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When the “barbell” investment strategy works and when it doesn’t

Professional asset managers often prefer to promote the strengths of their portfolio’s “barbell” strategy, especially in an environment of rising interest rates. In the simplest sense, the strategy involves investing in two extrema of a particular variable and avoiding the one in between. In the case of valuation, it means investing only in growth and value stocks. In terms of credit quality, it means that you own only high yield and low yield bonds.

This idea is partly due to the notion that the extremes of the asset class are often low prices, as investors tend to avoid variables such as valuations or the extremes of asset characteristics due to behavioral bias. It is rooted. This is especially true in situations where the bias can be high, such as in a rate environment with high uncertainty.

When the “barbell” investment strategy works and when it doesn’t

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