The Schwab U.S. Large-Cap Growth ETF (SCHG) and the Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) are both among the Top 100 ETFs. SCHG is a Schwab ETFs Large Growth fund and VMBS is a Vanguard Intermediate Government fund. So, what’s the difference between SCHG and VMBS? And which fund is better?
The expense ratio of SCHG is 0.01 percentage points lower than VMBS’s (0.04% vs. 0.05%). SCHG also has a high exposure to the technology sector while VMBS is mostly comprised of AAA bonds. Overall, SCHG has provided higher returns than VMBS over the past 10 years.
In this article, we’ll compare SCHG vs. VMBS. We’ll look at annual returns and holdings, as well as at their risk metrics and industry exposure. Moreover, I’ll also discuss SCHG’s and VMBS’s performance, fund composition, and portfolio growth and examine how these affect their overall returns.
Summary
| SCHG | VMBS | |
| Name | Schwab U.S. Large-Cap Growth ETF | Vanguard Mortgage-Backed Securities Index Fund ETF Shares |
| Category | Large Growth | Intermediate Government |
| Issuer | Schwab ETFs | Vanguard |
| AUM | 15.16B | 16.61B |
| Avg. Return | 17.81% | 2.89% |
| Div. Yield | 0.43% | 1.23% |
| Expense Ratio | 0.04% | 0.05% |
The Schwab U.S. Large-Cap Growth ETF (SCHG) is a Large Growth fund that is issued by Schwab ETFs. It currently has 15.16B total assets under management and has yielded an average annual return of 17.81% over the past 10 years. The fund has a dividend yield of 0.43% 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%.
SCHG’s dividend yield is 0.80% lower than that of VMBS (0.43% vs. 1.23%). Also, SCHG yielded on average 14.92% more per year over the past decade (17.81% vs. 2.89%). The expense ratio of SCHG is 0.01 percentage points lower than VMBS’s (0.04% vs. 0.05%).
Fund Composition
Holdings
| SCHG Holdings | Weight |
| Apple Inc | 11.49% |
| Microsoft Corp | 10.91% |
| Amazon.com Inc | 7.89% |
| Facebook Inc A | 4.45% |
| Alphabet Inc A | 3.93% |
| Alphabet Inc Class C | 3.82% |
| Tesla Inc | 2.8% |
| NVIDIA Corp | 2.67% |
| Visa Inc Class A | 2.12% |
| UnitedHealth Group Inc | 2.02% |
SCHG’s Top Holdings are Apple Inc, Microsoft Corp, Amazon.com Inc, Facebook Inc A, and Alphabet Inc A at 11.49%, 10.91%, 7.89%, 4.45%, and 3.93%.
Alphabet Inc Class C (3.82%), Tesla Inc (2.8%), and NVIDIA Corp (2.67%) have a slightly smaller but still significant weight. Visa Inc Class A and UnitedHealth Group Inc are also represented in the SCHG’s holdings at 2.12% and 2.02%.
| 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
| SCHG | VMBS | |
| Mean Return | 1.46 | 0.21 |
| R-squared | 92.92 | 65.78 |
| Std. Deviation | 14.78 | 2.02 |
| Alpha | 1.97 | 0.37 |
| Beta | 1.05 | 0.54 |
| Sharpe Ratio | 1.14 | 0.94 |
| Treynor Ratio | 16.3 | 3.47 |
The Schwab U.S. Large-Cap Growth ETF (SCHG) has a Treynor Ratio of 16.3 with a Beta of 1.05 and a R-squared of 92.92. Its Standard Deviation is 14.78 while SCHG’s Sharpe Ratio is 1.14. Furthermore, the fund has a Alpha of 1.97 and a Mean Return of 1.46.
The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) has a Treynor Ratio of 3.47 with a Alpha of 0.37 and a Beta of 0.54. Its Sharpe Ratio is 0.94 while VMBS’s Standard Deviation is 2.02. Furthermore, the fund has a R-squared of 65.78 and a Mean Return of 0.21.
SCHG’s Mean Return is 1.25 points higher than that of VMBS and its R-squared is 27.14 points higher. With a Standard Deviation of 14.78, SCHG is slightly more volatile than VMBS. The Alpha and Beta of SCHG are 1.60 points higher and 0.51 points higher than VMBS’s Alpha and Beta.
Performance
Annual Returns
| Year | SCHG | VMBS |
| 2020 | 39.13% | 3.77% |
| 2019 | 36.21% | 6.17% |
| 2018 | -1.35% | 0.87% |
| 2017 | 28.04% | 2.37% |
| 2016 | 6.76% | 1.43% |
| 2015 | 3.26% | 1.43% |
| 2014 | 15.74% | 5.81% |
| 2013 | 33.96% | -1.28% |
| 2012 | 17.02% | 2.47% |
| 2011 | -0.67% | 5.89% |
| 2010 | 16.83% | 5.24% |
SCHG had its best year in 2020 with an annual return of 39.13%. SCHG’s worst year over the past decade yielded -1.35% and occurred in 2018. In most years the Schwab U.S. Large-Cap Growth ETF provided moderate returns such as in 2014, 2010, and 2012 where annual returns amounted to 15.74%, 16.83%, and 17.02% 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 |
| SCHG | $10,000 | $47,556 | 17.81% |
| VMBS | $10,000 | $13,265 | 2.89% |
A $10,000 investment in SCHG would have resulted in a final balance of $47,556. This is a profit of $37,556 over 10 years and amounts to a compound annual growth rate (CAGR) of 17.81%.
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%.
SCHG’s CAGR is 14.92 percentage points higher than that of VMBS and as a result, would have yielded $34,291 more on a $10,000 investment. Thus, SCHG outperformed VMBS by 14.92% annually.
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