SCHP: A Compelling Inflation Hedge with Rising Real Yields

In an era marked by persistent inflationary pressures and economic uncertainty, investors are increasingly seeking assets that can preserve purchasing power while generating returns. The Schwab U.S. TIPS ETF (SCHP) has emerged as a standout option for those prioritizing strategic asset allocation in inflationary environments. By leveraging inflation-protected securities, SCHP offers a unique blend of risk mitigation and yield resilience, making it a compelling case study for modern portfolio construction.

Historical Performance: Navigating Volatility with Inflation-Linked Exposure

SCHP's track record during inflationary periods underscores its dual role as both a hedge and a source of real returns. From 2020 to 2025, the fund has experienced significant swings, reflecting the interplay of inflation, interest rates, and duration risk. In 2020, as pandemic-driven stimulus fueled inflation, SCHP delivered a robust total return of 10.86%, outperforming traditional fixed-income assets. This performance was driven by its focus on Treasury Inflation-Protected Securities (TIPS), which adjust principal values in line with the Consumer Price Index (CPI).

However, 2022 presented a stark challenge. Despite inflation peaking at multi-decade highs, SCHP recorded a -12.02% total return. This divergence highlights the fund's sensitivity to interest rate volatility and duration risk. When the Federal Reserve aggressively raised rates to combat inflation, long-duration assets like TIPS faced price declines, even as their inflation adjustments increased. Yet, by 2023 and 2024, the fund rebounded with returns of 3.91% and 1.95%, respectively, demonstrating its capacity to recover as rate hikes began to stabilize. As of October 31, 2025, SCHP has achieved a year-to-date return of 3.89%, signaling renewed confidence in its inflation-adjusted structure.

Real Yields and Strategic Allocation: Balancing Cost and Resilience

A critical factor in SCHP's appeal lies in its ability to generate rising real yields-a metric that adjusts for inflation-while maintaining low costs. Over the long term, the fund has delivered an average annual return of 2.95% since its inception, outpacing many traditional bond ETFs. This performance is underpinned by its 0.03% expense ratio, one of the lowest in its category, which amplifies net returns for investors.

Recent data further strengthens its case. As of September 30, 2025, SCHP posted a 3-month average annual return of 4.91%, with a trailing dividend yield of 3.03% according to data. These figures reflect the fund's alignment with the Bloomberg U.S. Treasury Inflation-Linked Bond Index, which includes TIPS with at least one year to maturity as reported. For investors, this translates to a strategic asset that not only hedges against inflation but also provides a growing income stream.

Strategic Implications for Portfolio Diversification

Incorporating SCHP into a diversified portfolio offers distinct advantages. TIPS, by design, adjust their principal values to reflect changes in inflation, ensuring that investors' real returns remain intact even in high-inflation environments. This feature is particularly valuable in today's landscape, where central banks are prioritizing inflation control over growth. As noted by a report from Schwab Asset Management, the fund's broad portfolio of 49 TIPS holdings reduces idiosyncratic risk while maintaining exposure to inflation-linked assets.

Moreover, SCHP's low correlation with equities and nominal bonds makes it an effective diversifier. During periods of market stress, such as the 2022 selloff, TIPS often perform differently from traditional bonds, offering a buffer against systemic risks. This dynamic is critical for investors aiming to balance growth and stability in an inflationary world.

Conclusion: A Strategic Cornerstone for Inflation-Protected Portfolios

While no asset is immune to market forces, SCHP's historical performance and structural advantages position it as a compelling tool for inflation hedging. Its ability to deliver rising real yields, combined with low costs and broad diversification, aligns with the core principles of strategic asset allocation. As inflation remains a persistent concern, SCHP offers investors a disciplined, cost-effective way to safeguard capital and generate income.

For those navigating the complexities of today's economic environment, the lessons from SCHP's trajectory are clear: inflation-protected assets are not just a defensive play-they are a foundational element of resilient, forward-looking portfolios.