PHB uses a smart beta methodology. More investors are looking into smart beta as an alternative to traditional bond indices, which tend to follow market capitalization-weighted methodologies that lean more toward indebted government or corporate issuers.
Risky Debt Performing Well
In what may come as a surprise to some bond investors, CCC-rated bonds, which are among the riskiest junk bonds, are performing well this year.
“On total return basis, CCC-rated have performed the best, with CCC-rated dollar junk bonds returning 4.4% this year, almost matching the dividend-reinvestment performance of the S&P 500, according to Bloomberg,” reports Seeking Alpha.
PHB, which tracks the RAFI Bonds US High Yield 1-10 Index, focuses on slightly higher quality corporate debt securities than its major competitors. The ETF features no exposure to CCC-rated bonds. Three-quarters of PHB’s 239 holdings are rated BBB or BB.
For more information on the bond market, please visit our Fixed Income Channel.