Professional asset managers often like to promote the merits of a “barbell” strategy to one’s portfolio, especially in a rising rate environment. In the simplest sense, the strategy involves investing in the two extremes of a given variable, while avoiding anything in between. In terms of valuation, this would mean investing only in growth stocks and value stocks; In terms of credit quality, this would mean owning only high-yield bonds and low-yielding bonds.
This idea is partly rooted in the belief that due to behavioral biases, investors tend to avoid the extremes of any variable or asset characteristic such as valuation, so the extremes of an asset class are often lower. This is especially true when biases can be stronger, such as in a rate environment when there is greater uncertainty.