According to Glenn, investors need to rethink their playbook for various assets as the great 35-year bull market in bonds comes to an end. Specifically, investors should:
- Move out of longer-duration bonds and reposition into shorter-duration ones.
- Own banks that are “asset sensitive” (assets reprice quicker than liabilities). Bank of America (NYSE: BAC), for example, should earn in excess of $5 billion in incremental net interest margin dollars for every 100 bps move higher in rates.
- Add exposure to commodities/energy/materials through publicly-traded equities. These sectors are cheap based on historical S&P weightings and public securities provide investors with built-in liquidity.
- Make sure companies in your portfolio have fixed, not floating rate debt. Also, make sure the debt is sufficiently termed out.
- Stay away from Utilities and Consumer Staples, two sectors that benefited disproportionately from the bond bull market.