DDesigned to provide broad exposure to the High-Yield / Junk Bond ETF category of the market, the Invesco Fundamental High Yield Corporate Bond ETF (PHB) is a smart beta exchange traded fund launched on 11/15/2007.
What are Smart Beta ETFs?
The ETF industry has traditionally been dominated by products based on market capitalization weighted indices that are designed to represent the market or a particular segment of the market.
A good option for investors who believe in market efficiency, market capitalization weighted indices offer an inexpensive, convenient and transparent way to track market returns.
If you are the type of investor who prefers to try and beat the market with good stock selection, then smart beta funds are your best bet; this fund class is known to follow unweighted capitalization strategies.
This type of index follows this same mindset, as it attempts to select stocks that have the best chance of risk-return performance; unweighted capitalization strategies base selection on certain fundamental characteristics, or a combination of these characteristics.
Even though this space offers many choices for investors – think of one of the simpler methodologies like equal weighting and the more complicated ones like fundamental weighting and volatility / momentum – not all have been able to provide insights. top-notch results.
Fund promoter and index
The fund is managed by Invesco. PHB has been able to amass over $ 1.02 billion in assets, making it one of the largest ETFs among high yield / junk bond ETFs. This particular fund, before fees and expenses, 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 composed of bonds denominated in US dollars that are registered with the SEC or that are Rule 144A securities that provide for registration fees and whose issuers are publicly traded companies. on a major American stock exchange.
Cost and other expenses
Investors should also pay attention to the expense ratio of an ETF. Lower-cost products will produce better results than higher-cost products, assuming all other metrics remain the same.
The annual operating expenses of this ETF are 0.50%, making it one of the most expensive products in the industry.
The fund has a 12 month rolling dividend yield of 3.47%.
Sector exposure and main titles
While ETFs offer diversified exposure, which minimizes the risk associated with individual stocks, a thorough review of a fund’s holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
Taking into account individual holdings, Emc Corp-3.38% -06-01-2023 (268648AN2) represents approximately 2.06% of the total assets of the fund, followed by United Airlines Holdings Inc-4.25% -10 -01-2022 (910047AJ8) and Ford Motor Co-4.35% -12-08-2026 (345370CR9).
Its top 10 holdings represent approximately 13.83% of PHB’s total assets under management.
Return and risk
The ETF has added around 3.42% and is up around 6.70% so far this year and over the last year (as of 5/11/2021), respectively. PHB traded between $ 18.93 and $ 19.67 in that last 52 week period.
The fund has a beta of 0.38 and a standard deviation of 8.98% for the three-year period, which makes PHB a high-risk choice in this particular space. With around 193 participations, it effectively diversifies the risk specific to the company.
The Invesco Fundamental High Yield Corporate Bond ETF is not a suitable option for investors looking to outperform the High-Yield / Junk Bond ETF segment of the market. Instead, there are other ETFs in the space that investors should consider.
SPDR Bloomberg High Yield Bond (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 has $ 8.54 billion in assets, iShares iBoxx High Yield Corporate Bond ETF has $ 18.92 billion. JNK has an expense ratio of 0.40% and HYG charges 0.48%.
Investors looking for cheaper and less risky options should consider traditional market capitalization weighted ETFs that aim to match the returns of High-Yield / Junk Bond ETFs.
To learn more about this and other ETFs, search for products that match your investment objectives, and read articles on the latest developments in the ETF investment universe, please visit Zacks ETF Center.
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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.