BND vs SCHZ: the Better Investment?LAST UPDATED: July 10, 2023 | By Conrad Golly
When it comes to investing in bonds, there are many options available, including exchange-traded funds (ETFs) like BND and SCHZ. Both BND and SCHZ are popular bond ETFs that offer investors exposure to a diversified portfolio of bonds. However, investors may be wondering which one is better for their portfolio.
BND vs SCHZ: To answer this question, we conducted research and compared the two bond ETFs. We looked at several metrics, including fees, performance, dividend yield, holdings, and technical indicators.
We also analyzed the composition of each ETF to determine which one is more heavily weighted towards AAA-rated bonds. Our findings may help investors make a more informed decision when choosing between BND and SCHZ for their bond investments.
Overview of BND and SCHZ
What are BND vs SCHZ?
When it comes to investing in bond ETFs, two of the most popular options are Vanguard Total Bond Market ETF (BND) and Schwab U.S. Aggregate Bond ETF (SCHZ). Both BND and SCHZ are designed to track the performance of the broad U.S. investment-grade bond market.
Issuer and Fund Composition BND vs SCHZ
BND is issued by Vanguard, one of the largest investment management companies in the world. The fund seeks to track the performance of the Bloomberg Barclays U.S. Aggregate Float Adjusted Index, which includes a wide range of investment-grade bonds such as U.S. Treasury bonds, mortgage-backed securities, and corporate bonds.
On the other hand, SCHZ is issued by Charles Schwab, a financial services company. The fund aims to track the performance of the Bloomberg Barclays U.S. Aggregate Bond Index, which includes similar investment-grade bonds as BND.
In terms of fund composition, SCHZ is weighted more towards AAA-rated bonds than BND, with around 75% of its portfolio in AAA-rated bonds compared to 66% for BND. This means that SCHZ may be a better option for investors looking for higher credit quality bonds.
Expense Ratio and AUM BND vs SCHZ
One important factor to consider when investing in ETFs is the expense ratio. BND has an expense ratio of 0.035%, while SCHZ has an expense ratio of 0.04%. This means that BND is slightly cheaper to invest in than SCHZ.
As of April 30, 2023, BND has an AUM of $114.1 billion, while SCHZ has an AUM of $28.8 billion. This means that BND is a more popular choice among investors, but SCHZ has still managed to attract a significant amount of assets.
Performance Comparison BND vs SCHZ
When it comes to comparing BND and SCHZ, performance is a key factor to consider. In this section, we will take a closer look at how these two ETFs have performed in terms of returns, volatility, drawdown, Sharpe ratio, and credit quality.
Returns and Volatility Comparison BND vs SCHZ
Looking at the past performance of BND and SCHZ, we can see that SCHZ has had a slightly higher overall return than BND, with a compound annual growth rate (CAGR) of 3.33% compared to 3.32% for BND. However, it is important to note that past performance does not guarantee future results.
In terms of volatility, SCHZ has experienced less volatility on an annual basis than BND. This can be seen in the lower standard deviation of SCHZ compared to BND.
Drawdown and Sharpe Ratio Comparison BND vs SCHZ
When it comes to drawdown, SCHZ has experienced a lower maximum drawdown over the past decade compared to BND. This means that SCHZ has had a smaller percentage decline from its peak value than BND.
In terms of risk-adjusted performance comparison, the Sharpe ratio can be a useful metric to consider. The Sharpe ratio measures the excess return of an investment compared to the risk-free rate, adjusted for its volatility.
Looking at the Sharpe ratio, we can see that SCHZ has had a slightly higher Sharpe ratio than BND over the past decade.
Credit Quality and Maximum Drawdown Comparison BND vs SCHZ
Credit quality is another important factor to consider when comparing BND and SCHZ. SCHZ is weighted more towards AAA-rated bonds than BND, with around 75% of its holdings being AAA-rated compared to 66% for BND.
When it comes to maximum drawdown, SCHZ has experienced a lower maximum drawdown over the past decade compared to BND. This means that SCHZ has had a smaller percentage decline from its peak value than BND.
While SCHZ has had a slightly higher overall return than BND and has experienced less volatility and drawdown, it is important to consider all the factors when making an investment decision.
Bottom Line BND vs SCHZ
When it comes to choosing between BND and SCHZ, we recommend investors to evaluate their investment goals and risk tolerance before making a final decision. Here are some actionable advice, suitability, and tax advice to help you make an informed decision.
