When the ‘Barbell’ Investment Strategy Does—and Doesn’t—Work

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Skilled asset managers usually like to advertise the virtues of a “barbell” technique for one’s portfolio, particularly in a rising-rate atmosphere. Within the easiest sense, the technique includes investing within the two extremes of a given variable, whereas avoiding something in between. Within the case of valuation, it might imply investing in solely progress shares and worth shares; within the case of credit score high quality, it might imply proudly owning solely high-yield bonds and low-yield bonds.

The concept is partially rooted within the notion that due to behavioral biases, buyers are likely to keep away from the extremes of any variable or asset attribute like valuation, so the extremes of an asset class are sometimes underpriced. That is very true at instances when biases could also be stronger, comparable to in price environments when there’s better uncertainty. 

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