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Power Play: A defensive portfolio is too risky

Janet Yellen
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Janet Yellen

We're two weeks away from the Fed's June meeting on interest rates, where a rate hike is back in play.

Lisa Shalett, head of investment and portfolio strategies at Morgan Stanley Wealth Management, tells CNBC's "Power Lunch" on Wednesday now is not the time to be too defensive with your portfolio.

"Between more hawkish Fed policy and stronger economic fundamentals, we see growing risks to an excessively negative and defensive portfolio stance," Shalett said.

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She points out that the probability of a rate hike before year-end has moved up to 75 percent from 25 percent since the release of the Fed minutes in May. With this change, Shalett believes it is time to rebalance your portfolio.

"Consider assessing portfolios for interest rate sensitivity, preferring shorter-duration bonds and selling expensive, low-beta stocks," Shalett said.

Even with higher rates, Shalett expects the market to be resilient.

Stocks have regained most of their losses during trading.