Comparing Bond ETFs: Vanguard's VCSH vs. Schwab's SCHO

The Vanguard Short-Term Corporate Bond ETF (NASDAQ:VCSH) and Schwab Short-Term U.S. Treasury ETF (NYSEMKT:SCHO) both offer extremely low costs, but VCSH is larger, has a higher yield, and takes on more corporate credit risk while SCHO sticks to U.S. Treasuries for lower volatility.

Both VCSH and SCHO target the short end of the bond market, appealing to those seeking modest income with limited interest-rate sensitivity. This comparison highlights their differences in fees, returns, risk, and portfolio makeup to help investors decide which approach may align better with their preferences.

Snapshot (cost & size)

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.

Both funds are among the most affordable in the space, each charging just 0.03% annually. VCSH offers a slightly higher yield than SCHO, potentially appealing to those prioritizing income over maximum safety.

Performance & risk comparison

What's inside

The Schwab Short-Term U.S. Treasury ETF invests mainly in U.S. Treasury securities, with 96% of assets in cash and Treasuries and a small allocation to communication services and technology. The fund holds 98 securities, with top positions in Treasury Notes, and has operated for over 15 years — making it a seasoned option for those seeking government-backed exposure with minimal credit risk.

In contrast, the Vanguard Short-Term Corporate Bond ETF focuses exclusively on investment-grade corporate bonds and cash, resulting in higher yield but also exposure to corporate credit. Its top holdings include the U.S. Dollar, and United States Treasury Note/Bond 3.50% 02/28/2031. With only 12 holdings, VCSH is more concentrated and lacks any notable quirks or specialty screens.

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What this means for investors

Bonds are a great way to diversify an investment portfolio, and both the Vanguard Short-Term Corporate Bond ETF (VCSH) and Schwab Short-Term U.S. Treasury ETF (SCHO) are compelling choices in this arena, given they each boast ultra-los expense ratios, which make them ideal to hold for the long term. Deciding between the two comes down to individual investor comfort around risk.

Because VCSH targets investment-grade corporate bonds, it is exposed to corporate credit risk. As a result, it’s less safe than SCHO, as its greater five-year max drawdown illustrates. But the trade-off is that it offers a higher dividend yield and tends to outperform pure Treasury funds, as demonstrated by VCSH’s higher one-year return. This makes VCSH the better choice for investors seeking safety but want to maximize income potential.

SCHO offers high safety. After all, investing in U.S. Treasuries means near-zero default risk. The trade off here is in a lower yield and far smaller assets under management. This ETF is for investors who want to maximize capital preservation above all else.

Robert Izquierdo 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.