As geopolitical tensions and volatile bond yields keep fixed income investors on edge, fund managers are increasingly turning to what is known as the “barbell strategy” — a portfolio approach designed to balance stability with the opportunity for capital gains.
According to Basant Bafna, Head of Fixed Income at Mirae Asset Mutual Fund, the strategy broadly involves allocating money at both ends of the duration spectrum rather than concentrating investments in the middle. “Some part of your corpus, you invest in the shorter end of the curve. Some part you invest in the longer end of the curve,” Bafna said in an interview with NDTV Profit.
In simpler terms, investors divide fixed income allocations between short-term debt instruments that offer stability and liquidity, and longer-duration bonds that could benefit if interest rates or yields decline later.
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Why the Strategy Works in Volatile Markets
The renewed interest in barbell strategies comes at a time when global bond markets have seen sharp swings due to uncertainty around inflation, central bank policy and geopolitical risks linked to the Middle East. US 30-year bond yields recently crossed 5%, while yields in Japan, the UK and India also moved higher.
Bafna explained that the shorter-duration portion of the strategy helps reduce mark-to-market volatility and allows investors to reinvest at potentially higher yields if rates continue rising.
At the same time, the longer-duration side offers upside if bond yields fall during eventual market de-escalation. “If yields move downwards, then I am able to lock it in for a longer period,” he said. “If you were able to time the peak, then perhaps you were an astrologer along with a fund manager,” Bafna joked.
Why Fund Managers Prefer Flexibility Right Now
Bafna said barbell strategies are currently being used across several fixed income categories at Mirae Asset Mutual Fund, particularly because the yield curve remains relatively flat.
In ultra-short duration funds, for example, the fund house is using a mix of three-month and one-year instruments. In low-duration strategies, the mix extends from six months to roughly two years. The idea is to preserve “carry” — or income generation — while retaining flexibility to reposition portfolios quickly if interest rate expectations change.
Bafna added that the strategy also helps investors avoid going “all in” at one point in the rate cycle, particularly during periods of heightened uncertainty.
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