(TheStreet) -- If the Federal Reserve's loose monetary policy has run its course and the economy fails to pick up steam, then the big question is what Fed Chair Janet Yellen and company will do next, said John Culbertson, CIO of Context Asset Management.

"The Bank of Japan is a good indication of what could happen next, which is potentially buying risk assets. It's hard to imagine the Fed doing that," said Culbertson, "but could there be a QE4 or QE5? Who knows?"

Culbertson said the global economy is clearly slowing down and just about every major central bank has significant monetary stimulus in place. He said disinflation or even deflation is apparent in almost all major economies even after massive QE programs in the U.S., Europe and Japan. The Fed is at least considering raising interest rates in 2015.

Meanwhile, he said U.S. balance sheets are servicing the most debt in years just as profits appear to be peaking. In his view traditional 60/40 portfolios are particularly exposed, given full valuation of equities and no coupon cushion for bonds. He added that the increased spreads in high-yield bonds may be showing some cracks in the market and telegraphing a rise in the default rate in the coming year.

"Most likely, the spread widening we have seen is an indication that people are nervous that these companies will not be able to service that debt as expected," said Culbertson.

Culbertson's advice to investors is to be very thoughtful about diversification. In his view, bonds will not offer the same protection given where interest rates and credit spreads are. He said investors need to seek true diversification with non-traditional strategies like the ones found in his own Context Macro Opportunities Fund (CMOTX).

"We think moving to strategies that are explicitly designed to provide diversification like discretionary macro, systematic macro, CTA strategies that have traditionally done well in times that have been adverse to risk assets," said Culbertson, "we think they are the strategies that will be the true diversifiers."