The results of the fourth quarter 2018 Advisor Sentiment Survey by Horizons ETFs suggests an overall risk in optimism among Canadian investment advisors.
The latest poll asked investors and advisors for their outlook on returns for 14 distinct asset classes, with respondents asked to express bullish, bearish, or neutral sentiments for the period from October 1, 2018 to December 31, 2018.
Despite a 1.35% fall in the S&P/TSX 60 Index (total return) since last quarter, the survey found more than 56% had a bullish outlook on Canadian equities, as compared to only 47% in the Q3 survey. There was also greater optimism on the Canadian dollar’s position against the US dollar as advisors reduced their bearish stance by 8% relative to last quarter.
“There's likely a sense that Canadian Equities have been trading at a historical discount, relative to the U.S. given the strong economic growth in Canada and rising oil prices,” said Horizons ETFs President and CEO Steve Hawkins. “The elimination of trade concerns around NAFTA has likely renewed optimism for Canadian stocks.”
There was also elevated bullishness on US equities as advisors with a bullish view of the S&P 500 grew from 56% to 68% this quarter; there was similar growth in enthusiasm for the NASDAQ 100, which had surged 8.33% on a total-return basis since last quarter. According to Hawkins, Horizons chalked this up to the fact that world-leading tech firms are US-based and tech sectors have led most of the equity growth around the world.
The survey also found 8% more advisors being bullish on emerging markets, even though the representative MSCI Emerging Markets Index — which contains equities from 24 countries — slid 2% on a total-return basis compared to last quarter. Despite lingering trade concerns, Hawkins noted, it’s possible that advisors feel this year’s selloff in emerging markets is overdone.
The North American Marijuana Index posted the biggest gain among all the asset-class benchmarks tracked in the survey, returning 34.45% on a total-return basis, which was in line with a 71% bullish outlook among investors. But on the advisor side, bullish sentiment dropped by 10% relative to the Q3 survey, narrowing the gap between bulls (48%) and bears (45%).
Hawkins noted that valuations in the pot sector, driven primarily by retail end-investors, have reached very high levels relative to almost all others. “In our view, it makes sense that risk-averse advisors managing client portfolios may be reserved following a turbulent quarter with a wait-and-see mentality,” he said.
Going outside equities, advisors’ confidence in the energy sector surged more than 12%, despite the S&P/TSX Capped Energy Index losing 5.73% on a total-return basis last quarter. There was also increased bullishness on other energy indicators, including WTI Crude Oil Futures (+1% bullish sentiment) and Natural Gas (+12% bullishness).
However, the appeal of traditional haven assets appears to have declined. Fewer advisors are taking a shine to precious metals, with bullish sentiment on S&P/TSX Global Gold Index falling by 8% and bearishness in Gold Bullion pricing expectations ticking up by 4%. Silver bullion saw a similar slight decline in bullishness, and bearish sentiments on the US 7-10 Year Bond Index rose by 4% relative to last quarter as expectations of rising rates persist.
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