Stocks have rallied, while bonds have had a mixed 2023. Markets are now betting on interest rate cuts , but Robert Almeida, global investment strategist at MFS Investment Management, prefers bonds to stocks. “I believe bonds are more attractive than equities, just because of the risk adjusted return profile – bonds are de-risked whereas the return on equities can be negative, and the volume can be quite high,” he told CNBC Pro on Dec. 1. Noting that higher profits have boosted stock prices, Almeida, who is also a portfolio manager, said that many investors are of the view that equity valuations “look stretched, but are not extreme,” when compared with fixed income. His response is to look at both asset classes through a “long-term lens on a cyclically adjusted price-to-earnings ratio.” “Even if you normalize profits or adjust them to consider scenarios where valuations are really high – and you compare what you get it cash for both fixed income and equities – you will see that stocks are quite unattractive right now,” he added. Almeida oversees MFS’ Diversified Income Fund, which aims to find “total return with an emphasis on current income” as well as capital appreciation. The bulk of the fund (70.3%) is invested in bonds: the 5-Year U.S. Treasury Futures, 10-Year U.S. Treasury Futures and United States Treasury Bond were in its top 10 holdings as at end-September. The rest of its portfolio is invested in stocks (30.4%) as well as cash and its equivalents (2.1%). ‘Most attractive’ bonds When asked what bonds investors should invest in, Almeida responded that the “most attractive” are Treasurys and mortgages. “Most government bonds are pretty attractive with the exception of Switzerland and Japan because the yields are too low. But, if I’m based elsewhere like Britain or Europe – I would get bonds because they have a pretty attractive trade off to equities.” Almeida also sees opportunities in triple A corporate bonds. “In the portfolio I run, I’m overweight fixed income – the bulk of that overweight is U.S. triple A government securities. And then I’m slightly overweight investment grade corporates,” he said, adding that he’s concerned that spreads of corporate bonds are too tight and will widen as fundamentals soften. Portfolio mix Although Almeida is more bullish on bonds than stocks, he stressed that an investor’s portfolio mix should be dependent on risk appetite and life stage. Whether that translates to 60% in stocks and 40% in bonds, or 50% in equities and 50% in bonds, is not as material as being “as defensively positioned as possible,” he said. Almeida suggested that investors increase their current allocation to bonds by 5%. “That’s what I did with my portfolio – the neutral mix is 65% in bonds and 35% in equities. I just tweaked the allocation to both by 5%,” he said. As for stocks, Almeida sees potential in “businesses with a product or service that people want or need.” “These businesses have pricing power and barriers to entry,” naming railroads and suppliers of household items such as paint, lighting and fixtures, as themes on his radar. Companies he likes include Sherwin-Williams , Masco , Sensata and Amphenol .