With the assumption that rates have peaked, the best bond returns will come from the long end of the curve. XLB and TLT can be suggested here. We are less sure on the 'cheaper asset' theory. Stocks can still do well in an inflationary environment, bonds less so. So, if rates have not peaked, stocks could still outperform. If we take out five or six companies out of the S&P 500 index, valuations are pretty good. Small and mid-cap valuations are near historical lows. Both stocks and bonds can do well at the same time. There are stocks that will double in a better environment, and bonds will not have that degree of upside. As usual, we think balance is the best approach.
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