Schwab Short-Term U.S. Treasury ETF (SCHO) seeks to track the Bloomberg U.S. Treasury 1-3 Year Index, which measures the performance of U.S. Treasury securities with remaining maturities between one and three years. This fixed income ETF provides exposure to short-duration government bonds backed by the full faith and credit of the U.S. government.
How It Works
SCHO uses a passively managed, market-value-weighted approach that holds U.S. Treasury bills, notes, and bonds with 1-3 year maturities. The fund maintains an average duration of approximately 1.8-2.2 years, making it less sensitive to interest rate changes than longer-duration bond ETFs. Holdings are rebalanced monthly to maintain the target maturity range as bonds mature or extend beyond the 3-year threshold. The portfolio typically contains 15-25 individual Treasury securities.
Key Features
- Zero expense ratio makes it one of the lowest-cost ways to access short-term Treasury exposure, saving investors fees entirely
- Short 1-3 year duration provides stability and lower interest rate sensitivity compared to intermediate or long-term bond ETFs
- 3.45% dividend yield offers attractive income in current rate environment while maintaining high liquidity and government backing
Risks
- This ETF can lose value when interest rates rise rapidly, though losses are limited by short 1-3 year duration to typically 1-3% maximum
- Inflation risk erodes purchasing power if Treasury yields fail to keep pace with rising costs, reducing real returns over time
- Reinvestment risk occurs as bonds mature in low-rate environments, forcing reinvestment at potentially lower yields than current holdings
Who Should Own This
Best suited for conservative investors with 6-month to 3-year time horizons seeking capital preservation and steady income. Low risk tolerance required with potential for 5-15% portfolio allocation as defensive anchor. Ideal for emergency funds, near-term savings goals, or portfolio diversification away from stocks and credit risk.