Short-Term Income ETFs: How Do Vanguard Short-Term Bond ETF and Schwab Treasury ETF Compare?

Vanguard Short-Term Bond ETF (NYSEMKT:BSV) offers broader exposure to corporate debt and slightly longer maturities than Schwab Short-Term U.S. Treasury ETF (NYSEMKT:SCHO), resulting in a marginally higher yield alongside increased price volatility.

Conservative investors often turn to short-duration bonds for stability and steady income. While both funds target the short end of the yield curve, they differ in what they own. The Schwab fund focuses solely on Treasuries, while the Vanguard fund adds investment-grade corporate bonds for a more diverse portfolio.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

Both funds are exceptionally affordable with identical 0.03% expense ratios. The Vanguard fund offers a marginally higher payout, reflecting its inclusion of high-quality corporate debt, which typically carries a small yield premium over pure government securities to compensate for credit risk.

Performance & risk comparison

What's inside

Vanguard Short-Term Bond ETF holds 3,205 positions, including U.S. government bonds, top-tier corporate debt, and highly-rated international bonds. It was launched in 2007. Vanguard Short-Term Bond ETF has paid $3.12 per share over the trailing 12 months, which, at its recent ~$77.70 share price, yields 4.0%.

Schwab Short-Term U.S. Treasury ETF holds 97 securities, focusing exclusively on U.S. Treasury securities with maturities between one and three years. It was launched in 2010. Schwab Short-Term U.S. Treasury ETF has paid $0.94 per share over the trailing 12 months, which, at its recent ~$24.09 share price, yields 3.9%.

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Which looks like the better buy

The Vanguard Short-Term Bond ETF (BSV) and the Schwab Short-Term U.S. Treasury ETF (SCHO) are both fixed-income exchange-traded funds (ETFs) that focus on short-duration fixed-income products. As a result, they are ideal for conservative investors or anyone seeking to generate modest income through a safe-haven fund. Here’s how the two funds compare to one another and what sets them apart from each other.

First, there’s BSV. This fund has holdings across the credit spectrum, holding all types of bonds with maturities between one and five years. About 74% of its holdings come from sovereign entities (governments), while 25% is from corporate issuance. The remaining 1% is invested in cash or equivalents. The fund has a nearly 20-year history, having been founded in 2007. It also has over $44 billion in AUM. This is important because it means investors should have no problem buying and selling shares in the ETF, given ample liquidity. As for performance, the fund has delivered a total return of 21% over the last 10 years, equating to a compound annual growth rate (CAGR) of 1.9%. The fund’s expense ratio is low, at 0.03%, and it has a dividend yield of 4%.

Then, there’s SCHO. Unlike BSV, SCHO exclusively holds short-term U.S. Treasury debt. Its holdings have a duration of between one and three years. The fund was founded in 2010 and has over $12 billion in AUM, providing it with ample liquidity for investors. SCHO’s expense ratio of 0.03% is quite low, and the fund boasts a dividend yield of 3.9%. Turning to performance, the fund has generated a compound annual growth rate (CAGR) of 19% over the last 10 years, with a 1.7% CAGR.

In summary, both funds are acceptable options for investors seeking income from a low-risk fund. BSV has shown slightly better long-term performance and has a slightly higher dividend yield. Investors must balance these advantages with the knowledge that BSV holds corporate bonds, which may entail greater credit risk, particularly during economic downturns. In any case, many portfolios would benefit from the stability and modest income that BSV and SCHO can both provide.

Jake Lerch has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard Bond Index Funds - Vanguard Short-Term Bond ETF. The Motley Fool has a disclosure policy.