3 Market Experts Share Their Barbell Investing Strategy for Stocks
Barbells aren’t just for the gym — it turns out that they can also be a helpful investing strategy, especially in times of heightened volatility.
A barbell investment strategy involves investing part of your portfolio in high-risk assets and part in low-risk assets, the idea being that the two-sided approach will provide downside protection if one investment is underperforming. Investors can maintain exposure to riskier, more speculative parts of the market while still mitigating portfolio risk.
The barbell strategy may be especially helpful in the current market as stocks continue to fluctuate. After surging to the highest level since March 2020 last week, the CBOE Volatility Index, also known as the VIX, has come down but remains elevated at 20.37.
Expect volatility to remain high for the rest of August, according to Truist’s Chief Investment Officer Keith Lerner.
“It would be very normal at some point to see another spike back up in the volatility index,” he told Business Insider.
To gauge how money managers are balancing risk and reward in the stock market, Business Insider asked three market experts how they’re using the barbell strategy right now. Below, we’ve compiled their views on how to invest for maximum portfolio stability and returns.
Chad Oviatt, director of investment management at Huntington Private Bank
Oviatt told Business Insider that he’s staying invested in Big Tech but is using the recent market downturn to reduce his exposure to the sector.
“We were always underweight the Magnificent Seven,” Oviatt said. His investment philosophy is to never put more than 10% of a portfolio in a single stock, and this reduced concentration resulted in less volatility during the events of last week.
However, Oviatt recognizes the benefit of holding large-cap tech. “You don’t want to abandon the technology names. There is a lot of opportunity there and we don’t think technology is going to move backwards. It’s just they’ve been making investments for future revenues. And if you’re a long-term investor, that’s fine,” Oviatt said.
Specifically within the large-cap space, Oviatt utilizes a barbell strategy to balance risk profiles. He combines the Magnificent Seven names on the riskier side of the spectrum with lower-risk large-cap staples and dividend-generating stocks such as healthcare and financials. Exposure to Big Tech gives investors capital appreciation opportunities. At the same time, the lower-risk side of the barbell will perform especially well as interest rates are slated to go down, according to Oviatt. Financials in particular can provide investors with steady income through dividends. This barbell strategy could be especially helpful as the market broadens out beyond Big Tech.
Keith Lerner, chief market strategist and co-chief investment officer at Truist Wealth
Keith Lerner is bullish on the tech sector and sees a buying opportunity after stocks plunged earlier last week. To combat continued market choppiness, he recommends barbelling technology and communication services stocks with more defensive picks such as utilities.
Both technology and communication services are more growth-oriented. These sectors have posted strong earnings and are both set to benefit from the secular trend of AI, according to Lerner. Lerner believes that communication services is a particularly attractive sector. Though Lerner didn’t share specific stocks he’s investing in, the sector includes stocks like Meta Platforms (META) and Alphabet (GOOGL), and covers a wide variety of companies from digital advertising to wireless and broadband service providers. Content companies are another big driver of the communication services sector, said Lerner. Examples include Netflix (NFLX) and Walt Disney (DIS).
On the other side of the barbell, Lerner likes utilities because of their attractive valuation and defensive nature, making them top performers during times of economic uncertainty. Utilities also offer consistent dividends. And with an uptick in infrastructure spending and power demand due to AI, this stable sector is likely to see a boost to its earnings.
Greg Tuorto, portfolio manager at Goldman Sachs Asset Management
Greg Tuorto offers some insight into using the barbell strategy for the small-cap area of the market as well. He believes that small caps are set to receive a boost as the market begins rotating out of its tech-heavy concentration and the likelihood of a rate cut in September increases. However, small-caps are susceptible to market volatility even as they outperform.
Although a barbell strategy isn’t the most conventional for small-caps, investors can find ways to invest in both ends of the risk-reward spectrum. Within the small-cap space, Tuorto suggests balancing growth with value, combining companies with strong growth dynamics with companies that are trading at a discount.
Examples of high-growth areas include semiconductors and medical technology, he said. Tuorto expects these companies to grow rapidly in the coming years, but along with the potential expansion comes added risk. On the value side, Tuorto points to industrials as a sector with existing stable demand. By putting money into a combination of future growth prospects and value, investors can balance the risk profile of their small-cap investments.
“That allows you to benefit from both what’s going on today and also making sure that you have a toe in the water for the future as well,” said Tuorto.
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