Managing Credit Risk in a Client Portfolio

Alex is a portfolio manager at a wealth management firm focusing on high-net-worth individuals. Recently, he conducted a review of the credit exposure in his client’s fixed income portfolio. During the review, Alex noted that one of the corporate bonds held in the portfolio had seen a downgrade from a 'A' rating to a 'BBB' rating by a major credit rating agency. He is concerned about the potential impact this downgrade may have on the portfolio's overall credit risk.

As Alex strategizes on how to manage this increased credit risk, he considers different approaches to mitigate potential losses and ensure the portfolio remains aligned with the client’s investment objectives.