With the Dow diving 335 points on October 9 – with so many asset classes experiencing heavy-volume selling – are all correlations heading for 1.0? That may be the case for riskier asset classes, but it is not the case for rate-sensitive, investment grade bonds. Most investment-grade bond ETFs enjoy strong uptrends; most reside near year-to-date highs. In fact, the more one has allocated to long-term bonds like iShares 20+Treasury (TLT), the better he/she has protected his portfolio.
I have maintained an allocation to longer-term investment grade debt throughout the year with my clients. I have discussed it in the context of a barbell approach to ETF investing. Not only has it served to protect and to diversify, it has also offered better risk-adjusted returns throughout the year.