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Invesco PowerShares Switches to Fundamental Bond Index

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The Wheaton, Il.-based investment firm changed both the name and the index for PowerShares High Yield Corporate Bond Portfolio (PHB).

The ETF was renamed the PowerShares Fundamental High Yield Corporate Bond Portfolio, and its underlying index was switched to the RAFI High Yield Bond Index.

The changes became effective on August 2.

PHB is the first fixed-income ETF to use Research Affiliates’ Fundamental Index methodology.

Traditional bond indexes give the largest weights to the biggest debtors, potentially exposing investors to greater risks of default.

In contrast, Research Affiliates’ Fundamental Index methodology uses fundamental measures of company size, including book value, sales, dividends and cash flow, to set constituent weights, according to PowerShares.

Furthermore, the RAFI High Yield Bond Index offers “a compelling alternative to traditional high-yield bond indexes,” the company said in a statement.

Ron Ryan, CEO of Ryan ALM, adds, “We believe the index rules that we designed and maintain for the RAFI Index provide the highest liquidity, creditworthiness, investability and interest rate risk balance for a high-yield index today.”

Invesco PowerShares already offers eight equity ETFs based on FTSE RAFI indexes, which also make use of the Fundamental Index methodology. Previously, PHB tracked the WellsFargo High Yield Bond Index.

“By weighting companies based on fundamental measures of their resources available to service debt, we believe the PowerShares Fundamental High Yield Corporate Bond Portfolio represents a compelling alternative to market-cap-weighted fixed-income portfolios and provides investors the potential for improved risk-adjusted returns,” explained Ben Fulton, Invesco PowerShares managing director of global ETFs.

The fund’s ticker symbol and annual expense ratio of 0.50 percent remain unchanged.