Canadian advisors are still bullish on U.S. equities, according to the Q1 2016 Advisor and Investor Sentiment Surveys conducted by Horizons ETFs Management
“I was surprised by the level of bullishness on US equities,” said Mark Noble, Senior Vice President, Head of Sales Strategy, at Horizons ETFs Management
(Canada). “I was a little bit surprised to see the bullish sentiment on equities overall, but the US equities bullish sentiment I understand to a certain degree.”
Advisors were bullish on four classes only, which included the S&P 500, NASDAQ-100 and S&P/TSX 60 Index and the S&P/TSX Capped Financials Index; however, the degree of bullishness declined for each of these indices.
“Fundamentally the US economy just looks far more attractive than the Canadian economy if you look at the relative growth differential between the two,” he said. “The US economy is talking about raising rates. Employment has been relatively attractive. Corporate earnings remain strong so they have a lot of fundamental tail winds behind it; whereas on the Canadian side you’ve got the opposite issue.
“You’ve got the decline of crude oil which is devastated Western Canada. You have the bank of Canada dropping rates twice last year. So you’re in two very different market environments.”
Perhaps the third and even larger factor is currency.
“The decline of the Canadian dollar against the greenback has had a significant effect on U.S. equity returns and advisors realize that an active currency hedging strategy can play a very important role in ultimate returns,” said Steve Hawkins, Co-Chief Executive Officer at Horizons ETFs.
In Canadian dollar terms, the S&P 500 was up approximately 10.75% for the 3-months ending December 31, 2015.
“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 U.S. equity markets,” added Hawkins.