In finance, a Barbell strategy is formed when a Trader invests in Long and Short duration bonds, but does not invest in the intermediate duration bonds.
A barbell strategy is one of several different types of portfolio strategies that is designed to create a reasonable return on the investments that are part of the asset portfolio. Essentially, the barbell strategy is built around the concept of focusing on the maturities of the securities that are part of the portfolio and making sure that the maturity dates are either very close or at a distant date. Here is how the barbell strategy works, and what types of results are desired as a result of utilizing barbell strategies.
The key to employing a barbell strategy is seeking to include bonds and other securities that are set to mature either in the short term or the long term. While it is always a good idea to include a mix of investments with a variety of maturation dates, the difference in this approach is to concentrate those dates at opposite ends of the spectrum. This means that two blocks or groups are created within the portfolio, rather than having securities that mature consistently from one period to the next.
Part of the purpose of the barbell strategy is to allow for a quick turnover of a significant amount of the assets in the portfolio at one time. For example, attention should be paid to the bloc of short-term investments, so they can all be rolled over into new short-term investments as they reach maturity. Typically, this leads to an increase in the value of the investments that are turned over, thus increasing the overall value of the investment portfolio.
The opposite is Bullet strategy.