Professional asset managers often like to promote the virtues of a “barbell” strategy for 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 the case of valuation, it would mean investing in only growth stocks and value stocks; in the case of credit quality, it would mean owning only high-yield bonds and low-yield bonds.
The idea is partially rooted in the notion that because of behavioral biases, investors tend to avoid the extremes of any variable or asset characteristic like valuation, so the extremes of an asset class are often underpriced. This is especially true at times when biases may be stronger, such as in rate environments when there is greater uncertainty.