SMHB - More Diversifiers For A 15%+ Interest Rate Sensitive Current Yield Portfolio
Diversifying a Portfolio with Significant Interest Rate Risk
Many investors hold balanced portfolios consisting of both bonds and stocks. The logic behind this type of diversification is that there are some economic scenarios where stocks do better than bonds and other scenarios where bonds outperform stocks. A useful generalization is that stronger economic activity benefits the stock market relative to the bond markets. Likewise, weaker economic activity benefits the bond market relative to the stock markets. There are some exceptions to these generalizations. Economic weakness can exacerbate credit risks in the high-yield (Junk) bond market.