Canadian investment advisors remain bullish on stocks, says Horizons ETFs
Canadian investment advisors expect stocks to continue their torrid pace in Q1 of 2014, but are bearish on every other asset class, according to a survey conducted by Horizons ETFs Management (Canada).
The Q1 2014 Advisor Sentiment Survey asked Canadian advisors to share their outlook on 15 distinct asset classes, indicating whether they were, at the time the survey was conducted, bullish, bearish or neutral on the anticipated returns from these asset classes in Q1 2014.
Collectively, advisors were bullish on only six of the 15 asset classes surveyed, all of which were equity indices.
Nearly three quarters of Canadian advisors (74 per cent) are bullish on the S&P/TSX 60 Index, which saw bullish sentiment increase from 68 per cent in our previous survey. Canadian stocks generated a 6.94 per cent return last quarter. The same bullish sentiment, 74 per cent, was observed on the S&P 500 Index as well, after an approximately 10 per cent return in Q4 2013. Bullish sentiment on the Nasdaq-100 Index is at 75 per cent, after a Q4 2013 return of 11.62 per cent.
"We are seeing almost unprecedented levels of bullishness on large-cap stocks across the board," says Howard Atkinson, president of Horizons ETFs. "Canadian stocks lagged US stock returns over the last year, and investors may be expecting Canadian stocks to rally on a relative performance basis to close the gap on the US"
Bullish sentiment on the MSCI Emerging Markets Index rose a substantial 11 percentage points from 60 per cent to 71 per cent after this index generated a 1.54 per cent return last quarter.
"Emerging markets were an unloved asset class last year, with equity risk appetite increasing, it would stand to reason that investors may be growing more comfortable with emerging market equities," Atkinson says.
Precious metals did not receive the same vote of confidence. Only 32 per cent of advisors are bullish on gold bullion – only a percentage point lower than last quarter - despite the fact that gold bullion lost 9.28 per cent. Similarly, silver bullion lost 10.27 per cent last quarter.
"Generally speaking, if advisors are going to be bullish on stocks, they'll likely be bearish on gold bullion since the two asset classes have historically had strong inverse correlation," says Atkinson. "With both gold and silver bullion struggling in 2013, many investors may be thinking they have bottomed in the near term which may explain why sentiment has held steady, even if it remains bearish."
Bearish sentiment on the Canadian dollar rose dramatically from 41 per cent in our previous survey to 70 per cent in the Q1 Survey with seven out of 10 advisors surveyed believing that the Canadian dollar will decrease in value versus the US dollar over the next quarter.
"There has been a lot of media coverage of negative outlooks for the Canadian dollar, so this is not surprising, but still a 30 percentage point increase in bearish sentiment is quite substantial," says Atkinson. "For this reason, we've also seen a preference, as highlighted in ETF flows, for non-hedged US equity – investors want to get direct exposure to the US dollar as the value of the Loonie falls."
Bullish sentiment on volatility increased slightly to 48 per cent in the Q1 Survey from 45 per cent in our previous survey after the S&P 500 VIX Short-Term Futures Index lost nearly 27.50 per cent last quarter.
"Volatility historically rises during stock market declines. If investors are bullish on equities, they are generally bearish on volatility," says Atkinson. "The rise in bullish sentiment on volatility may be indicative of an increasing number of investors feeling that volatility is probably near a bottom, so even if stocks rise, it may be a bumpier ride up than what we saw in 2013 where volatility remained at historic lows for most of the year."
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