SCHP vs. VMBS: What’s The Difference?

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

SCHP and VMBS have the same expense ratio: 0.05%. SCHP is mostly comprised of AAA bonds and VMBS has a high exposure to AAA bond. Overall, SCHP has provided higher returns than VMBS over the past 10 years.

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

Summary

SCHP VMBS
Name Schwab U.S. TIPS ETF Vanguard Mortgage-Backed Securities Index Fund ETF Shares
Category Inflation-Protected Bond Intermediate Government
Issuer Schwab ETFs Vanguard
AUM 18.41B 16.61B
Avg. Return 3.92% 2.89%
Div. Yield 1.97% 1.23%
Expense Ratio 0.05% 0.05%

The Schwab U.S. TIPS ETF (SCHP) is a Inflation-Protected Bond fund that is issued by Schwab ETFs. It currently has 18.41B total assets under management and has yielded an average annual return of 3.92% over the past 10 years. The fund has a dividend yield of 1.97% with an expense ratio of 0.05%.

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%.

SCHP’s dividend yield is 0.74% higher than that of VMBS (1.97% vs. 1.23%). Also, SCHP yielded on average 1.02% more per year over the past decade (3.92% vs. 2.89%). SCHP and VMBS have the same expense ratio: 0.05%.

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Fund Composition

Holdings

SCHP - Holdings

SCHP Bond Sectors Weight
AAA 100.0%
Others 0.0%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

SCHP’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 100.0%, 0.0%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards BBB (0.0%), A (0.0%), and AA (0.0%) rated bonds.

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

SCHP VMBS
Mean Return 0.28 0.21
R-squared 66.16 65.78
Std. Deviation 4.32 2.02
Alpha -0.5 0.37
Beta 1.17 0.54
Sharpe Ratio 0.64 0.94
Treynor Ratio 2.31 3.47

The Schwab U.S. TIPS ETF (SCHP) has a Beta of 1.17 with a Alpha of -0.5 and a Standard Deviation of 4.32. Its R-squared is 66.16 while SCHP’s Sharpe Ratio is 0.64. Furthermore, the fund has a Mean Return of 0.28 and a Treynor Ratio of 2.31.

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

SCHP’s Mean Return is 0.07 points higher than that of VMBS and its R-squared is 0.38 points higher. With a Standard Deviation of 4.32, SCHP is slightly more volatile than VMBS. The Alpha and Beta of SCHP are 0.87 points lower and 0.63 points higher than VMBS’s Alpha and Beta.

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Performance

Annual Returns

SCHP vs. VMBS - Annual Returns

Year SCHP VMBS
2020 10.94% 3.77%
2019 8.36% 6.17%
2018 -1.31% 0.87%
2017 2.95% 2.37%
2016 4.6% 1.43%
2015 -1.5% 1.43%
2014 3.56% 5.81%
2013 -8.66% -1.28%
2012 6.83% 2.47%
2011 13.38% 5.89%
2010 0.0% 5.24%

SCHP had its best year in 2011 with an annual return of 13.38%. SCHP’s worst year over the past decade yielded -8.66% and occurred in 2013. In most years the Schwab U.S. TIPS ETF provided moderate returns such as in 2017, 2014, and 2016 where annual returns amounted to 2.95%, 3.56%, and 4.6% 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

SCHP vs. VMBS - Portfolio Growth

Fund Initial Balance Final Balance CAGR
SCHP $10,000 $14,418 3.92%
VMBS $10,000 $13,265 2.89%

A $10,000 investment in SCHP would have resulted in a final balance of $14,418. This is a profit of $4,418 over 10 years and amounts to a compound annual growth rate (CAGR) of 3.92%.

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%.

SCHP’s CAGR is 1.02 percentage points higher than that of VMBS and as a result, would have yielded $1,153 more on a $10,000 investment. Thus, SCHP outperformed VMBS by 1.02% annually.


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