In the event of stagflation – little to no growth coupled with inflation – investors may head to the short end of the yield curve.

“The old buy-and-hold approach on the equity side didn’t necessarily work out in the last 10 years. Buy and hold on the fixed-income side may not necessarily help, either.”

Ross doesn’t feel this way simply because we’re in a low-rate environment, either. Taking a more active role in your fixed-income portfolio should be a long-term shift, he says. “You could make the case that it should have been there five years ago.” [How to research bond ETFs.]

The best yields right now, says Ross, are those coming from high-yield bond funds, such as the SPDR Barclays Capital High Yield Bond (NYSEArca: JNK), which is yielding 12%. iShares iBoxx $ High Yield Corporate Bond Fund (NYSEArca: HYG) is yielding 9.8%.

In a recent appearance on CNBC, Ross’s pick for the current environment is the SPDR Barclays Capital Short-Term Corporate Bond (NYSEArca: SCPB), which launched last month. It tracks the 1-3 year U.S. investment-grade corporate bond market.

Don’t be afraid to look abroad, either, says Ross. In fact, his feeling is that U.S. investors are under-allocated to international bonds for the same reasons they’re under-allocated in international equities. “Anytime you go outside the U.S., there’s more perceived risk.”

But international yields right now are a little better than those in the United States, meaning that they may be an opportunity for a yield pickup. An additional benefit of international fixed-income investing is that it’s a dollar play, as well. “If the dollar strengthens, you lose,” says Ross.

International fixed-income plays include the SPDR Barclays Capital International Treasury Bond (NYSEArca: BWX) and the SPDR DB International Government Inflation-Protected Bond (NYSEArca: WIP).

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