Investors and advisors preparing for pain say Horizons ETFs polls

Financial advisors and their clients are preparing for painful times ahead according to new polling.

Horizons ETFs third-quarter 2022 Advisor and Investor Sentiment Surveys reveal bearishness about many asset classes, although the two groups do not always agree.

Canadian equities are one asset class where opinion is divided for performance over the period to the end of September 2022.

Investors’ sentiment dropped 16 percentage points to 37% bullishness, driven by the 13% decline in the S&P/TSX 60 Index.  However, advisors show a 52% bullishness score, confident that domestic stocks will remain resilient.

There is consensus on energy stocks though, with 41% bullishness among investors and 44% for advisors, although the investor score is down 26 points quarter-over-quarter. Both groups are bearish on financial sector equities.

Bearish on the loonie

Agreement too on the Canadian dollar versus the US dollar.

Both investors and advisors believe the loonie will continue to underperform the greenback.

"For many Canadians, their dollar does not go as far as it once did, whether at the gas pump, at the grocery store, or during the surge in post-COVID travel,” said Mark Noble, EVP, ETF Strategy, at Horizons ETFs. “That pessimism is translating into their faith in the resilience of our economy."

There was less consensus on US equities with split opinions for both investors and advisors on the S&P 500.

However, there was a clearer opinion on the Nasdaq 100 for investors, who moved into bearish sentiment; advisors remained split.

Bearish investors and bullish advisors were the results of the survey on the outlook for the MSCI Emerging Markets Index, which was weak in the second quarter with negative returns of -12.36%.

"While no equity marketplace globally has been spared in the current rout, many investors and advisors were caught off guard by the continuing declines south of the border; particularly after the returns that have been delivered by the high-flying U.S. technology sector over the past few years," said Noble. "But with most asset classes and international equities eroded in the past quarter, there's still a prevailing sense that the US is still worth the exposure, especially if there's a chance that downward trends could reverse."

Commodities to outperform?

There is positivity around commodities too, although this is not universal across asset classes.

Crude oil futures returned 5.46% in the second quarter but both investors and advisors are split on their outlook for the current period at 38% bullish and 37% bearish sentiment.

On natural gas, investors are bearish while advisors are bullish, albeit less so than in the previous quarter where the asset class returns were negative at -3.86%.

Hydrogen and uranium posted bullish sentiment, although reductions were seen here too across the two cohorts of respondents.

Noble says that sentiment appears to be shifting from commodities as the best shelter from the inflationary storm.

“With fears of recession and slowdowns in development on the horizon, coupled with supply gluts in certain commodities now materializing, it seems that there's a growing sentiment that our eyes were bigger than our stomachs when it comes to our appetite for commodity consumption," he added.

Bitcoin sentiment slashed

With Bitcoin showing volatility in recent months – its spot price slumped 59% in the second quarter – advisors tipped into bearish territory while investors remained bullish despite a decline in sentiment.

"Many cryptocurrency evangelists hailed Bitcoin as a non-correlated asset class and an inflation hedge. Unfortunately for them, the performance of the broader cryptocurrency marketplace so far in 2022 has not supported that theory," said Noble. "For Horizons ETFs, our best performing ETF this year has been our Inverse Bitcoin ETF, BITI, which has returned 91.50% as at June 30, 2022."

The two groups were bearish on marijuana company stocks.

Precious metals

While gold has been playing its traditional role as a safe haven during recent stock market volatility, reduced values mean bearish sentiment among investors while advisors remain slightly bullish.

For silver, both remain bullish.

Fixed income

Finally, on fixed income, both groups are bearish although they have eased slightly on this in the latest survey.

"The current fixed income marketplace continues to offer little solace for advisors and investors seeking safety for their portfolios," said Noble. "Instead, it has ultimately been a further drag on portfolio performance this year. We are on pace for the first calendar year in more than half a century where both fixed income and broad equities could finish the year in the negative."