Zacks Equity Research
·4 min read
Launched on 11/15/2007, the Invesco Fundamental High Yield Corporate Bond ETF (PHB) is a smart beta exchange traded fund offering broad exposure to the High-Yield/Junk Bond ETFs category of the market.
What Are Smart Beta ETFs?
Market cap weighted indexes 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.
A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.
On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.
By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.
Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.
Fund Sponsor & Index
Because the fund has amassed over $684.18 million, this makes it one of the larger ETFs in the High-Yield/Junk Bond ETFs. PHB is managed by Invesco. 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 comprised of US dollar-denominated bonds that are registered with the SEC or that are Rule 144A securities that provide for registration rights and whose issuers are public companies listed on a major US stock exchange.
Cost & Other Expenses
Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.
With on par with most peer products in the space, this ETF has annual operating expenses of 0.50%.
The fund has a 12-month trailing dividend yield of 4.88%.
Sector Exposure and Top Holdings
ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.
Looking at individual holdings, Synchrony Financial-7.25%-02-02-2033 accounts for about 2.03% of total assets, followed by Qvc Inc-4.38%-09-01-2028 and United Airlines Holdings Inc-4.88%-01-15-2025.
PHB's top 10 holdings account for about 16.38% of its total assets under management.
Performance and Risk
Year-to-date, the Invesco Fundamental High Yield Corporate Bond ETF has added roughly 0.64% so far, and it's up approximately 11.34% over the last 12 months (as of 03/14/2024). PHB has traded between $16.83 and $18.21 in this past 52-week period.
The ETF has a beta of 0.44 and standard deviation of 7.16% for the trailing three-year period, making it a high risk choice in the space. With about 150 holdings, it effectively diversifies company-specific risk.
Alternatives
Invesco Fundamental High Yield Corporate Bond ETF is not a suitable option for investors seeking to outperform the High-Yield/Junk Bond ETFs segment of the market. Instead, there are other ETFs in the space which investors should consider.
IShares Broad USD High Yield Corporate Bond ETF (USHY) tracks BofA Merrill Lynch U.S. High Yield Constrained Index and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) tracks Markit iBoxx USD Liquid High Yield Index. IShares Broad USD High Yield Corporate Bond ETF has $12.11 billion in assets, iShares iBoxx $ High Yield Corporate Bond ETF has $16.95 billion. USHY has an expense ratio of 0.08% and HYG charges 0.49%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the High-Yield/Junk Bond ETFs.
Bottom Line
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
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Invesco Fundamental High Yield Corporate Bond ETF (PHB): ETF Research Reports
iShares iBoxx $ High Yield Corporate Bond ETF (HYG): ETF Research Reports
iShares Broad USD High Yield Corporate Bond ETF (USHY): ETF Research Reports
