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Is Invesco Fundamental High Yield Corporate Bond ETF (PHB) a Strong ETF Right Now?

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  • IVZ

Designed 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 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 indexes 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 cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.

If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.

This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.

Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.

Fund Sponsor & Index

The fund is managed by Invesco. PHB has been able to amass assets over $1.02 billion, making it one of the larger ETFs in the 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 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

Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.

Annual operating expenses for this ETF are 0.50%, making it one of the more expensive products in the space.

The fund has a 12-month trailing dividend yield of 3.47%.

Sector Exposure and Top Holdings

While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into 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) accounts for about 2.06% of the fund's total assets, 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 account for approximately 13.83% of PHB's total assets under management.

Performance and Risk

The ETF has added about 3.42% and was up about 6.70% so far this year and in the past one year (as of 11/05/2021), respectively. PHB has traded between $18.93 and $19.67 during this last 52-week period.

The fund has a beta of 0.38 and standard deviation of 8.98% for the trailing three-year period, which makes PHB a high risk choice in this particular space. With about 193 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.

SPDR Bloomberg High Yield Bond (JNK) tracks Bloomberg Barclays High Yield Very Liquid Index and the iShares iBoxx High Yield Corporate Bond ETF (HYG) tracks 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 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
 
SPDR Bloomberg High Yield Bond (JNK): ETF Research Reports
 
iShares iBoxx High Yield Corporate Bond ETF (HYG): ETF Research Reports
 
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