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By Morningstar.com | 04-02-2016 09:00 AM

How to Invest in a Slow-Growth World

Panelists at the Morningstar Individual Investor Conference discuss how to position for profit amid anemic growth, energy volatility, the threat of inflation, and extraordinary central bank activity.

Jason Stipp: I'm Jason Stipp, site editor for Morningstar.com. It's gloomy here in Chicago, but we've got some bright minds and bright ideas for you today. We have got five sessions and one video special. You won't want to miss any of it.

We're going to start by taking the market's temperature with a panel discussion this morning. I'd like to introduce the panelists we have here today. We will be talking about how the economy might be affecting the markets and how you may want to position your portfolio. We have Charlie Bobrinskoy; he is Vice Chairman and Head of Investments for Ariel Investments. Thanks for joining us, Charlie.

Charlie Bobrinskoy: Thanks for having me.

Stipp: Michael Fredericks is lead portfolio manager on BlackRock Multi Asset Income Fund. Michael, thanks for being here.

Fredericks: Thank you.

Stipp: And Bob Johnson, of course, is our director of economic analysis at Morningstar. Bob, thanks for being here.

Bob Johnson: Thank you.

Stipp: Let's start out at a high level and talk about the economy very broadly. If you look at the economy month to month, if you are looking at retail sales, if you look at manufacturing data, it can seem like we're going through periods of booms and busts. The data is very noisy, but when you dig underneath the month-to-month volatility and noisy data, what does the actual real economy look like to you? Are we strengthening? Are we weakening? Charlie, let's start with you. What's your take on what the economy is really doing?

Bobrinskoy: We have been surprised how pessimistic people are about the economy, which frankly, we think is pretty good. We've had, obviously, a long period of steady gains in jobs, a long period of dropping unemployment. We think that people are excessively afraid of the economy. Obviously, 2008 had a massive effect on people's psyches.

People are looking for that next big recession, which we don't see anywhere. We've got a lot of tailwinds, in our view. We have got a very strong auto market. We've got a better housing market. We have got low interest rates, low energy costs, lower unemployment. We think there is a lot to feel good about, particularly in the U.S.

Stipp: Michael, we haven't had necessarily the kind of growth that you'd normally like to see coming out of a downturn. But we've had a very prolonged period where we haven't had to deal with a recession, since 2008. How would you characterize this sort of slow-growth environment that we're in? Is this something that you think is positive, that it's been so long and ongoing? Or is it not growing fast enough for us?

Fredericks: I think it suggests to us that it's kind of a bifurcated economy. Yes, I totally agree, there are pockets of strength and there are pockets of weaknesses. The housing market and auto sales have been good. Consumer spending has been OK. We've been buying a lot more stuff, but the price of that stuff has, in general, been falling. So real retail sales haven't been so impressive. Manufacturing has been a bit of a different story, particularly over the last year or so.

Consumer looks pretty good; the manufacturing and industrial side of the economy, not so hot. And I think that translates into another year of growth that is just OK: 2%-2.25% GDP growth. When you look to some of the overseas markets, they're not doing so well either. You've got Europe growing in the low 1% range, and Japan is whole other can of worms.

So I think it translates into a continuation of a world where overall growth is not that exciting, but not bad, either. But the level of growth is what is really complicated for investors, because it doesn't take much in terms of a slowdown in data for it to feel like we're hitting stall speed, and people get very anxious that we are going over the edge into recession, and that leads to big sell-offs and real choppiness in markets. Unfortunately that's the environment we think we're in.

Stipp: Bob, you've often referred to the economy as a giant ocean liner that's very hard to turn one way or the other. It's been moving slowly forward and slowly upward. Is there any reason to suggest that we won't see that same sort of slow but generally decent growth going forward?

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