Effective Credit Risk Management in a Portfolio

John is a portfolio manager for a multi-strategy hedge fund and oversees a diverse portfolio that includes equities, fixed income securities, and credit derivatives. Recently, the fund has received information indicating that a high-yield bond issuer is under pressure due to regulatory changes impacting its primary business model.

As part of John's risk management process, he is evaluating various strategies to mitigate credit risk associated with the issuer. He is considering three potential actions:

1. Increase the portfolio's allocation to higher-rated bonds in order to offset potential losses from the high-yield bond.
2. Engage in a credit default swap (CDS) transaction to hedge the credit risk of the specific issuer.
3. Reduce overall portfolio duration to minimize the interest rate risk impacting the bond's value.

Which of these actions is the most effective strategy specifically for managing the credit risk associated with the issuer?