The Invesco Fundamental High Yield Corporate Bond ETF (PHB) was launched on 11/15/2007, and is a smart beta exchange traded fund designed to offer 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.
Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.
There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.
These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.
The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.
Fund Sponsor & Index
Managed by Invesco, PHB has amassed assets over $419.52 million, making it one of the average sized 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 PHB are 0.50%, which makes it on par with most peer products in the space.
PHB's 12-month trailing dividend yield is 5.65%.
Sector Exposure and Top Holdings
Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.
Taking into account individual holdings, Synchrony Financial-7.25%-02-02-2033 (87165BAU7) accounts for about 1.20% of the fund's total assets, followed by United Airlines Inc-4.62%-04-15-2029 (90932LAH0) and Delta Air Lines Inc-3.75%-10-28-2029 (247361ZT8).
The top 10 holdings account for about 9.99% of total assets under management.
Performance and Risk
The ETF return is roughly 5.84% and was up about 10.23% so far this year and in the past one year (as of 11/20/2024), respectively. PHB has traded between $17.54 and $18.61 during this last 52-week period.
The ETF has a beta of 0.45 and standard deviation of 7.25% for the trailing three-year period, making it a high risk choice in the space. With about 251 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 iBoxx $ High Yield Corporate Bond ETF (HYG) tracks Markit iBoxx USD Liquid High Yield Index and the iShares Broad USD High Yield Corporate Bond ETF (USHY) tracks BofA Merrill Lynch U.S. High Yield Constrained Index. IShares iBoxx $ High Yield Corporate Bond ETF has $15.04 billion in assets, iShares Broad USD High Yield Corporate Bond ETF has $20.94 billion. HYG has an expense ratio of 0.49% and USHY charges 0.08%.
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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Get it free >>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
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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.
