Q1 Sentiment Survey results show an increase in bullishness on nearly half of industry benchmarks.
TORONTO – January 19, 2018 – After a robust quarter, Canadian investment advisors remain bullish on Canadian equities, U.S. equities and Cannabis, as well as a number of other industry benchmarks, according to the Q1 2018 Advisor Sentiment Survey (“Q1 Survey”) conducted by Horizons ETFs Management (Canada) Inc. (“Horizons ETFs”).
The Q1 Survey asked Canadian investment advisors for their expectations of returns – bullish, bearish or neutral – on 15 distinct asset classes for the upcoming quarter (Q1 2018), which will end on March 31, 2018.
The bullish sentiment of Canadian investment advisors remained positive on Canadian and U.S. equity indices, despite relatively flat performance in the fourth quarter of 2017, which ended December 31, 2017 (“Q4”). In the Q1 Survey, 65% of advisors stated they were bullish on the S&P/TSX 60™ Index, compared to 62% that were bullish in Q4 2017 Advisor Sentiment Survey (“Q4 Survey”), despite the index only returning 4.11% in Q4.
For U.S. equities, advisors’ bullish sentiment for the S&P 500® Index increased significantly heading into Q1, rising to 65% from 53% last quarter. Similarly, the percentage of advisors bullish on the Nasdaq 100® Index increased to 65% from 51% in Q4. Performance in Q4 was somewhat in-line with expectations, with the S&P 500® Index up 6.12% at the end of Q4 and the Nasdaq 100® Index up 6.98%.
Alternatively, bullish sentiment declined for Crude Oil, despite the asset class’ strong performance in Q4. Q1 bullish sentiment for Crude Oil fell to 44% from 53%; meanwhile the asset class was up 16.93% by the end of Q4, with the price of Crude Oil up to U.S. dollars (“USD”) $61.19 a barrel (as at December 31, 2017). Expectations for the Energy sector, represented by sentiment for the S&P/TSX Capped EnergyTM Index, remained flat, with bullish sentiment remaining unchanged at 53% from Q4. Performance for the index itself was also quite flat, only up 1.5% at the end of Q4.
Bullish sentiment in Q1 for Natural Gas dropped to 43%, down from 47% in Q4. Performance fell for Natural Gas over the Q4 period by 1.80%.
“With the Canadian and U.S. economy in positions of strength, advisors believe that equities will continue to perform heading into 2018,” said Steve Hawkins, President and Co-CEO of Horizons ETFs. “Advisors, however, still remain skeptical of the Energy sector’s performance heading into 2018, since they are reluctant to believe that oil will rise enough to really move energy stock valuations higher.”
The majority of Canadian advisors heading into Q1 continue to have positive expectations for Canadian financials, as represented by S&P/TSX Capped FinancialsTM Index, where sentimentpicked up slightly to 63% from 62% (Q1 verses Q4 Survey). The Index was up 4.73% over the Q4 period.
A budding sector upon which advisors have become dramatically more bullish is the Canadian Cannabis industry. Almost two-thirds of advisors (64%) expressed bullish sentiment for the North American Marijuana Index, compared to 46% who were bullish on the space in Q4 last year. The space performed extremely well last quarter, up by 95.26%.
“The Canadian Cannabis industry experienced explosive growth last year and advisors believe that will continue,” said Mr. Hawkins. “With the government legalizing recreational usage on July 1, 2018, advisors are expecting big revenues from these companies.”
On U.S. bonds, only 16% of advisors were bullish on the S&P U.S. Treasury Bond 7-10 Year Index (Total Return), while 50% were bearish. Fears about rising interest rates for advisors are justified, as the performance of U.S. mid-term bonds fell by 0.25% last quarter.
“The era of quantitative easing has ended and advisors continue to adjust their expectations for a higher interest rate environment,” Mr. Hawkins explained. “While the Fed has stated that plans for further interest rate hikes remain unchanged, a lot of uncertainty remains about how many hikes the U.S. Federal Reserve could announce in 2018.”
Just over half of Canadian advisors continue to be outright bearish on the direction of the Canadian dollar (“CAD”) with 53% of advisors believing the CAD will decline in value (relative to the USD) over the next quarter. This is a small decrease from the 55% of advisors that were bearish last quarter. The CAD versus USD had a slight negative return last quarter of 0.39%, due to flat interest rates and recovering commodity prices.
“The Canadian dollar has risen dramatically against the U.S. dollar over the last year, so advisors might be thinking that it’s fairly valued, if not overvalued at this level,” Mr. Hawkins said.
Bullish sentiment for Emerging Market equities continues to grow. As represented by the MSCI Emerging Markets Index, 72% of advisors stated they were bullish heading into Q1, up drastically from the 63% that stated they were bullish last quarter. The MSCI Emerging Markets Index was up 7.09% last quarter.
“Advisors are recognizing the opportunity in emerging markets’ cheaper valuations versus North American equities,” Mr. Hawkins said. “Economic indicators from emerging economics, particularly China, continue to be strong, which would also support this level of strong bullishness.”
About the Q1 2018 Advisor and Investor Sentiment Surveys
Horizons ETFs conducts the only quarterly sentiment survey of Canadian advisors and investors. Both results have been collectively branded under the title ‘Q1 2018 Advisor and Investor Sentiment Surveys.’ The surveys quantitatively measure advisors’ and investors’ quarterly outlooks of key benchmarks covering equities, bonds, currencies and commodities.
About Horizons ETFs Management (Canada) Inc.
Horizons ETFs Management (Canada) Inc. is an innovative financial services company and offers one of the largest suites of exchange traded funds in Canada. The Horizons ETFs product family includes a broadly diversified range of solutions for investors of all experience levels to meet their investment objectives in a variety of market conditions. Horizons ETFs currently has more than $9.7 billion of assets under management and 81 ETFs listed on the Toronto Stock Exchange. Horizons ETFs Management (Canada) Inc. is a member of the Mirae Asset Global Investments Group.
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