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How to play the strong dollar, slow-growth market

Investors will not see the same returns in the next five years as they've seen in the last five years, but it will still be possible to squeeze positive returns from stock and bond portfolios, said Ed Keon, portfolio manager at Quantitative Management Associates, on Friday.

"The good thing is that we really haven't had the excesses build up, the high leverage or the great risk-taking that normally leads to the end of an economic cycle or market cycle. People are still cautious. I think what that means is we're probably going to have an extended cycle, both for economic growth and for the market," he told CNBC's "Squawk Box."

Analysts have revised down first-quarter earnings growth forecasts for S&P 500-listed companies dramatically since the beginning of the year. Companies in the index are now expected to turn in negative growth of 5 percent, compared with a forecast at the start of the year for 4.3 percent growth.

A strong dollar, which makes American goods more expensive in foreign markets, and the impact of low crude prices on the energy sector have raised concerns about earnings for U.S. companies.

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While Keon still likes U.S. stocks on the view that earnings will eventually rebound, he said European stocks with a currency hedge are the better investment right now.

European markets have outperformed major U.S. indexes this year as the European Central Bank continues its bond-buying stimulus program and the Federal Reserve is poised to raise interest rates.

Ultimately, the current currency market volatility is not about dollar strength, but euro weakness, said David Woo, head of global rates and currencies at Bank of America Merrill Lynch Global Research.

"The bottom line is the ECB is going to be embarking on 19 months of [quantitative easing], and while they're basically driving down bond yields into negative territory, I think the fact is reserve managers around the world are saying to themselves, 'There's no way I'm buying basically negative-yielding bonds.'"

That is fueling reserve diversification away from the euro and into the dollar and yen.

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He noted that the dollar has gone up in 45 trading sessions this year, while the S&P 500 has fallen on 38 of those days, driving the correlation between the index and the greenback near the lowest level in 15 years.

"What it's telling you is the U.S. stock market at least is waking up to the reality that a strong dollar is not good for U.S. stocks, for the U.S. economy," he said. Conversely, the weak euro is bolstering European stocks.

"Currency war is very much the business of today," he said.

Jeremy Hill, managing director at Old Blackheath Cos., likes small-cap European equities, but advised against currency hedging in the near term because he foresees some dollar weakness as the Fed likely pushes the rate hike further into the future.

"Could we get down to parity with the dollar? Yeah, that's certainly a possibility. But for the very near term, there's been a huge influx of money into European equities that are hedged. At this point, you might want to switch out of that into something that's European but not hedged," he told "Squawk Box."

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Keon sees interest rates remaining low for some time not just due to monetary policy, but a continued demand for safe-haven assets.

"I think there is a lot of truth to the idea that there is a great deal of money and it's looking for someplace to get a safe, secure return, and therefore the rate of interest under these conditions—with still a lot of caution, a lot of overhang from the financial crisis—that rate of interest is still pretty low and that's going to continue for a while longer," he said.