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

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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 - Free Report) 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.

Market cap weighted indexes work great for investors who believe in market efficiency. They provide 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.

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.

While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.

Fund Sponsor & Index

PHB is managed by Invesco, and this fund has amassed over $542.26 million, which makes it one of the larger ETFs in the 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 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

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.

Annual operating expenses for this ETF are 0.50%, making it on par with most peer products in the space.

PHB's 12-month trailing dividend yield is 4.14%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

When you look at individual holdings, Synchrony Financial-7.25%-2-2-2033 accounts for about 1.93% of the fund's total assets, followed by United Airlines Holdings Inc-4.88%-1-15-2025 and Ford Motor Co-3.25%-2-12-2032.

Its top 10 holdings account for approximately 15.7% of PHB's total assets under management.

Performance and Risk

The ETF return is roughly 4.49% so far this year and is up about 5.04% in the last one year (as of 09/08/2023). In the past 52-week period, it has traded between $16.37 and $17.77.

PHB has a beta of 0.43 and standard deviation of 7.09% for the trailing three-year period, which makes the fund a high risk choice in the space. With about 154 holdings, it effectively diversifies company-specific risk.

Alternatives

Invesco Fundamental High Yield Corporate Bond ETF is a reasonable option for investors seeking to outperform the High-Yield/Junk Bond ETFs segment of the market. However, there are other ETFs in the space which investors could consider.

IShares Broad USD High Yield Corporate Bond ETF (USHY - Free Report) tracks BofA Merrill Lynch U.S. High Yield Constrained Index and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG - Free Report) tracks Markit iBoxx USD Liquid High Yield Index. IShares Broad USD High Yield Corporate Bond ETF has $9.04 billion in assets, iShares iBoxx $ High Yield Corporate Bond ETF has $14.69 billion. USHY has an expense ratio of 0.15% 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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