Is the Invesco Fundamental High Yield Corporate Bond ETF (PHB) a solid ETF right now?

MSince its inception on 11/15/2007, the smart beta Invesco Fundamental High Yield Corporate Bond ETF (PHB) exchange-traded fund has offered investors broad exposure to the High-Yield/Junk Bond ETFs category of the market.

What are Smart Beta ETFs?

The ETF industry has long been awash with products based on market-cap-weighted indices, which are designed to represent the broader market or a particular market segment.

Market-cap-weighted indices offer an inexpensive, convenient, and transparent way to replicate market returns and are a good option for investors who believe in market efficiency.

However, some investors believe it is possible to beat the market with excellent stock selection. this group likely invests in another class of funds known as smart beta, which tracks non-cap-weighted strategies.

These indices attempt to select stocks that have a better chance of risk-return performance, based on certain fundamental characteristics or a combination of these characteristics.

This area offers many different investment choices, such as the simplest equal weighting, fundamental weighting, and volatility/momentum based weighting methodologies; however, not all of these strategies can yield superior results.

Fund Sponsor and Index

The fund is managed by Invesco. PHB was able to amass assets of over $757.76 million, 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 comprised of US dollar-denominated bonds that are registered with the SEC or are Rule 144A securities that provide registration fees and whose issuers are public companies listed on a major US stock exchange.

Cost and other expenses

Since cheaper funds tend to perform better than more expensive funds, assuming all other factors remain equal, it’s important for investors to pay attention to an ETF’s expense ratio.

The annual operating expense of this ETF is 0.50%, which makes it comparable to most comparable products in the field.

PHB’s 12-month dividend yield is 3.45%.

Sector exposure and main holdings

It is important to delve into an ETF’s holdings before investing despite the many advantages of these types of funds such as diversified exposure, which minimizes single-stock risk. And most ETFs are very transparent products that disclose their holdings on a daily basis.

Considering individual holdings, Centene Corp-4.62%-12-15-2029 represents around 2.14% of the fund’s total assets, followed by United Airlines Holdings Inc-4.88%-1-15- 2025 and Ford Motor Credit Co Llc- 3.38%-13-11-2025.

PHB’s top 10 holdings represent approximately 16.05% of its total assets under management.

Performance and risks

Year-to-date, the Invesco Fundamental High Yield Corporate Bond ETF has lost around -8.86% so far and is down around -7.91% over the past 12 months (at 07/21/2022). PHB has traded between $16.74 and $19.67 over the past 52-week period.

The fund has a beta of 0.40 and a standard deviation of 9.67% for the three-year period, making PHB a high-risk pick in this particular space. With approximately 165 holdings, it effectively diversifies company-specific risks.

Alternatives

The Invesco Fundamental High Yield Corporate Bond ETF is not a suitable option for investors looking to outperform the High Yield/Junk Bond ETFs segment of the market. Instead, there are other ETFs in the space that investors should consider.

The iShares Broad USD High Yield Corporate Bond ETF (USHY) tracks the BofA Merrill Lynch US High Yield Constrained Index and the iShares iBoxx High Yield Corporate Bond ETF (HYG) tracks the Markit iBoxx USD Liquid High Yield Index. iShares Broad USD High Yield Corporate Bond ETF has $6.82 billion in assets, iShares iBoxx High Yield Corporate Bond ETF has $13.60 billion. USHY has an expense ratio of 0.15% and HYG charges 0.48%.

Investors looking for cheaper, lower-risk options should consider traditional market-cap-weighted ETFs that aim to match the returns of High Yield/Junk Bond ETFs.

Conclusion

To learn more about this product and other ETFs, find products that fit your investment goals, and read articles about the latest developments in the ETF investment universe, please visit Zacks ETF Center.

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ETF 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.

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