As someone who is interested in investing, I am always on the lookout for new opportunities to grow my portfolio.
One area that has caught my attention lately is the difference between SCHP and VTIP ETFs.
While both of these funds focus on inflation-protected securities, there are some key differences that can impact your investment strategy.
SCHP vs VTIP: For starters, it’s important to understand what each of these ETFs is designed to do. SCHP, or the Schwab U.S. TIPS ETF, seeks to track the performance of the Bloomberg Barclays U.S. Treasury Inflation-Protected Securities (TIPS) Index.
Meanwhile, VTIP, or the Vanguard Short-Term Inflation-Protected Securities Index Fund ETF, aims to replicate the performance of the Bloomberg Barclays U.S. Treasury Inflation-Protected Securities 0-5 Year Index.
While both funds offer exposure to inflation-protected securities, there are some key differences to consider.
For example, SCHP has a higher dividend yield and has yielded more per year over the past decade compared to VTIP.
VTIP has a lower expense ratio, which could make it a more cost-effective option for some investors.
It’s important to weigh these factors and consider your own investment goals and risk tolerance when deciding which ETF to invest in.
Table of Contents
Overview of SCHP vs VTIP
SCHP and VTIP are two popular ETFs that investors can use to gain exposure to the US Treasury bond market.
Both funds are passive ETFs, meaning that they are not actively managed but aim to replicate the performance of the underlying index as closely as possible.
SCHP tracks the Bloomberg Barclays U.S. Treasury Inflation-Protected Securities (TIPS) 0-5 Years Index, which includes TIPS with a remaining maturity of at least one year and less than five years.
On the other hand, VTIP tracks the Bloomberg Barclays U.S. Treasury 1-5 Year Index, which includes US Treasury bonds with a remaining maturity of at least one year and less than five years.
When it comes to expenses, VTIP has a lower expense ratio of 0.04% compared to SCHP’s expense ratio of 0.05%.
However, SCHP has provided higher returns than VTIP over the past 7 years.
Both funds have a similar number of assets under management, with SCHP having 8.96 Billion in assets under management, while VTIP has 32.4 Billion.
Fund size is a good indication of how many other investors trust these funds.
In terms of holdings and industry exposure, both funds have a high allocation to the US Treasury bond market.
However, SCHP has a longer average maturity of 8 years compared to VTIP’s average maturity of 2.8 years.
This means that SCHP is more sensitive to interest rate changes and may experience higher volatility than VTIP.
Both SCHP and VTIP are good options for investors looking to gain exposure to the US Treasury bond market.
I just love dividends, check out VOO vs SCHD and VTV vs VYM.
Investors should consider their investment objectives, risk tolerance, and investment horizon before choosing between the two funds.
Investment Objectives SCHP vs VTIP
When comparing SCHP and VTIP, it is important to understand their investment objectives.
Both funds aim to provide investors with exposure to U.S. Treasury Inflation-Protected Securities (TIPS), which are bonds issued by the U.S. government that offer protection against inflation.
However, there are some differences in their investment objectives that investors should be aware of.
SCHP Investment Objectives
SCHP, or the Schwab U.S. TIPS ETF, seeks to track the performance of the Bloomberg Barclays U.S. Treasury Inflation-Protected Securities (TIPS) Index.
This index measures the performance of inflation-protected public obligations of the U.S. Treasury with remaining maturities of one year or more. SCHP invests in a diversified portfolio of TIPS with maturities ranging from one to 30 years.
The investment objective of SCHP is to provide investors with inflation protection and income by investing in TIPS. As a result, SCHP may be suitable for investors who are concerned about inflation and want to protect their purchasing power over the long term.
VTIP Investment Objectives
VTIP, or the Vanguard Short-Term Inflation-Protected Securities ETF, seeks to track the performance of the Bloomberg Barclays U.S. Treasury Inflation-Protected Securities (TIPS) 0-5 Year Index.
This index measures the performance of inflation-protected public obligations of the U.S. Treasury with remaining maturities of less than five years. VTIP invests in a diversified portfolio of TIPS with maturities ranging from one month to five years.
The investment objective of VTIP is to provide investors with inflation protection over the short term by investing in TIPS with maturities of less than five years.
As a result, VTIP may be suitable for investors who are concerned about inflation over the short term and want to protect their purchasing power without taking on too much interest rate risk.
Risk and Return Comparison SCHP vs VTIP
SCHP Risk and Return
When considering investing in SCHP, it is important to note that it is a passive ETF that aims to replicate the performance of the underlying index as closely as possible.
