SCHB vs. VMBS: What’s The Difference?

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

The expense ratio of SCHB is 0.02 percentage points lower than VMBS’s (0.03% vs. 0.05%). SCHB also has a high exposure to the technology sector while VMBS is mostly comprised of AAA bonds. Overall, SCHB has provided higher returns than VMBS over the past 10 years.

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

Summary

SCHB VMBS
Name Schwab U.S. Broad Market ETF Vanguard Mortgage-Backed Securities Index Fund ETF Shares
Category Large Blend Intermediate Government
Issuer Schwab ETFs Vanguard
AUM 21.44B 16.61B
Avg. Return 14.43% 2.89%
Div. Yield 1.39% 1.23%
Expense Ratio 0.03% 0.05%

The Schwab U.S. Broad Market ETF (SCHB) is a Large Blend fund that is issued by Schwab ETFs. It currently has 21.44B total assets under management and has yielded an average annual return of 14.43% over the past 10 years. The fund has a dividend yield of 1.39% with an expense ratio of 0.03%.

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%.

SCHB’s dividend yield is 0.16% higher than that of VMBS (1.39% vs. 1.23%). Also, SCHB yielded on average 11.54% more per year over the past decade (14.43% vs. 2.89%). The expense ratio of SCHB is 0.02 percentage points lower than VMBS’s (0.03% vs. 0.05%).

Fund Composition

Holdings

SCHB - Holdings

SCHB Holdings Weight
Apple Inc 4.86%
Microsoft Corp 4.61%
Amazon.com Inc 3.33%
Facebook Inc A 1.88%
Alphabet Inc A 1.66%
Alphabet Inc Class C 1.61%
Berkshire Hathaway Inc Class B 1.19%
Tesla Inc 1.18%
NVIDIA Corp 1.13%
JPMorgan Chase & Co 1.06%

SCHB’s Top Holdings are Apple Inc, Microsoft Corp, Amazon.com Inc, Facebook Inc A, and Alphabet Inc A at 4.86%, 4.61%, 3.33%, 1.88%, and 1.66%.

Alphabet Inc Class C (1.61%), Berkshire Hathaway Inc Class B (1.19%), and Tesla Inc (1.18%) have a slightly smaller but still significant weight. NVIDIA Corp and JPMorgan Chase & Co are also represented in the SCHB’s holdings at 1.13% and 1.06%.

VMBS - Holdings

VMBS Bond Sectors Weight
AAA 100.01%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%
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.

Risk Analysis

SCHB VMBS
Mean Return 1.23 0.21
R-squared 99.33 65.78
Std. Deviation 14.12 2.02
Alpha -0.58 0.37
Beta 1.04 0.54
Sharpe Ratio 1 0.94
Treynor Ratio 13.58 3.47

The Schwab U.S. Broad Market ETF (SCHB) has a Standard Deviation of 14.12 with a Mean Return of 1.23 and a Alpha of -0.58. Its R-squared is 99.33 while SCHB’s Beta is 1.04. Furthermore, the fund has a Treynor Ratio of 13.58 and a Sharpe Ratio of 1.

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

SCHB’s Mean Return is 1.02 points higher than that of VMBS and its R-squared is 33.55 points higher. With a Standard Deviation of 14.12, SCHB is slightly more volatile than VMBS. The Alpha and Beta of SCHB are 0.95 points lower and 0.50 points higher than VMBS’s Alpha and Beta.

Performance

Annual Returns

SCHB vs. VMBS - Annual Returns

Year SCHB VMBS
2020 20.77% 3.77%
2019 30.94% 6.17%
2018 -5.25% 0.87%
2017 21.18% 2.37%
2016 12.56% 1.43%
2015 0.45% 1.43%
2014 12.67% 5.81%
2013 33.37% -1.28%
2012 16.22% 2.47%
2011 1.4% 5.89%
2010 17.1% 5.24%

SCHB had its best year in 2013 with an annual return of 33.37%. SCHB’s worst year over the past decade yielded -5.25% and occurred in 2018. In most years the Schwab U.S. Broad Market ETF provided moderate returns such as in 2014, 2012, and 2010 where annual returns amounted to 12.67%, 16.22%, and 17.1% 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

SCHB vs. VMBS - Portfolio Growth

Fund Initial Balance Final Balance CAGR
SCHB $10,000 $36,354 14.43%
VMBS $10,000 $13,265 2.89%

A $10,000 investment in SCHB would have resulted in a final balance of $36,354. This is a profit of $26,354 over 10 years and amounts to a compound annual growth rate (CAGR) of 14.43%.

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%.

SCHB’s CAGR is 11.54 percentage points higher than that of VMBS and as a result, would have yielded $23,089 more on a $10,000 investment. Thus, SCHB outperformed VMBS by 11.54% annually.


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