Investment pros suggest some alternatives to help investors survive, or even profit from, a bear market in bonds.

ENLARGE

One way to profit from falling bond prices is by shorting, or betting against, long-term bonds, such as 10-year or 30-year Treasury notes. In a short sale, an investor borrows and sells an investment, hoping to profit if it falls. Then, the investment can be purchased at a lower price and replaced. The difference between the sale price and the new purchase price is the investor’s profit.

Many investors view shorting bonds as more challenging than shorting stocks, but Robert Gordon, president of New York-based brokerage firm Twenty-First Securities Corp. says shorting Treasury securities can be easier than shorting stocks. He says the supply of Treasury securities usually dwarfs the supply of most stocks, making it easier for a broker to locate a bond to borrow and sell for an investor. Most brokers can help an investor short a bond, Mr. Gordon says.

Interest-rate options and futures are other common tools used by sophisticated investors to profit from dropping bonds prices. Interest-rate futures are contracts to buy or sell a bond at a certain price at a future date, just as with stock futures. Options are different because they give an investor the right to buy or sell a bond at certain price at a future date, but not the obligation. An investor hoping to profit from lower bond prices—and resulting higher bond yields—can sell bond futures or buy a put option, says William Lloyd, a managing director at VelocityShares, a Darien, Conn.-based developer of exchange-traded products.

Mark Martiak, senior vice president at Premier Wealth Advisors LLC in New York, points to strategic income funds, which invest across the spectrum of fixed-income securities, as useful investments. These funds invest in everything from senior floating-rate loans, emerging-market debt, municipal bonds, investment-grade credit and securitized assets. The Fidelity Strategic Income Fund (FSICX), for example, holds a range of debt securities, including junk bonds, and is down less than 3% so far this year.

In the current changing economic and expected rising interest-rate environment, we believe that investors are well served by having a manager that has a tactical go anywhere strategy, Mr. Martiak says.

A trickier way to bet on lower bond prices is by purchasing shares of an exchange-traded fund developed to gain value when bond prices fall. Buying this kind of ETF, rather than selling bonds, preserves a portfolio’s income stream and helps avoid taxes from selling appreciated bonds, says Vern Sumnicht, chief executive officer of iSectors, which offers ETF-based asset-allocation models.

One example is the ProShares Short 20+ Year Treasury (TBF), which buys derivative investments in the hope of achieving a return that’s the inverse of the daily results of Barclays s benchmark index of 20-year Treasurys, says Mr. Sumnicht. But these ETFs tend to do a better job tracking bonds in the short term than over the long haul, making them challenging instruments to use to shield a portfolio in a bear market. As a result, these funds require frequent monitoring and rebalancing.

Mr. Sumnicht and other analysts advise investors to add short-term, adjustable-rate bonds to a portfolio. He points to the iShares Floating Rate Bond Fund (FLOT) or SPDR Barclays Investment Grade Floating Rate ETF (FLRN) as examples of funds that focus on these kinds of bonds, which have interest rates that adjust higher as market rates climb.

Simpler ways to shield a bond portfolio include selling bonds and bond mutual funds with longer maturities and shifting to shorter-maturity bonds and funds, which tend to do better in rough bond markets, says Troy Gayeski, partner and senior portfolio manager at SkyBridge Capital.

Chris Molumphy, chief investment officer of the Franklin Templeton Fixed Income Group, says corporate bonds and bank loans are more correlated to the economy’s outlook than Treasurys and could do better in a bond downturn.

Municipal bonds can exhibit greater price swings when interest rates rise rapidly, says Ellyn Korzun, lead fixed income manager at TIAA-CREF Trust Co. That’s because municipals are owned primarily by retail investors, who tend to react more emotionally during times of market dislocations than institutions. That can create opportunities for investors looking for attractive tax-free municipals who are able to withstand volatile price moves, Ms. Korzun says.

David Lafferty, senior vice president at Natixis Global Asset Management in Boston, says investors can improve overall returns and offset bond losses by selling calls on shares in their portfolios—contracts giving the owner the right to buy a stock at a higher price at a certain future date.

This strategy both replaces losses from bonds and can also be done without adding significant portfolio risk, Mr. Lafferty says.

Q: In your last column, you addressed whether a taxable account is best to hold real-estate investment trusts and master limited partnerships or whether a traditional IRA is best. But can Roth IRA accounts also hold MLPs & REITs? What, if any, are the tax consequences? Is a Roth IRA a better account for these investments?

Bill Patterson

Grand Junction, Colo.

Roth IRAs are individual retirement accounts in which contributions aren’t tax deductible but qualified distributions are tax-free. Roth IRA accounts can hold both REITs and master limited partnerships, according to financial advisers. The income from both kinds of investments is tax-free in a Roth IRA, just as it is in a traditional IRA.

Just remember that some MLPs generate more than $1,000 of annual unrelated business-tax income, or UBTI. Anything beyond that level can force an investor to pay a tax bill. The risk of passing this $1,000 threshold is why Twenty-First Securities’ Mr. Gordon and other advisers suggest that investors place MLPs in taxable accounts.

Mr. Zuckerman is a reporter for The Wall Street Journal in New York. He can be reached at gregory.zuckerman@wsj.com. Follow him on Twitter at @GZuckerman .