SCHP has a 0.05% expense ratio, which is slightly higher than VTIP’s 0.04% expense ratio. The ETF has a dividend yield of 1.97%, which is 0.62% higher than that of VTIP.
Over the past decade, SCHP has yielded on average 2.12% more per year than VTIP (3.92% vs. 1.79%).
It is important to note that SCHP’s volatility is higher than VTIP’s due to its longer maturity. SCHP’s weighted average maturity is 8 years, compared to VTIP’s 2.5 years.
VTIP Risk and Return
VTIP is also a passive ETF that aims to replicate the performance of the underlying index. It has a 0.04% expense ratio, which is lower than SCHP’s 0.05% expense ratio. The ETF has a dividend yield of 1.35%, which is lower than SCHP’s dividend yield.
VTIP invests in short-term TIPS with a duration of around 2.5 years, resulting in a lower risk/return profile compared to SCHP.
Note that VTIP still provides a low-risk investment option with a focus on inflation protection.
Comparison of SCHP vs VTIP Risk and Return
| SCHP | VTIP | |
|---|---|---|
| Expense Ratio | 0.05% | 0.04% |
| Dividend Yield | 1.97% | 1.35% |
| Average Annual Yield (Past Decade) | 3.92% | 1.79% |
| Weighted Average Maturity | 8 years | 2.5 years |
SCHP has a higher risk/return profile compared to VTIP due to its longer maturity and higher volatility.
However, SCHP also provides a higher yield and has yielded on average more per year over the past decade.
VTIP provides a low-risk investment option with a focus on inflation protection and a lower expense ratio.
Expense Ratio Comparison SCHP vs VTIP
When it comes to choosing between SCHP and VTIP, one of the most important factors to consider is the expense ratio.
As of the current date, SCHP has an expense ratio of 0.05%, while VTIP has an expense ratio of 0.04%.
While this may seem like a small difference, it can add up over time and have a significant impact on your investment returns.
It’s important to note that expense ratios are not the only costs associated with investing in ETFs. There may also be trading costs, taxes, and other fees that can affect your returns.
The expense ratio is a good place to start when comparing the costs of different ETFs.
When it comes to the expense ratio, VTIP has a slight advantage over SCHP. However, it’s important to consider other factors as well, such as performance, risk, and diversification.
The best ETF for you will depend on your individual investment goals and risk tolerance.
Here’s a quick breakdown of the expense ratio comparison:
| ETF | Expense Ratio |
|---|---|
| SCHP | 0.05% |
| VTIP | 0.04% |
As you can see, VTIP has a slightly lower expense ratio than SCHP. However, it’s important to consider other factors as well when making investment decisions.
Tax Efficiency Comparison SCHP vs VTIP
When it comes to tax efficiency, both SCHP and VTIP are relatively tax-efficient bond ETFs. However, there are some differences to consider.
Firstly, SCHP has a slightly higher turnover rate compared to VTIP, which could result in higher capital gains taxes for investors holding SCHP in a taxable account.
SCHP has a turnover rate of 34%, while VTIP has a turnover rate of 18%. Secondly, SCHP invests in TIPS (Treasury Inflation-Protected Securities), which are exempt from state and local income taxes.
This can be an advantage for investors who live in states with high income tax rates. On the other hand, VTIP invests in short-term Treasury bonds, which are subject to federal, state, and local income taxes.
It’s worth noting that both SCHP and VTIP are designed to be tax-efficient ETFs, so investors can expect to pay lower taxes compared to actively managed bond funds.
While both SCHP and VTIP are relatively tax-efficient bond ETFs, investors should consider the differences in turnover rate and investment strategy when deciding which ETF is best suited for their needs.
The Bottom Line SCHP vs VTIP
After analyzing the various metrics and data, I believe that both SCHP and VTIP are solid options for investors looking to add inflation-protected bonds to their portfolio.
Each ETF has its own unique characteristics that may make one more suitable for certain investors than the other.
For investors who prioritize a higher dividend yield, SCHP may be the better choice, as it currently offers a yield of 7.12% compared to VTIP’s 6.80% yield.
However, it’s important to note that SCHP’s Sharpe Ratio is currently lower than VTIP’s, indicating higher risk and volatility.
On the other hand, VTIP may be a better option for investors who prioritize lower risk and volatility, as its Sharpe Ratio is currently higher than SCHP’s.
Additionally, VTIP has a shorter weighted average maturity, which may be more suitable for investors who are concerned about rising interest rates.
The decision between SCHP and VTIP will depend on an investor’s individual goals, risk tolerance, and investment strategy.
It’s important to carefully consider all of the available information and consult with a financial advisor before making any investment decisions.
