25 |
| AUM | $303.7 million | $12.3 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.
While both funds are extremely affordable, SCHO edges out SMB with a lower annual expense ratio and a noticeably higher yield, which could appeal to investors seeking maximum income with minimal cost drag.
Performance & risk comparison
| Metric | SMB | SCHO |
|---|---|---|
| Max drawdown (5 y) | (7.48%) | (5.69%) |
| Growth of $1,000 over 5 years | $971.85 | $951.12 |
What's inside
SCHO tracks the performance of short-term U.S. Treasury bonds. It holds 98 securities and has been operating for over 15 years.
SMB, by contrast, is entirely concentrated in tax-exempt municipal bonds, with over 330 holdings. This gives SMB a municipal credit profile that may offer tax advantages to some investors, but with a yield and risk profile distinct from Treasury-focused SCHO.
For more guidance on ETF investing, check out the full guide at this link.
What this means for investors
Short-term Treasury bonds and municipal bonds both have some appealing characteristics for investors, including reliable income, liquidity, and low risk. In fact, Treasury bonds are considered virtually risk-free, as they’re backed by the “full faith and credit” of the U.S. government. Municipal bonds, issued by state and local governments, do carry some default risk, though defaults are relatively uncommon.
One of the biggest differentiators between the two investment types is how they’re taxed. Municipal bonds, like those held in the SMB ETF, are generally exempt from federal taxes and the alternative minimum tax (AMT). Treasury bonds, on the other hand, are subject to federal income tax, but exempt from state and local taxes. For investors with a higher income tax rate, or who live in states with higher tax rates, these differences in tax treatment may be important.
These tax differences are one reason the yield is lower for SCHO than for SMB, which could make the difference if income generation is your investing goal. But be sure to consider your after-tax gains before choosing between municipal bonds and Treasury bonds.
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Sarah Sidlow 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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