The Schwab U.S. Dividend Equity ETF (SCHD) and the Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) are both among the Top 100 ETFs. SCHD is a Schwab ETFs Large Value fund and VMBS is a Vanguard Intermediate Government fund. So, what’s the difference between SCHD and VMBS? And which fund is better?
The expense ratio of SCHD is 0.01 percentage points higher than VMBS’s (0.06% vs. 0.05%). SCHD also has a high exposure to the financial services sector while VMBS is mostly comprised of AAA bonds. Overall, SCHD has provided higher returns than VMBS over the past 8 years.
In this article, we’ll compare SCHD vs. VMBS. We’ll look at fund composition and industry exposure, as well as at their portfolio growth and holdings. Moreover, I’ll also discuss SCHD’s and VMBS’s performance, risk metrics, and annual returns and examine how these affect their overall returns.
Summary
| SCHD | VMBS | |
| Name | Schwab U.S. Dividend Equity ETF | Vanguard Mortgage-Backed Securities Index Fund ETF Shares |
| Category | Large Value | Intermediate Government |
| Issuer | Schwab ETFs | Vanguard |
| AUM | 26B | 16.61B |
| Avg. Return | 14.80% | 2.89% |
| Div. Yield | 2.89% | 1.23% |
| Expense Ratio | 0.06% | 0.05% |
The Schwab U.S. Dividend Equity ETF (SCHD) is a Large Value fund that is issued by Schwab ETFs. It currently has 26B total assets under management and has yielded an average annual return of 14.80% over the past 10 years. The fund has a dividend yield of 2.89% with an expense ratio of 0.06%.
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%.
SCHD’s dividend yield is 1.66% higher than that of VMBS (2.89% vs. 1.23%). Also, SCHD yielded on average 11.91% more per year over the past decade (14.80% vs. 2.89%). The expense ratio of SCHD is 0.01 percentage points higher than VMBS’s (0.06% vs. 0.05%).
Fund Composition
Holdings
| SCHD Holdings | Weight |
| Merck & Co Inc | 4.24% |
| The Home Depot Inc | 4.19% |
| Texas Instruments Inc | 4.16% |
| Broadcom Inc | 4.15% |
| Amgen Inc | 4.11% |
| PepsiCo Inc | 4.09% |
| BlackRock Inc | 4.05% |
| Pfizer Inc | 3.97% |
| Verizon Communications Inc | 3.96% |
| Cisco Systems Inc | 3.96% |
SCHD’s Top Holdings are Merck & Co Inc, The Home Depot Inc, Texas Instruments Inc, Broadcom Inc, and Amgen Inc at 4.24%, 4.19%, 4.16%, 4.15%, and 4.11%.
PepsiCo Inc (4.09%), BlackRock Inc (4.05%), and Pfizer Inc (3.97%) have a slightly smaller but still significant weight. Verizon Communications Inc and Cisco Systems Inc are also represented in the SCHD’s holdings at 3.96% and 3.96%.
| 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
| SCHD | VMBS | |
| Mean Return | 0 | 0.21 |
| R-squared | 0 | 65.78 |
| Std. Deviation | 0 | 2.02 |
| Alpha | 0 | 0.37 |
| Beta | 0 | 0.54 |
| Sharpe Ratio | 0 | 0.94 |
| Treynor Ratio | 0 | 3.47 |
The Schwab U.S. Dividend Equity ETF (SCHD) has a Sharpe Ratio of 0 with a Treynor Ratio of 0 and a Alpha of 0. Its Mean Return is 0 while SCHD’s Standard Deviation is 0. Furthermore, the fund has a Beta of 0 and a R-squared of 0.
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 Beta of 0.54. Its Alpha is 0.37 while VMBS’s Treynor Ratio is 3.47. Furthermore, the fund has a Mean Return of 0.21 and a Standard Deviation of 2.02.
SCHD’s Mean Return is 0.21 points lower than that of VMBS and its R-squared is 65.78 points lower. With a Standard Deviation of 0, SCHD is slightly less volatile than VMBS. The Alpha and Beta of SCHD are 0.37 points lower and 0.54 points lower than VMBS’s Alpha and Beta.
Performance
Annual Returns
| Year | SCHD | VMBS |
| 2020 | 15.11% | 3.77% |
| 2019 | 27.28% | 6.17% |
| 2018 | -5.46% | 0.87% |
| 2017 | 20.88% | 2.37% |
| 2016 | 16.25% | 1.43% |
| 2015 | -0.21% | 1.43% |
| 2014 | 11.66% | 5.81% |
| 2013 | 32.9% | -1.28% |
| 2012 | 11.4% | 2.47% |
| 2011 | 0.0% | 5.89% |
| 2010 | 0.0% | 5.24% |
SCHD had its best year in 2013 with an annual return of 32.9%. SCHD’s worst year over the past decade yielded -5.46% and occurred in 2018. In most years the Schwab U.S. Dividend Equity ETF provided moderate returns such as in 2012, 2014, and 2020 where annual returns amounted to 11.4%, 11.66%, and 15.11% 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
| Fund | Initial Balance | Final Balance | CAGR |
| SCHD | $10,000 | $28,823 | 14.80% |
| VMBS | $10,000 | $12,225 | 2.89% |
A $10,000 investment in SCHD would have resulted in a final balance of $28,823. This is a profit of $18,823 over 8 years and amounts to a compound annual growth rate (CAGR) of 14.80%.
With a $10,000 investment in VMBS, the end total would have been $12,225. This equates to a $2,225 profit over 8 years and a compound annual growth rate (CAGR) of 2.89%.
SCHD’s CAGR is 11.91 percentage points higher than that of VMBS and as a result, would have yielded $16,598 more on a $10,000 investment. Thus, SCHD outperformed VMBS by 11.91% annually.
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