Portfolio diversification, of course, continues to be crucial in managing risk. Yet, many asset classes are already pricey, there is very little opportunity to avoid risk by pursuing investments that are substantially undervalued. To that end, advisors would be well served to go beyond traditional asset allocation and assess if a variety of new products may be appropriate for managing risk. While being able to use novel risk management strategies may help existing clients generate attractive returns, it can also serve as a selling point when meeting with prospects.

Clearly, the bull market seems unstoppable, but that doesn’t mean that advisors shouldn’t brace for an inevitable correction, especially with benchmarks frequently setting new records. On Friday, for example, the Nasdaq Composite Index and the S&P 500 both set new record highs after Google, Amazon, and Microsoft posted strong quarterly results.

Equities in other countries are also trading at high levels. Just recently, Chinese stocks hit a seven-year high while other emerging markets have also been advancing. Many advisors, meanwhile, believe fixed-income securities, which are trading at low yields, are no longer a safe haven for investors seeking to avoid risk. Allocating a substantial portion of assets to cash, unfortunately, isn’t an attractive option as doing so only subjects clients to the risk of having inflation erode the value of their wealth.

With that in mind, building defensive portfolios may be an appropriate alternative to jumping out of equities or maintaining cash-heavy portfolios. In the past, building defensive portfolios may have been beyond the capabilities of many advisors.

Today, however, a variety of new products is making it easier to implement defensive strategies in diversified portfolios. For example, advisors can turn to smart beta exchange traded funds such as SPLV and EEMV that seek to generate low volatility returns. SPLV invests in the 100 stocks within the S&P 500 that have exhibited the lowest levels of trading volatility over the past 12 months. The EEMV ETF takes a similar approach by investing in low volatility stocks within emerging markets. Other low volatility ETFs exist for a variety of asset classes, such as small cap and mid cap stocks and equities of other countries, including Japan.

Advisors may also want to revisit the merits of alternative investments, including long/short funds that use short positions to minimize market risks. The challenge, of course, is to understand how individual funds within the category are managed because investment strategies can vary widely from fund to fund. Some funds, for example, may maintain steady allocations to shorts while others may only take short positions when market risk appears high.

Like low volatility ETFs, long/short funds may underperform when markets rally, but the can potentially outperform markets over the long term by minimizing the impact of market corrections.

Many investors are also concerned that the low yields of bonds imply that fixed-income assets are risky, especially with expectations of the Federal Reserve raising interest rates later this year. Yet, for many investors bonds are a crucial asset class for adding diversification to portfolios.

One approach is to hold bonds to maturity to minimize interest rate risk, but not all clients have sufficient assets for building diversified fixed-income allocations. For such clients, it may be appropriate to allocate assets to defined maturity bond funds. As their name implies, defined maturity funds invest in bonds with specified maturities. As the bonds mature, the funds hold the resulting cash. Once all of the bonds have matured, the funds are liquidated. The goal is to eliminate interest rate risk by holding the bonds to maturity.

Advisors may also want to consider a small allocation to floating rate loan funds. Such funds invest in loans that have interest rates that frequently reset. The reset function helps to minimize interest rate risk. The loans, however, often have low credit ratings, so advisors need to assess if the trade off of interest rate risk for default risk is a sensible strategy.