The Case for Immediate Short-Term Treasury Allocation: Why VGSH Outshines SCHO in 2025

In an era marked by macroeconomic uncertainty and volatile interest rates, investors are increasingly turning to short-term Treasury allocations to balance risk and reward. Two of the most prominent ETFs in this space-Vanguard Short-Term Treasury ETF (VGSH) and Schwab Short-Term U.S. Treasury ETF (SCHO)-offer nearly identical expense ratios but diverge in yield and strategic appeal. As the Federal Reserve's policy trajectory remains ambiguous, the case for immediate action in favor of VGSH grows compelling.

Cost Efficiency: A Tie, But Yield Tells the Story

Both VGSH and SCHO charge an ultra-low expense ratio of 0.03%, as noted in a Seeking Alpha analysis, positioning them as cost-competitive options for investors seeking to minimize drag on returns. However, yield differentials reveal a subtle but meaningful edge for VGSH. As of Q3 2025, VGSH boasts a stable yield of 3.84%, according to stockanalysis.com, while SCHO reports an average annual return of 3.86%, as reported by Schwab. Though the gap appears marginal, this 0.02% disparity compounds significantly over time, particularly in a low-risk, short-duration framework. For investors prioritizing yield optimization, every basis point matters.

Fund Structure: Similar Foundations, Strategic Nuances

Both ETFs track the Bloomberg US Treasury 1-3 Year Index, focusing on securities with maturities between one and three years, as described in a Seeking Alpha analysis. This alignment ensures comparable exposure to short-term government debt, which inherently limits interest rate risk. However, VGSH's trailing twelve-month dividend yield of 4.10%-a metric not explicitly reported for SCHO-suggests a more aggressive approach to capitalizing on current yield environments. The Vanguard fund's recent inflow of $1.066 billion in October 2025, as noted in a Nasdaq article, further underscores its appeal, as institutional and retail investors alike flock to its perceived stability.

A critical consideration lies in average maturity and duration. While exact figures for SCHO remain undisclosed, as noted in a Nasdaq article, VGSH's portfolio composition-anchored by 1-3 year Treasuries-implies an average duration of approximately 1.8–2.2 years, according to ETFdb. This short-duration profile shields investors from rate hikes while maintaining liquidity, a dual advantage in today's climate of potential Fed tightening.

The Argument for Immediate Action

The preference for VGSH over SCHO is not merely numerical but strategic. As noted in a Seeking Alpha analysis, investors in volatile rate environments should prioritize short-duration fixed income instruments to mitigate reinvestment risk. VGSH's slightly higher yield, coupled with its robust asset growth, positions it as a more dynamic choice for capital preservation and modest return generation.

Conclusion: Seizing the Window

The current macroeconomic landscape-characterized by inflationary pressures and an uncertain Fed policy path-demands a tactical approach to fixed income. While SCHO remains a viable option, VGSH's superior yield, proven resilience in capital inflows, and alignment with short-term Treasury benchmarks make it the more compelling choice for investors seeking to optimize returns without sacrificing safety. The time to act is now, before market conditions shift once more.