Which Is the Better Short-Term Bond ETF, iShares' IGSB or Schwab's SCHO?

The Schwab Short-Term U.S. Treasury ETF (NYSEMKT:SCHO) and iShares 1-5 Year Investment Grade Corporate Bond ETF (NASDAQ:IGSB) differ most on yield, portfolio breadth, and risk. SCHO focuses on Treasuries with minimal credit risk, while IGSB adds corporate bond exposure, higher yield, and more volatility.

Both SCHO and IGSB are designed for investors seeking short-duration fixed income, but they take different approaches. SCHO sticks to U.S. Treasuries, prioritizing safety and liquidity, while IGSB diversifies across thousands of investment-grade corporate bonds, offering higher yield potential in exchange for some added credit risk and price swings.

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.

IGSB is slightly more expensive than SCHO on fees, but the gap is minimal. IGSB also offers a somewhat higher yield, which may appeal to those seeking more income from their short-term bond allocation.

Performance & risk comparison

What's inside

IGSB tracks a basket of over 4,500 U.S. dollar-denominated investment-grade corporate bonds with maturities between one and five years. This broad reach means exposure to a wide mix of companies and industries, from financials like Goldman Sachs Group Inc (fxd-frn) 01/21/2029 to telecoms such as T-mobile USA Inc 04/15/2030. The fund has been operating for more than 19 years, and its top holdings each make up only a small slice of assets, helping reduce issuer-specific risk.

SCHO, in contrast, remains almost entirely in short-term U.S. Treasury securities. This composition keeps credit risk extremely low but limits yield and diversification compared to IGSB’s corporate bond mix. SCHO’s 97 holdings are almost exclusively government-backed, making it a conservative choice for fixed income investors.

For more guidance on ETF investing, check out the full guide at this link.

What this means for investors

Investing in short-term bonds offers advantages over a money market account to park your cash while limiting risk from interest rate changes. Both the Schwab Short-Term U.S. Treasury ETF (SCHO) and iShares 1-5 Year Investment Grade Corporate Bond ETF (IGSB) are compelling choices here, given their low expense ratios. The decision to invest in one over the other comes down to a handful of individual investor preferences.

SCHO is the superior choice for those who want maximum safety, since it focuses almost exclusively on U.S. Treasuries. It’s also not as volatile as IGSB, as indicated by its smaller beta, and is slightly less expensive. However, U.S. Treasuries aren’t going to deliver as big a return as corporate bonds, contributing to SCHO’s significantly lower one-year return.

IGSB is for investors who prioritize income, and are willing to take on more credit risk in exchange. The fund’s substantial holdings of over 4,000 bonds provides diversification and helps to reduce overall risk, although it still maintained a higher max drawdown over the last five years.

If your goal is to maximize income with an acceptable level of risk, IGSB may be the preferred choice. If capital preservation and low risk is the priority, then SCHO could be the better fit.

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.