Ignore the noise, lower expectations and keep your eye on the long term. That was the message from the Market Outlook panel at this week’s Envestnet Advisor Summit in Chicago.

“Keep your eye on that North Star,” said David Polak, equity investment specialist of American Funds and senior vice president of its parent, Capital Group. “Don’t ignore” the noise in the market “but don’t let it paralyze you.”

 At the same time, advisors shouldn’t expect to reap the returns of the not-so-distant past.

“We’re living in a slower growth world, with lower rates and asset returns,” said Josh Feinman, chief global economist at Deutsche Asset Management.

With that in mind, Justin Christofel, a portfolio manager at BlackRock, told the audience of advisors that they should limit risks in portfolios because there is less compensation now for taking risk than there was five or even three years ago.

He sees opportunities in credit markets using money taken out of stocks. “Equity valuations are 17 times forward earnings, which is about 1.5 times what they were in 2006 and 2007,” said Christofel. He expects overall returns in the mid-single digits. “The inescapable reality is that returns will be more modest going forward. “

Polak of American Funds as well as other panelists expressed concern about the limits of monetary policy around the world. With rates still extremely low in the U.S. – the federal funds rate is 0.25% to 0.50% – and negative rates in many European countries and Japan, central banks throughout the global economy don’t have the usual tools to address an economic recession.

“The efficacy of monetary policy going forward is what is really worrying,” said Christofel. “What will we do if we fall into recession to stimulate growth?”

Feinman said low rates are also indicating “the desire to save is great and exceeding demand for capital investment.… The near- and medium-term problem is a lack of growth … Rates are telling you there isn’t enough government  debt, not there is too much.”

Given that economic backdrop, what should investors and advisors do now?

 “We tell people expect lower returns,” said Feinman. “Recalibrate expectations.” 

“Refocus on fundamentals,” said Polak. And “look at the world through lens of companies.” Advisors and investors who do that will see there is “innovation, productivity gains and a lot of companies around the world with interesting valuations,” including companies whose businesses “are closely tied to the internet or are involved in genome therapy,” said Polak. “Don’t position from top down but from the bottom up. Invest globally in companies — in Japan, Europe, emerging markets that are innovative.” 

China is another big concern in global markets. “China is a big question,” said Feinman. “It’s hard to know what’s going on over there.” He expects the Chinese economy will have a “soft landing” rather than a hard one, meaning growth will slow but not dissipate.

Polak expects China’s GDP will retreat to 3% to 4%,  down sharply from the latest 6.7% reading for the first quarter. Although there may be “tremendous opportunities” investing in China in the long term as domestic consumption picks up, and there are innovative tech companies like Alibaba and Badu operating currently, Polak said advisors would be wise to “avoid state-owned enterprises” in the short term and learn what’s actually in the Chinese ETFs they might own. “A lot of companies owned by the state will be laying off workers in the next 10 years.”

When moderator Zachary Karabell, head of global strategy at Envestnet, asked the panel whether noise in the market coming from politics – in the U.S.  presidential campaign, upcoming Brexit vote in the U.K. and political turmoil in Brazil – is significant headwind for the markets or more of a distraction, Polak said that the impact is mixed. In Brazil, politics “is everything, in the U.K something, but in the U.S. seemingly unimportant.”

The market reaction in the U.K. and the U.S. will depend on the results.

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