Treasury ETFs competition: VGSH vs SCHO

What happened: Schwab's SCHO, a short-term U.S. Treasury ETF, experienced a significant $103.1 million inflow (1.2% increase) in shares outstanding in the week ending March 18, 2023. Meanwhile, Vanguard's VGSH, a similar ETF, saw no notable inflows or outflows. SCHO's recent performance has been competitive with VGSH, with a slightly higher yield and lower expense ratio, though VGSH has a larger asset base. Inflows into SCHO could be driven by its attractive yield and lower cost compared to alternatives like Vanguard's VCSH and iShares' IGIB.

Market impact: The inflows into SCHO indicate investors' preference for short-term, low-risk, and low-cost Treasury exposure. This trend could lead to increased competition in the short-term Treasury ETF space, potentially driving further fee compression or pushing other ETF providers to differentiate their products. Companies like Vanguard and iShares, which offer similar ETFs, may see increased pressure to maintain or grow their market share.

What to watch next: Investors should monitor the following catalysts to gauge how this narrative evolves: 1) SCHO's and VGSH's quarterly performance reports to see if SCHO's inflows translate into market-beating returns; 2) any changes in the expense ratios or yield of competing ETFs, such as VCSH, IGIB, or Vanguard's VGT; 3) the U.S. Treasury yield curve's behavior, as it could impact the demand for short-term Treasury ETFs.