QUAL vs. SCHP: What’s The Difference?

The iShares MSCI USA Quality Factor ETF (QUAL) and the Schwab U.S. TIPS ETF (SCHP) are both among the Top 100 ETFs. QUAL is a iShares Large Blend fund and SCHP is a Schwab ETFs Inflation-Protected Bond fund. So, what’s the difference between QUAL and SCHP? And which fund is better?

The expense ratio of QUAL is 0.10 percentage points higher than SCHP’s (0.15% vs. 0.05%). QUAL also has a high exposure to the technology sector while SCHP is mostly comprised of AAA bonds. Overall, QUAL has provided higher returns than SCHP over the past 7 years.

In this article, we’ll compare QUAL vs. SCHP. We’ll look at holdings and industry exposure, as well as at their fund composition and portfolio growth. Moreover, I’ll also discuss QUAL’s and SCHP’s risk metrics, annual returns, and performance and examine how these affect their overall returns.

Summary

QUAL SCHP
Name iShares MSCI USA Quality Factor ETF Schwab U.S. TIPS ETF
Category Large Blend Inflation-Protected Bond
Issuer iShares Schwab ETFs
AUM 23.93B 18.41B
Avg. Return 13.42% 3.92%
Div. Yield 1.29% 1.97%
Expense Ratio 0.15% 0.05%

The iShares MSCI USA Quality Factor ETF (QUAL) is a Large Blend fund that is issued by iShares. It currently has 23.93B total assets under management and has yielded an average annual return of 13.42% over the past 10 years. The fund has a dividend yield of 1.29% with an expense ratio of 0.15%.

The Schwab U.S. TIPS ETF (SCHP) is a Inflation-Protected Bond fund that is issued by Schwab ETFs. It currently has 18.41B total assets under management and has yielded an average annual return of 3.92% over the past 10 years. The fund has a dividend yield of 1.97% with an expense ratio of 0.05%.

QUAL’s dividend yield is 0.68% lower than that of SCHP (1.29% vs. 1.97%). Also, QUAL yielded on average 9.51% more per year over the past decade (13.42% vs. 3.92%). The expense ratio of QUAL is 0.10 percentage points higher than SCHP’s (0.15% vs. 0.05%).

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Fund Composition

Holdings

QUAL - Holdings

QUAL Holdings Weight
Facebook Inc Class A 4.77%
Nike Inc Class B 4.05%
Microsoft Corp 3.54%
Apple Inc 3.52%
Johnson & Johnson 2.99%
BlackRock Inc 2.87%
Target Corp 2.8%
Mastercard Inc Class A 2.72%
NVIDIA Corp 2.71%
Alphabet Inc Class A 2.49%

QUAL’s Top Holdings are Facebook Inc Class A, Nike Inc Class B, Microsoft Corp, Apple Inc, and Johnson & Johnson at 4.77%, 4.05%, 3.54%, 3.52%, and 2.99%.

BlackRock Inc (2.87%), Target Corp (2.8%), and Mastercard Inc Class A (2.72%) have a slightly smaller but still significant weight. NVIDIA Corp and Alphabet Inc Class A are also represented in the QUAL’s holdings at 2.71% and 2.49%.

SCHP - Holdings

SCHP Bond Sectors Weight
AAA 100.0%
Others 0.0%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

SCHP’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 100.0%, 0.0%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards BBB (0.0%), A (0.0%), and AA (0.0%) rated bonds.

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Risk Analysis

QUAL SCHP
Mean Return 0 0.28
R-squared 0 66.16
Std. Deviation 0 4.32
Alpha 0 -0.5
Beta 0 1.17
Sharpe Ratio 0 0.64
Treynor Ratio 0 2.31

The iShares MSCI USA Quality Factor ETF (QUAL) has a Mean Return of 0 with a R-squared of 0 and a Standard Deviation of 0. Its Alpha is 0 while QUAL’s Treynor Ratio is 0. Furthermore, the fund has a Sharpe Ratio of 0 and a Beta of 0.

The Schwab U.S. TIPS ETF (SCHP) has a Sharpe Ratio of 0.64 with a Standard Deviation of 4.32 and a Treynor Ratio of 2.31. Its Mean Return is 0.28 while SCHP’s R-squared is 66.16. Furthermore, the fund has a Alpha of -0.5 and a Beta of 1.17.

QUAL’s Mean Return is 0.28 points lower than that of SCHP and its R-squared is 66.16 points lower. With a Standard Deviation of 0, QUAL is slightly less volatile than SCHP. The Alpha and Beta of QUAL are 0.50 points higher and 1.17 points lower than SCHP’s Alpha and Beta.

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Performance

Annual Returns

QUAL vs. SCHP - Annual Returns

Year QUAL SCHP
2020 16.96% 10.94%
2019 34.14% 8.36%
2018 -5.77% -1.31%
2017 22.26% 2.95%
2016 9.18% 4.6%
2015 5.56% -1.5%
2014 11.62% 3.56%
2013 0.0% -8.66%
2012 0.0% 6.83%
2011 0.0% 13.38%
2010 0.0% 0.0%

QUAL had its best year in 2019 with an annual return of 34.14%. QUAL’s worst year over the past decade yielded -5.77% and occurred in 2018. In most years the iShares MSCI USA Quality Factor ETF provided moderate returns such as in 2010, 2015, and 2016 where annual returns amounted to 0.0%, 5.56%, and 9.18% respectively.

The year 2011 was the strongest year for SCHP, returning 13.38% on an annual basis. The poorest year for SCHP in the last ten years was 2013, with a yield of -8.66%. Most years the Schwab U.S. TIPS ETF has given investors modest returns, such as in 2017, 2014, and 2016, when gains were 2.95%, 3.56%, and 4.6% respectively.

Portfolio Growth

QUAL vs. SCHP - Portfolio Growth

Fund Initial Balance Final Balance CAGR
QUAL $10,000 $23,251 13.42%
SCHP $10,000 $13,032 3.92%

A $10,000 investment in QUAL would have resulted in a final balance of $23,251. This is a profit of $13,251 over 7 years and amounts to a compound annual growth rate (CAGR) of 13.42%.

With a $10,000 investment in SCHP, the end total would have been $13,032. This equates to a $3,032 profit over 7 years and a compound annual growth rate (CAGR) of 3.92%.

QUAL’s CAGR is 9.51 percentage points higher than that of SCHP and as a result, would have yielded $10,219 more on a $10,000 investment. Thus, QUAL outperformed SCHP by 9.51% annually.


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