What Should You Avoid While Interest Rates Are Low? - TheStreet

Investors should be careful not to stretch for yield in the current low-rate environment. A multi-asset income strategy mixing yield, defense and growth is a much smarter -- and safer -- way to go, said Scott Wolle, CIO at Invesco Global Asset Allocation (IVZ) - Get Report .

Investors face difficult challenges when it comes to income, with yields near historic lows even for assets that have traditionally had attractive yields such as high-yield bonds and emerging debt. As investors step farther out onto the risk spectrum, whether by accepting lower quality or longer duration, they are more exposed to capital losses. Many assets that currently have reasonable yields have experienced peak-to-trough losses of up to 50% or more, according to Wolle.

Wolle finds it hard to see investors "doing well" in high yield bonds from here on in. The SPDR Barclays High Yield Bond ETF (JNK) - Get Report , for example, is up 13% year to date and yields only 6%. In his view, the risk/return ratio when yields are that low is simply "not worth it" on a stand-alone basis.

Similarly, Wolle said real estate investment trusts are having a great year, but valuations are now on the high end while yields are on the low end. The price risk, in his view, is "awfully high." The same goes for emerging market bonds, which have had a great run after being shunned by investors not too long ago.

"It makes sense for investors to consider defense and growth as necessary complements to yield," said Wolle, who uses in his portfolio a combination of high yielding assets like junk and REITs, Treasuries for defense and equity and bond futures to decrease spread and duration risk.

"While this isn't necessarily easy, we do believe it's achievable and have adopted this as a goal for our multi-asset income strategy. Like all of our strategies, we use a combination of strategic and tactical allocation to achieve our objectives."