I believe they can. I believe portfolio reviews are a great time to educate your clients about how the world of bonds has changed and the right approach for finding the middle ground they seek.
Here are my suggestions for reviewing your clients' fixed-income positioning:
First, be sure they are diversified in terms of increasing rates. Test portfolios to determine the impact of a 100 or 200 basis-point increase over the short term. If it doesn't happen, there is no harm done. If it does, at least they were aware of the potential risk.
Second, examine both their high-yield and core bond strategy. Determine where the credit is allocated in order to confirm that their core bond strategy will provide the riskless ballast to the portfolio in times of market stress, while the high-yield exposure will supplement their income needs.
Finally, look beyond the U.S. borders for exposure to countries that are in different positions relative to their fundamental economic drivers. But in doing so, be sure that the exposure is broad, that research capabilities are deep, and that the manager has the flexibility to take advantage of unique opportunities that may otherwise be overlooked. These three steps can provide a healthy perspective about the impact of unpredictable risks on the "predictable" portion of clients' portfolios.
John Diehl is a senior vice president of the Hartford Mutual Funds.
The views expressed here are those of John Diehl and they should not
be construed as investment advice. They are subject to change.
John Diehl does not offer any financial planner services on
behalf of The Hartford. Clients should contact their own advisors
for specific advice. "The Hartford" is the The Hartford
Financial Services Group and its subsidiaries.