Actionable Advice BND vs SCHZ
BND and SCHZ are both excellent investment options for investors looking to diversify their portfolio with a core bond fund. However, if you are looking for a low-cost option, SCHZ may be a better choice as it has a slightly lower expense ratio than BND.
On the other hand, if you prefer a fund with a longer track record, BND has been around for over a decade, while SCHZ was launched in 2012. Additionally, BND has a slightly higher yield than SCHZ, which may be attractive to income-seeking investors.
Suitability BND vs SCHZ
Before investing in any fund, it is essential to evaluate your investment goals and risk tolerance to determine if it is a suitable option for you. Both BND and SCHZ invest in investment-grade bonds, making them suitable for conservative investors who prioritize capital preservation over capital appreciation.
However, if you have a higher risk tolerance and are willing to take on more risk for potentially higher returns, you may want to consider investing in a high-yield bond fund or a stock fund instead.
ETF Comparison BND vs SCHZ
When it comes to investing in bond ETFs, BND and SCHZ are two of the most popular options. In this section, we will compare the two ETFs in terms of their expense ratios and dividends.
Expense Ratio Comparison BND vs SCHZ
The expense ratio is the annual fee charged by an ETF to cover management costs. When it comes to expense ratios, SCHZ has a slightly lower ratio of 0.03% compared to BND’s 0.04%. This means that SCHZ is slightly more cost-effective than BND.
Dividend Comparison BND vs SCHZ
Dividends are a portion of a company’s earnings that are paid out to shareholders. Both BND and SCHZ pay dividends to their shareholders, but the dividend yield is slightly higher for BND at 2.21% compared to SCHZ’s 1.85%. This means that BND may provide a slightly higher income stream for investors.
When comparing the two ETFs, it’s important to consider your investment goals and risk tolerance. Both BND and SCHZ have similar compositions and are designed to provide exposure to a broad range of investment-grade bonds. However, SCHZ has a slightly higher return and lower volatility than BND. Additionally, SCHZ is weighted more towards AAA-rated bonds than BND.
Risk Metrics SCHZ Vs BND
When comparing bond funds like BND and SCHZ, it is important to consider various risk metrics. In this section, we will discuss the interest rate risks, maturity, credit quality, and security of these two funds.
Interest Rate Risks and Maturity SCHZ Vs BND
Interest rate risks refer to the possibility of changes in interest rates affecting the value of the bonds in the fund. Both BND and SCHZ invest in a mix of corporate bonds, treasury bonds, real estate debt, and debentures. As such, they are both exposed to interest rate risks.
However, BND has a slightly longer average maturity compared to SCHZ, which means it may be more sensitive to interest rate changes. BND has an average maturity of 8.2 years, while SCHZ has an average maturity of 6.4 years.
Credit Quality SCHZ Vs BND
Credit quality refers to the likelihood of the bond issuer defaulting on its debt obligations. Both BND and SCHZ invest in investment-grade debt, which means they invest in bonds with a low risk of default.
However, SCHZ has a higher allocation towards AAA-rated bonds compared to BND. SCHZ has around 75% of its portfolio invested in AAA-rated bonds, while BND has around 66% of its portfolio invested in AAA-rated bonds.
Security SCHZ Vs BND
Security refers to the collateral or assets that back the bond in case of default. Both BND and SCHZ invest in a mix of corporate bonds, treasury bonds, real estate debt, and debentures. This means they are both exposed to different types of security risks.
However, BND has a slightly higher allocation towards treasury bonds compared to SCHZ. BND has around 39% of its portfolio invested in treasury bonds, while SCHZ has around 33% of its portfolio invested in treasury bonds.
Wrapping it up: SCHZ Vs BND
After analyzing the various metrics and research opinions, we believe that both BND and SCHZ are excellent bond ETFs. However, there are some key differences between the two that investors should consider before making a decision.
In terms of accuracy and completeness, both BND and SCHZ have a high level of accuracy and completeness. They both track their respective indexes very closely and have a large number of holdings.
When it comes to timeliness, both ETFs are updated regularly and have a low tracking error. However, past performance shows that BND has outperformed SCHZ over the past decade with a slightly higher CAGR and lower maximum drawdown.
It’s important to note that past performance does not guarantee future results. Research opinions are mixed on which ETF is better, with some analysts favoring BND and others favoring SCHZ.
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