Bell Shaped Portfolio - Explained
What is a Bell-Shaped Portfolio?
Written by Jason Gordon
Updated at September 30th, 2021
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Table of Contents
What is a Barbell-Shaped Portfolio?How Does a Barbell - Shaped Investment Portfolio Work?Academic Research on Barbell-Shaped PortfolioWhat is a Barbell-Shaped Portfolio?
A Barbell-Shaped Portfolio is an investment strategy in which half of a fixed-income portfolio contains long-term bonds while the other half is made up of short-term bonds. This type of investment strategy weighs heavily at both sides, the strategy looks like a barbell which is why is it called a barbell-shaped portfolio. A barbell shaped portfolio is a combination of high-risks and low-risk assets in a bid to get a better yield. Portfolios in which the barbell is being increasingly used include; stock portfolios and asset allocation, low-beta sectors/assets, high-beta sectors/assets and others.
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How Does a Barbell - Shaped Investment Portfolio Work?
When barbell is used as an investment strategy, a fixed-income portfolio would have both short-term bonds and long-term bonds and no other bonds between them. Frequent monitoring is required on the part of a portfolio manager that implements a barbell portfolio. Since this strategy is that that combines assets with high risks and those with low risks in order to get maximum return, monitoring is needed. Usually, a barbell portfolio contains 50% safe investments and 50% high-risk investments. However, the weightings of both halves of the portfolio are not fixed at 50%. That is, in barbell portfolios, the weightings can be adjusted based on market conditions. There are many reasons barbell investments or portfolios are attractive to investors. Investors using barbell techniques reduce investment risks and at the same time have to potential to obtain higher returns. For instance, in cases of increase in the interest rates of short-term bonds, the yield of the bonds can be reinvest or used to purchase additional bonds to maximize profit. The short-term bonds in the investment portfolio have short maturity period, thereby providing liquidity for investors. Despite the benefits of barbell portfolios, its drawback is that it makes no room for middle or intermediate-term bonds. This might not be ideal, especially in cases of economic boom where medium or intermediate-risk bonds have outstanding market returns.
Academic Research on Barbell-Shaped Portfolio
- The evolving defense industrial base, Vincent, L. (2008).
- Delivery options and convexity in Treasury bond and note futures, Grieves, R., Marcus, A. J., & Woodhams, A. (2010). Review of Financial Economics, 19(1), 1-7.
- On Hersh Shefrin's Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing, Zweig, J. (2000). The Journal of Psychology and Financial Markets, 1(2), 154-155.
- Loan equivalents for revolving credits and advised lines, Araten, M., & Jacobs Jr, M. (2001). The RMA Journal, 83(8), 34-39.
- Income disparity, technology and globalization, Augustine, A., & Papanyan, S. (2016).
- An empirical study of exposure at default, Jacobs Jr, M. (2010). Journal of Advanced Studies in Finance, 1(1), 31-59.
- The transformation of the US financial services industry, 1975-2000: Competition, consolidation, and increased risks, Wilmarth Jr, A. E. (2002). U. Ill. L. Rev., 215.
- ASSESSING RISKS TO GLOBAL FINANCIAL STABILITY NG RISKS TO GLOBAL FINANCIAL STABILITY, Craig, S., Garcia-Pascual, A., Hartelius, K., Heenan, G., Huang, X., de Imus, P., ... & Ramirez, S. .
- What do We Know About Exposure at Default on Contingent Credit Lines?A Survey of the Literature, Empirical Analysis and Models, Jacobs Jr, M., & Bag, P. (2011). Journal of Advanced Studies in Finance, 2(1), 26-46.