A recent survey revealed some surprising insights related to US equities and crude oil
Canadian advisors remain optimistic about US equities, according to the Q1 2016 Advisor and Investor Sentiment Surveys conducted by Horizons ETFs Management.
Advisors were bullish on only four of 14 classes, which included the S&P 500, NASDAQ-100, S&P/TSX 60 Index and the S&P/TSX Capped Financials Index; however, the degree of bullishness declined for each of these indices compared to the previous quarter.
“The decline of the Canadian dollar against the greenback has had a significant effect on US equity returns, and advisors realize that an active currency hedging strategy can play a very important role in ultimate returns,” says Steve Hawkins, o-CEO of Horizons ETFs. “The Fed also raised rates in December, which is generally considered a signal of strength for their markets overall, and that may have been what has kept the majority of advisor sentiment bullish on US equity markets.”
Looking ahead to the first quarter of 2016, 60% of advisors said they were bullish on the S&P/TSX 60 Index, a decline of only two percentage points from the previous quarter. Meanwhile, the number of advisors bullish on the S&P/TSX Capped Financial Index declined by eight percentage points, down to 54% from 62% last quarter.
“After a near 8% decline in the S&P/TSX 60 in 2015, advisors may think Canadian equities could be poised for a comeback,” Hawkins says. “While the performance of financials may have been flat over Q4, advisors may see the banks as a value opportunity over the coming quarter, and of course, they are always a great source of dividend income for Canadian investors.”
Surprisingly, sentiment for crude oil rose somewhat quarter-over-quarter, even with a 17.85% decline in the spot price of crude oil in the fourth quarter of 2015. The number of bullish advisors on crude oil rose to 45%, up from 39% last quarter, while the number of advisors who expressed bearish sentiment fell to 24% from 30%.
“Advisors increased their positive sentiment towards crude oil heading into Q1, thinking its price may have bottomed; unfortunately, this has not been the case so far, with WTI trading well below where it ended the year,” Hawkins says. “There’s also positive sentiment around energy producers, which are very oversold at the moment. If there is a bounce-back in crude oil prices, investors are expecting energy stocks to really ramp up performance.”