SCHF vs. VMBS: What’s The Difference?

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

The expense ratio of SCHF is 0.01 percentage points higher than VMBS’s (0.06% vs. 0.05%). SCHF also has a high exposure to the financial services sector while VMBS is mostly comprised of AAA bonds. Overall, SCHF has provided higher returns than VMBS over the past 10 years.

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

Summary

SCHF VMBS
Name Schwab International Equity ETF Vanguard Mortgage-Backed Securities Index Fund ETF Shares
Category Foreign Large Blend Intermediate Government
Issuer Schwab ETFs Vanguard
AUM 26.99B 16.61B
Avg. Return 6.43% 2.89%
Div. Yield 2.16% 1.23%
Expense Ratio 0.06% 0.05%

The Schwab International Equity ETF (SCHF) is a Foreign Large Blend fund that is issued by Schwab ETFs. It currently has 26.99B total assets under management and has yielded an average annual return of 6.43% over the past 10 years. The fund has a dividend yield of 2.16% 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%.

SCHF’s dividend yield is 0.93% higher than that of VMBS (2.16% vs. 1.23%). Also, SCHF yielded on average 3.54% more per year over the past decade (6.43% vs. 2.89%). The expense ratio of SCHF is 0.01 percentage points higher than VMBS’s (0.06% vs. 0.05%).

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Fund Composition

Holdings

SCHF - Holdings

SCHF Holdings Weight
Nestle SA 1.66%
Samsung Electronics Co Ltd 1.6%
ASML Holding NV 1.29%
Roche Holding AG 1.24%
Toyota Motor Corp 1.02%
LVMH Moet Hennessy Louis Vuitton SE 0.93%
Novartis AG 0.92%
Shopify Inc A 0.78%
AstraZeneca PLC 0.75%
SAP SE 0.74%

SCHF’s Top Holdings are Nestle SA, Samsung Electronics Co Ltd, ASML Holding NV, Roche Holding AG, and Toyota Motor Corp at 1.66%, 1.6%, 1.29%, 1.24%, and 1.02%.

LVMH Moet Hennessy Louis Vuitton SE (0.93%), Novartis AG (0.92%), and Shopify Inc A (0.78%) have a slightly smaller but still significant weight. AstraZeneca PLC and SAP SE are also represented in the SCHF’s holdings at 0.75% and 0.74%.

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.

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Risk Analysis

SCHF VMBS
Mean Return 0.58 0.21
R-squared 98.16 65.78
Std. Deviation 15.08 2.02
Alpha 0.53 0.37
Beta 0.99 0.54
Sharpe Ratio 0.42 0.94
Treynor Ratio 5.39 3.47

The Schwab International Equity ETF (SCHF) has a Sharpe Ratio of 0.42 with a Alpha of 0.53 and a Mean Return of 0.58. Its Standard Deviation is 15.08 while SCHF’s R-squared is 98.16. Furthermore, the fund has a Beta of 0.99 and a Treynor Ratio of 5.39.

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

SCHF’s Mean Return is 0.37 points higher than that of VMBS and its R-squared is 32.38 points higher. With a Standard Deviation of 15.08, SCHF is slightly more volatile than VMBS. The Alpha and Beta of SCHF are 0.16 points higher and 0.45 points higher than VMBS’s Alpha and Beta.

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Performance

Annual Returns

SCHF vs. VMBS - Annual Returns

Year SCHF VMBS
2020 9.86% 3.77%
2019 22.15% 6.17%
2018 -14.39% 0.87%
2017 25.83% 2.37%
2016 2.88% 1.43%
2015 -2.44% 1.43%
2014 -4.44% 5.81%
2013 20.03% -1.28%
2012 17.12% 2.47%
2011 -12.32% 5.89%
2010 8.6% 5.24%

SCHF had its best year in 2017 with an annual return of 25.83%. SCHF’s worst year over the past decade yielded -14.39% and occurred in 2018. In most years the Schwab International Equity ETF provided moderate returns such as in 2016, 2010, and 2020 where annual returns amounted to 2.88%, 8.6%, and 9.86% 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

SCHF vs. VMBS - Portfolio Growth

Fund Initial Balance Final Balance CAGR
SCHF $10,000 $17,089 6.43%
VMBS $10,000 $13,265 2.89%

A $10,000 investment in SCHF would have resulted in a final balance of $17,089. This is a profit of $7,089 over 10 years and amounts to a compound annual growth rate (CAGR) of 6.43%.

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%.

SCHF’s CAGR is 3.54 percentage points higher than that of VMBS and as a result, would have yielded $3,824 more on a $10,000 investment. Thus, SCHF outperformed VMBS by 3.54% annually.


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