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PHB: Time To Reduce Exposure To This High Yield ETF

Published Mon, 01 Jul 2019 13:55:05 -0400 on Seeking Alpha

ETF Overview
Invesco Fundamental High Yield Corporate Bond ETF (PHB) focuses on corporate bonds that have ratings below investment grades. The ETF tracks the RAFI Bonds U.S. High Yield 1-10 Bond Index. PHB provides exposure to a broad range of U.S. high yield corporate bonds in the B-rated category. Therefore, the risk of defaults is lower than many other high yield bond ETFs. Because it does not hold any C-rated bonds, PHB’s dividend yield is generally lower than other high-yield bond ETFs. High-yield bond ETFs tend to perform poorly in an economic recession because investors typically abandon riskier assets and favor defensive assets. Since we are already in the late stage of the current economic cycle, we think investors should gradually reduce exposure to PHB and wait on the sideline.
Data by YCharts
Fund Analysis
Relatively lower credit risk than other high yield ETFs
Although PHB's credit risk is lower than other high-yield ETFs, high-yield corporate bonds are below investment grades bonds. These bonds tend to be riskier than investment grade bonds and are much more vulnerable in an economic recession. As can be seen from the chart below, high-yield bond default rate has spiked following the past two recessions in the United States (yellow solid line). In the last recession, the default rate could go as high as 15%.

Source: Moody’s Capital Markets Research
PHB should face lower credit risk than other high-yield bonds as the index it... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
SPDR BARCLAYS CAPITAL HIGH YIELD BOND ETF 108.94   0.0 0.00 6.07 5.58

SPDR BARCLAYS CAPITAL HIGH YIELD BOND ETF - JNK
SPDR BARCLAYS CAPITAL HIGH YIELD BOND ETF - JNK  


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