It’ll be slow growing

CHICAGO – The U.S. economy may be on track for recovery later this year but growth is likely to be muted, unemployment elevated and government regulation of markets on the rise.

Those are the predictions of some of the nation’s leading mutual fund managers and financial advisers who met last week in Chicago.

The financial industry professionals were trying to sort through the conflicting economic indicators and the resulting rallies and retreats in the stock market at the Morningstar Investment Conference, one of the largest such gatherings held each year.

One expert who said he believes recovery will be slow is bond fund manager Bill Gross, who oversees $720 billion in fixed securities for PIMCO.

He said the nation’s total output of goods and services, the gross domestic product, will grow only at 1 to 2 percent instead of the usual 2 to 3 percent for the next several years. He also predicted unemployment will retreat from the anticipated high of 10 percent but will remain higher than average at about 7 to 8 percent for years to come.

Reasons for those long-term changes are rooted in the complexity of the economic meltdown that has swept through financial services, housing and automotive industries. The situation is made worse by excessive borrowing by financial services companies and consumers. As that indebtedness is unwound in the economy, it will take years to get back to the point where consumers can spend as freely again. “Our inclination to shop and to consume basically was exaggerated to an extreme proportion,” Gross said.

Many fund managers are talking about investment opportunities found in undervalued stocks of financially sound companies. Others, however, continue to say all the talk about a significant recovery this year may be greatly exaggerated and it’s too soon to jump fully back into the market.

Things have changed for investment professionals, too, who are likely to see their compensation change significantly as investors push for lower fees and more accountability in the profession.

Don Phillips, managing director of Morningstar Inc., said some of the issues regarding the public perception of fund managers can be traced to inadequate fund information. He called the accounting measures used by mutual funds a mess, lacking a simple procedure in which sales and distribution costs are clearly outlined.

“I don’t know why we can’t get to that place and it seems to me that’s something as investors that we should be demanding,” he said. “It’s just beyond me why an industry that’s as important to the American economy and to investors’ well-being doesn’t have that simple straightforward accounting.”

David Winters, chief executive of Wintergreen Advisers and portfolio manager for Wintergreen Fund, said much of the country’s corporate troubles can be blamed on a lack of accountable corporate boards. He singled out insurance companies in particular for failing to disclose some of the liabilities they held on their books in bad real estate and other investments.