SEATTLE ( TheStreet) -- Short-term bonds and small-cap stocks are the best way to play a potentially long U.S. economic recovery, says Bryce James, manager of the Aston Dynamic Allocation Fund ( ASENX).The $52 million fund has returned 17% over the past year, according to Morningstar ( MORN). James invests in exchange-traded funds, shifting the portfolio's money around frequently. A Rocky Recovery (Forbes) Welcome to TheStreet's Fund Manager Five Spot, where America's top mutual fund managers give their best stock picks and views on the market in a five-question format. What is your view of the U.S. economy? James: We are still in a debt reduction phase and I predict this market won't trend upward until it unwinds its attraction to borrowing. When I entered into the business in 1983, nobody borrowed money because the memories of the Great Depression were etched in the minds of investors. The current decision makers, consultants, brokers, financial planners, and investors are too young to remember the carnage and therefore are deemed to repeat the past. The Federal Reserve policy to manage the economy for decades has simply been to increase or decrease the money supply as if it were a car with a throttle and brake. My forecast is that the economy will continue with these painful ebbs and flows, fits and restarts until the debt levels shrink from their current levels. I wouldn't be surprised to see the market value unchanged in another five years. Dividends are near an all-time low, price-to-earnings ratios are high and real estate is not done unwinding. The next leg of pain will come when credit tightens further and interest rates rise. What are your favorite sector exchange-traded funds? James: Short-term fixed income is still our favorite sector, specifically the iShares Barclays 1-3 Year Treasury Bond ETF ( SHY), which makes up around 20% of our fund. Our domestic equities are more focused on value, health care and utilities. The iShares Russell 2000 ETF ( IWM) is our largest equity fund holding at close to 10%. What is your least favorite sector ETF? James: We simply don't like ETFs with high volatility and/or low expected return. We do not make sector bets or try to fill up the style box. So the best way for me to address this question is to identify those areas where we have little if any exposure, such as long-term fixed income, where we have no exposure, and real estate, which only makes up 6% of the portfolio.