Volatility could be accentuated, particularly in higher-return, higher-risk sectors such as high-yield bonds or bank loans. As Fed policies change and flows subside or recede, the likelihood of an orderly exit from market upheaval is lower.
Suggested Strategies
Investors should:
• Assess their portfolios to make sure they aren't exposed to hidden pockets of risk or that portfolios aren't too far tilted toward more risky exposure.
• Maintain adequate diversification.
• Maintain a core portfolio of bonds in high-quality, more liquid securities.
Warren Pierson, CFA, is senior portfolio manager with Baird Advisors. He has over 28 years of investment experience managing various types of fixed income portfolios. Prior to Baird ,he was a senior portfolio manager for Firstar Investment Research and Management Company (FIRMCO).