DDesigned to provide broad exposure to the High-Yield/Junk Bond ETFs category of the market, the Invesco Fundamental High Yield Corporate Bond ETF (PHB) is a traded index fund launched on 11/15/2007.
What are Smart Beta ETFs?
Market-cap-weighted indices were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.
Investors who believe in market efficiency should consider market capitalization indices because they replicate market returns in an inexpensive, convenient, and transparent way.
If you’re the kind of investor who prefers to try and beat the market through good stock selection, then smart beta funds are your best bet; this fund category is known to follow non-cap-weighted strategies.
These indices attempt to select stocks that have a better chance of risk-return performance, based on certain fundamental characteristics or a combination of these characteristics.
Methodologies such as equal weighting, one of the simplest options, fundamental weighting, and volatility/momentum-based weighting are all choices available to investors in this space, but not all of them can deliver superior returns. .
Fund Sponsor and Index
The fund is managed by Invesco and was able to raise over $854.05 million, making it one of the largest ETFs among High-Yield/Junk Bond ETFs. Before fees and expenses, PHB seeks to match the performance of the RAFI Bonds US High Yield 1-10 Index.
The RAFI Bonds US High Yield 1-10 Index is comprised of US dollar-denominated bonds that are registered with the SEC or are Rule 144A securities that provide registration fees and whose issuers are public companies listed on a major US stock exchange.
Cost and other expenses
Expense ratios are an important factor in an ETF’s performance and over the long term cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.
PHB’s annual operating expense is 0.50%, putting it on par with most peer products in the space.
Its 12-month dividend yield is 3.46%.
Sector exposure and main holdings
Although ETFs provide diversified exposure that minimizes single-stock risk, investors should also examine the actual holdings within the fund. Fortunately, most ETFs are very transparent products that disclose their holdings on a daily basis.
Considering individual holdings, United Airlines Holdings Inc-4.25%-10-1-2022 (910047AJ8) accounts for approximately 1.72% of the fund’s total assets, followed by Ford Motor Co-4.35%- 12-8-2026 (345370CR9) and Ford Motor Co-8.50%-4-21-2023 (345370CV0).
PHB’s top 10 holdings represent approximately 13.82% of its total assets under management.
Performance and risks
Year-to-date, the Invesco Fundamental High Yield Corporate Bond ETF has lost around -5.63% so far and is down around -2.53% over the last 12 months (as of 03/14/2022). PHB has traded between $18.21 and $19.67 over the past 52-week period.
The ETF has a beta of 0.39 and a standard deviation of 8.97% for the three-year period, making it a high-risk pick in the space. With approximately 183 holdings, it effectively diversifies company-specific risks.
The Invesco Fundamental High Yield Corporate Bond ETF is not a suitable option for investors looking to outperform the High Yield/Junk Bond ETFs segment of the market. Instead, there are other ETFs in the space that investors should consider.
The SPDR Bloomberg High Yield Bond ETF (JNK) tracks the Bloomberg Barclays High Yield Very Liquid Index and the iShares iBoxx High Yield Corporate Bond ETF (HYG) tracks the Markit iBoxx USD Liquid High Yield Index. SPDR Bloomberg High Yield Bond ETF has $7.44 billion in assets, iShares iBoxx High Yield Corporate Bond ETF has $16.11 billion. JNK has an expense ratio of 0.40% and HYG charges 0.48%.
Investors looking for cheaper, lower-risk options should consider traditional market-cap-weighted ETFs that aim to match the returns of High Yield/Junk Bond ETFs.
To learn more about this product and other ETFs, find products that fit your investment goals, and read articles about the latest developments in the ETF investment universe, please visit Zacks ETF Center.
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ETF Invesco Fundamental High Yield Corporate Bond ETF (PHB): ETF Research Reports
SPDR Bloomberg High Yield Bond ETF (JNK): ETF Research Reports
iShares iBoxx High Yield Corporate Bond ETF (HYG): ETF Research Reports
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.