Video: What Damage Can Rising Rates Do?

David Falkof, Morningstar investment consultant, says “conservatively tilted” diversified portfolios have produced positive returns through rising-rate environments, according to his research. As he explains in this video, Falkof looked at the historical performances of various asset classes in a variety of rate-rising scenarios, and found that while Treasuries were highly sensitive to interest rates, other fixed-income categories – including high-yield bonds – were only loosely correlated to interest rate changes.

Even among “the worst potential environments,” Falkof says “conservatively tilted” diversified portfolios have generated positive returns, on average. “While the government-bond exposure and the corporate-bond exposure may have had some losses, the high-yield bond exposure, the cash, the stock exposures – all of those allocations sort of working together – still generated a positive outcome on average,” he tells Morningstar’s Chrstine Benz in this video report.

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