Manage risk but stay nimble
Reductions in fixed income portfolio risk may be warranted in the months ahead, especially if valuations remain tight or compress further. However, we also think investors should remain nimble if, for example, bouts of increased volatility lead to greater idiosyncratic dispersions or inefficiencies across fixed income markets.
In this still-uncertain market environment, a “barbelled” approach, consisting of larger allocations to higher-quality, liquid assets like cash and developed market government bonds, may make sense. For greater return potential, where appropriate, leaning further into those select, nontraditional sectors highlighted above may be an effective strategy in 2022.