SPLB vs. SCHQ: Which Long-Term Bond ETF Is the Better Buy for Investors?

Comparing the State Street SPDR Portfolio Long Term Corporate Bond ETF (NYSEMKT:SPLB) and the Schwab Long-Term U.S. Treasury ETF (NYSEMKT:SCHQ) highlights a classic fixed-income trade-off: the higher yield that comes with corporate credit risk vs. the lower default risk of long-term government debt.

Both funds target the long end of the maturity curve, but they look for yield in different places. While SPLB tracks investment-grade corporate debt, SCHQ focuses exclusively on U.S. Treasury securities. That fundamental difference in credit quality shapes their risk profiles and income potential.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-year return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

SCHQ is marginally cheaper, carrying a 0.03% expense ratio compared to SPLB’s 0.04%. However, SPLB provides a higher payout -- with a dividend yield of 5.34% versus SCHQ’s 4.74%.

Performance & risk comparison

What's inside

Launched in 2019, SCHQ is designed to mirror the long-duration segment of the U.S. Treasury market. Its portfolio is concentrated relative to SPLB, with 100 holdings that are primarily U.S. government debt.

In contrast, SPLB -- launched in 2009 -- tracks investment-grade corporate bonds with maturities of 10 years or greater. It is significantly more diversified with 2,967 holdings, and no single position exceeds 0.37% of the portfolio. This diversification helps mitigate the specific credit risks associated with individual corporate issuers.

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What this means for investors

For income-focused investors weighing these two funds, the choice ultimately comes down to how much credit risk you're comfortable accepting in exchange for a higher yield.

SPLB's 5.34% dividend yield is attractive on its face -- and the fund's nearly 3,000 holdings give it the kind of diversification that cushions against any single corporate issuer running into trouble. Investment-grade corporate bonds do carry more default risk than Treasuries, but "investment grade" generally refers to companies with solid balance sheets and stable cash flows. The key risk here isn't default so much as spread widening -- if economic conditions deteriorate and investors grow nervous about corporate credit broadly, SPLB's prices could fall more sharply than SCHQ's.

SCHQ, by contrast, is about as close to a "sleep at night" bond fund as you'll find. U.S. Treasuries are backed by the full faith and credit of the federal government -- there's essentially no default risk. The trade-off is that lower risk comes with a lower dividend yield (4.74%), and the fund's performance is more tightly tied to movements in Treasury rates.

The bottom line: investors who prioritize income and are comfortable with the fluctuations of corporate credit markets may find SPLB's yield premium worth the additional risk. Those who prioritize capital preservation and want to avoid any hint of credit risk may be better served by SCHQ's simpler, government-backed approach. These two funds are built for different purposes, and the right choice depends on where you sit on the risk-reward spectrum.

Andy Gould has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.