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SCHA vs. VMBS: What’s The Difference?

The Schwab U.S. Small-Cap ETF (SCHA) and the Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) are both among the Top 100 ETFs. SCHA is a Schwab ETFs Small Blend fund and VMBS is a Vanguard Intermediate Government fund. So, what’s the difference between SCHA and VMBS? And which fund is better?

The expense ratio of SCHA is 0.01 percentage points lower than VMBS’s (0.04% vs. 0.05%). SCHA also has a high exposure to the healthcare sector while VMBS is mostly comprised of AAA bonds. Overall, SCHA has provided higher returns than VMBS over the past 10 years.

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

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Summary

SCHAVMBS
NameSchwab U.S. Small-Cap ETFVanguard Mortgage-Backed Securities Index Fund ETF Shares
CategorySmall BlendIntermediate Government
IssuerSchwab ETFsVanguard
AUM16.51B16.61B
Avg. Return12.62%2.89%
Div. Yield0.98%1.23%
Expense Ratio0.04%0.05%

The Schwab U.S. Small-Cap ETF (SCHA) is a Small Blend fund that is issued by Schwab ETFs. It currently has 16.51B total assets under management and has yielded an average annual return of 12.62% over the past 10 years. The fund has a dividend yield of 0.98% with an expense ratio of 0.04%.

The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) is a Intermediate Government fund that is issued by Vanguard. It currently has 16.61B total assets under management and has yielded an average annual return of 2.89% over the past 10 years. The fund has a dividend yield of 1.23% with an expense ratio of 0.05%.

SCHA’s dividend yield is 0.25% lower than that of VMBS (0.98% vs. 1.23%). Also, SCHA yielded on average 9.73% more per year over the past decade (12.62% vs. 2.89%). The expense ratio of SCHA is 0.01 percentage points lower than VMBS’s (0.04% vs. 0.05%).

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Fund Composition

Holdings

SCHA - Holdings

SCHA HoldingsWeight
AMC Entertainment Holdings Inc Class A0.67%
Caesars Entertainment Inc0.51%
Cloudflare Inc0.48%
NovoCure Ltd0.45%
Plug Power Inc0.41%
10x Genomics Inc Ordinary Shares – Class A0.34%
GameStop Corp Class A0.28%
RH0.27%
Penn National Gaming Inc0.27%
Axon Enterprise Inc0.27%

SCHA’s Top Holdings are AMC Entertainment Holdings Inc Class A, Caesars Entertainment Inc, Cloudflare Inc, NovoCure Ltd, and Plug Power Inc at 0.67%, 0.51%, 0.48%, 0.45%, and 0.41%.

10x Genomics Inc Ordinary Shares – Class A (0.34%), GameStop Corp Class A (0.28%), and RH (0.27%) have a slightly smaller but still significant weight. Penn National Gaming Inc and Axon Enterprise Inc are also represented in the SCHA’s holdings at 0.27% and 0.27%.

VMBS - Holdings

VMBS Bond SectorsWeight
AAA100.01%
Below B0.0%
B0.0%
BB0.0%
BBB0.0%
A0.0%
AA0.0%
US Government0.0%
Others-0.01%

VMBS’s Top Bond Sectors are ratings of AAA, Below B, B, BB, and BBB at 100.01%, 0.0%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards A (0.0%), AA (0.0%), and US Government (0.0%) rated bonds.

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Risk Analysis

SCHAVMBS
Mean Return1.140.21
R-squared82.2665.78
Std. Deviation18.682.02
Alpha-4.650.37
Beta1.250.54
Sharpe Ratio0.70.94
Treynor Ratio9.623.47

The Schwab U.S. Small-Cap ETF (SCHA) has a Mean Return of 1.14 with a Sharpe Ratio of 0.7 and a R-squared of 82.26. Its Standard Deviation is 18.68 while SCHA’s Treynor Ratio is 9.62. Furthermore, the fund has a Beta of 1.25 and a Alpha of -4.65.

The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) has a R-squared of 65.78 with a Beta of 0.54 and a Treynor Ratio of 3.47. Its Alpha is 0.37 while VMBS’s Mean Return is 0.21. Furthermore, the fund has a Standard Deviation of 2.02 and a Sharpe Ratio of 0.94.

SCHA’s Mean Return is 0.93 points higher than that of VMBS and its R-squared is 16.48 points higher. With a Standard Deviation of 18.68, SCHA is slightly more volatile than VMBS. The Alpha and Beta of SCHA are 5.02 points lower and 0.71 points higher than VMBS’s Alpha and Beta.

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Performance

Annual Returns

SCHA vs. VMBS - Annual Returns

YearSCHAVMBS
202019.35%3.77%
201926.54%6.17%
2018-11.75%0.87%
201715.04%2.37%
201619.88%1.43%
2015-4.24%1.43%
20146.53%5.81%
201339.59%-1.28%
201218.24%2.47%
2011-2.95%5.89%
201028.31%5.24%

SCHA had its best year in 2013 with an annual return of 39.59%. SCHA’s worst year over the past decade yielded -11.75% and occurred in 2018. In most years the Schwab U.S. Small-Cap ETF provided moderate returns such as in 2017, 2012, and 2020 where annual returns amounted to 15.04%, 18.24%, and 19.35% respectively.

The year 2019 was the strongest year for VMBS, returning 6.17% on an annual basis. The poorest year for VMBS in the last ten years was 2013, with a yield of -1.28%. Most years the Vanguard Mortgage-Backed Securities Index Fund ETF Shares has given investors modest returns, such as in 2017, 2012, and 2020, when gains were 2.37%, 2.47%, and 3.77% respectively.

Portfolio Growth

SCHA vs. VMBS - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
SCHA$10,000$30,03512.62%
VMBS$10,000$13,2652.89%

A $10,000 investment in SCHA would have resulted in a final balance of $30,035. This is a profit of $20,035 over 10 years and amounts to a compound annual growth rate (CAGR) of 12.62%.

With a $10,000 investment in VMBS, the end total would have been $13,265. This equates to a $3,265 profit over 10 years and a compound annual growth rate (CAGR) of 2.89%.

SCHA’s CAGR is 9.73 percentage points higher than that of VMBS and as a result, would have yielded $16,770 more on a $10,000 investment. Thus, SCHA outperformed VMBS by 9.73% annually.


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