“Natural resources and TIPS have had their time to shine, but that’s over. For an afternoon, high-yield corporate bonds looked good in the recent selloff, but prices recovered quickly. Right now we’re favoring alternatives, specifically private credit, equity and real estate investments,” he said.

According to Capital Group’s Steinbach, it generally can be helpful to look at past inflationary environments and historical routes of action to guide investments on the fixed-income side of a portfolio.

“But things are really different this time. The Fed’s balance sheet is bigger than it’s ever been. There is significant stimulus in the system,” she said. “We’re really in an unusual time where everyone is focused on higher inflation rates and fixed-income underperforming.”

That inflation is going to persist well through this year, she said, and supply pressures won’t be abating either.

To protect against this, Steinbach is looking at relatively short duration positions while waiting for the yield curve to flatten, and being cautious about credit risk.

“In high yield we’ve found more opportunities, but valuations are changing. Interest rates have completely repriced, and we expect the Fed will have to hike rates to combat inflation that will run higher and longer,” she said. “This is where investing with an active manager can help. You need to own fixed income and you need to own duration in order to have a balanced portfolio.”

Meanwhile, Matt Dmytryszyn, a CFA and chief investment officer at Telemus Capital in Chicago, has been taking a third approach.

“Bonds diversify a portfolio but not over a quarter. They diversify over five years, or 10 years. In an environment of rising interest rates, any maturity you get back you reinvest at a higher rate,” he said.

The two main drivers Dmytryszyn looks at, besides yields, are interest rates and credit spreads. He said he doesn’t feel like the market is compensating for interest rate risk, and it’s the credit fundamentals he’s more concerned about.

“Spreads have widened, but not all that much,” he said. “If margins come down, does that change things? Right now we haven’t seen that, but we’re watching.”