Advisors and investors 'optimistic' about Canadian equities

Survey also reports huge increase in bullishness on emerging markets while sentiment on fixed income dips

Advisors and investors 'optimistic' about Canadian equities

Investors and advisors have begun the new decade with a clear signal of renewed confidence and a move away from defensive positions, according to a first quarter 2020 Advisor and Investor Sentiment Surveys from Horizons ETFs.

The survey asked investors and investment advisors for their outlook – bullish, bearish or neutral sentiment - on expected returns for 14 distinct asset classes.

Notably, bullish sentiment increased for Canadian equities with nearly all the measured Canadian indices posting performance growth. The report said that after a 1.7% gain by the S&P/TSX 60 in Q4 2019, advisors’ bullish sentiment on the index increased by 10% to 58%. For investors, bullish sentiment increased 7% to 53%.

Canadian energy, as represented by the S&P/TSX Capped Energy Index, saw a positive sentiment increase. Advisors boosted their bullish sentiment on the index by 16% to 59% bullishness overall – their strongest position on a Canadian equity index. Investor bullishness also grew 8% to 49%.

Investor bullishness on Canadian banks, as represented by the S&P/TSX Capped Financials Index, went up 6% to 40%, while advisors' bullishness decreased 2% to 43%.

Last quarter, advisors were 42% neutral on the Canadian dollar vs. the U.S. dollar, with a measured 26% bullishness and 32% bearishness. For Q1 2020, advisor sentiment has shifted, with bullishness increasing 11% to 37% overall, which exceeded the neutral and bearish sentiment categories. That sentiment was not shared by investors; 42% are still neutral on the loonie.

Steve Hawkins, president and CEO of Horizons ETFs, said: “With continued momentum in Canada’s energy industry, solid bank earnings and a stronger global trade outlook, both advisors and investors are optimistic about most Canadian equity categories.

“Following negative performance in 2018, the S&P/TSX 60 returned 21.93% in 2019 on a total return basis, which has clearly been encouraging for investors and impacted their 2020 Canadian outlook.”

The past year was a strong one for U.S. equities, with the S&P 500 Index topping 3,000 for the first time, and the NASDAQ-100 registering a one-year total return of 39.46% for the 2019 calendar year. Investors and advisors responded in-kind to the U.S. indices’ record-breaking advances; advisor bullishness for the S&P 500 Index swelled 9% to 57% bullishness overall following an 8.53% gain in the index in Q4 2019. Advisor bullishness for the NASDAQ-100 grew 10% to a commanding 61% bullishness after a Q4 2019 gain of 12.69%.

In tandem, investor bullish sentiment also grew 9% to 55% overall on the S&P 500, while their bullishness in the NASDAQ-100 increased 11% to 55%.

Emerging market sentiment has come roaring back, following an 11.35% performance growth by the MSCI Emerging Markets Index in Q4 2019. Advisors increased their bullishness 26% to 63% bullishness overall – their largest bullish rating and increase among all indices and asset classes surveyed this quarter. Investors followed suit, increasing their bullishness 18% to 48%.

Hawkins added: “With increasing sentiment that a U.S.-China Phase One trade agreement could be a reality, we believe there is still more room for growth across the world. The U.S. equity markets – notably, technology stocks – have continued to spearhead global market growth and have, in turn, fuelled emerging market optimism.”

Meanwhile, advisors are seeing new opportunity for crude oil futures, increasing their bullishness by 13% to 54%, quarter-over-quarter. Investors are cautiously bullish, increasing their bullishness for the commodity by only 1% to 45%. Advisors have reduced their bullishness on natural gas by 4% to 35%, with investors reducing their bullishness by 1% to 44% bullishness, after a 6.05% return last quarter.

One of the top investing stories of 2019 was Canadians’ preference for investing in fixed income and gold bullion, which are traditionally considered defensive asset classes.

Gold producers, as represented by the S&P/TSX Global Gold Index, enjoyed a strong final quarter in 2019, achieving an index return of 10.92%. Despite the strength, both surveyed groups lowered their bullishness on the asset class. Advisors reduced it 12% to 45% and investors by 6% to 54%. Similarly, gold and silver bullion also saw retreats, despite their positive performance. However, the majority of investors and advisors still remain bullish on the precious metals overall.

Advisor and investor sentiment on U.S. Treasury bonds, as represented by the Solactive US 7-10 Year Treasury Bond Index, have fallen to new lows, according to the Q1 survey. Advisors marked their lowest sentiment score of the survey, at 17% bullishness, a 12% decrease from the Q4 2019 survey.

Hawkins said: “Despite record-breaking equity performance in 2019, ETF investors preferred investing in fixed income and gold – a clear sign of the economic anxiety and recession fears that lingered through the year.

“However, after a strong finish to the decade, it appears advisors and investors are moving away from their defensive posture and are signalling their confidence once again.”

Finally, for the nascent marijuana sector, as represented by the North American Marijuana Index, 2019 was a year marked by falling valuations and spurned investor expectations, with a negative performance of -17.49% in Q4 2019. Investors remain positive on cannabis companies, raising their bullishness 3% to 46% bullishness overall. However, advisors have grown more pessimistic: their bullishness on the sector fell 6% to 31%, with 55% of advisors bearish on the future of pot stocks.