More than 60% of Canadian advisors are bullish on Canadian stocks going into Q4
TORONTO, October 26, 2016 — Canadian investment advisors expect Canadian and U.S. equities to continue to deliver positive returns for the fourth quarter of 2016, according to the Q4 2016 Advisor Sentiment Survey (“Q4 Survey”) conducted by Horizons ETFs Management (Canada) Inc. (“Horizons ETFs”).
The Q4 Survey asked Canadian investment advisors for their expectations of returns – bullish, bearish or neutral – on 14 distinct asset classes for the upcoming fourth quarter (Q4 2016).
The highest bullish sentiment among advisors was for the S&P/TSX 60™ Index. Nearly two thirds (63%) of Canadian advisors were bullish on broad Canadian equities going into the fourth quarter. Canada has been one of the world’s best-performing domestic equity markets in 2016. The S&P/TSX 60™ Index was up by more than 5% last quarter and by more than 14% year-to-date.
“Canada has been a great equity market to be invested in during 2016,” said Steven Hawkins, President and Co-CEO at Horizons ETFs. “The equal-weighted version of the S&P/TSX 60 – the S&P/TSX 60 Equal Weight Index – is up by almost 20% due to its higher weighting in two of the top-performing sub-sectors: commodities and energy. Much of the performance in Canadian stocks has been on the heels of a strong performance in gold stocks and energy stocks.”
Over half of advisors (59%) were bullish on the S&P/TSX Capped Energy Index – whereas bullish sentiment on gold stocks decreased from 52% last quarter to 48% this quarter. The energy stock index gained 5.47% last quarter, while the gold index declined 6.08%. Sentiment on the underlying commodities was also similar, with 60% of advisors bullish on crude oil, while 49% were bullish on gold bullion.
“The sentiment on these two indices is really not all that surprising” said Mr. Hawkins. “OPEC’s decision in late September to cut oil output was a big shot in the arm to oil prices. On the flip side, we’ve seen gold prices declining dramatically after an unprecedented rally in 2016. Even with the most recent pullback, gold stocks are still up by more than 60% year-to-date.”
Canadian financial stocks, represented by the S&P/TSX Capped Financials Index, also saw a decent turnaround in sentiment from Q3 to Q4, as 52% of advisors were bullish on this index, versus only 44% in Q3. Canadian advisors were also bullish on the U.S. equity indices tracked by the survey, with 61% of advisors bullish on the prospects for the S&P 500© Index and 63% bullish on the tech-heavy Nasdaq-100 Index.
“U.S. stocks are trading at very high valuations – essentially the highest since the tech bubble of the early 2000s,” said Mr. Hawkins. “This really hasn’t slowed down advisor bullishness for U.S. equities, which has remained high all year. Fundamentally, the U.S. economy is on much better footing than most other developed nations. For Canadian investors, the big question is whether or not to hedge this exposure. Going into September, we saw about a 4:1 ratio of ETF assets favouring currency hedged exposure, according to data from Investor Economics.”
Despite the strong inflows into Canadian-hedged U.S. equity ETFs, sentiment on the Canadian dollar was very mixed, with about 40% of advisors bearish on the direction of the loonie, 33% bullish and another 27% neutral. The Canadian dollar lost about 1.55% last quarter. Sentiment was also mixed on U.S. bonds, with 46% of advisors bearish and 35% neutral on U.S. 7-10 year bonds.
Sentiment was also varied when it came to the Canadian versus U.S. dollar trade: only 28% of advisors reported being bullish on the loonie heading into Q1.
“The strength of the loonie is really dependent on the strength of energy prices,” said Mr. Hawkins. “Although the loonie rallied approximately 6% last quarter, it’s not surprising to see reserved sentiment here since there are a lot of unknowns in terms of energy prices and the direction of interest rates in the U.S. – which are probably the two biggest factors in pricing for the loonie.”
There was a strong upswing in emerging market sentiment this quarter as well. More than half (52%) of advisors are bullish on emerging markets, as represented by the MSCI Emerging Markets Index.
“There are two big stories with emerging markets: resurgent energy prices and the likely formation of a bottom on the Chinese equity market — many observers think the risk is largely priced-in on those equity prices,” said Mr. Hawkins. “Given the relatively low valuations of emerging market equities versus developed markets, more advisors may be more comfortable in investing in these stocks as potential risks subside.”
Advisors were bullish on eight of 14 asset classes, overall a very bullish sentiment. This included favourable bullish sentiment on six of the seven equity indices tracked by the survey.
About the Q4 2016 Advisor and Investor Sentiment Surveys
Horizons ETFs conducts the only quarterly sentiment survey of Canadian investment advisors. Both results have been collectively branded under the title ‘Q4 2016 Advisor and Investor Sentiment Surveys.’ The surveys quantitatively measures advisors’ and investors’ quarterly outlooks as it relates to key benchmarks covering equities, bonds, currencies and commodities.
About Horizons ETFs Management (Canada) Inc.
Horizons ETFs Management (Canada) Inc. and its affiliate AlphaPro Management Inc. are innovative financial services companies, which combined make up one of the largest families of exchange traded funds in Canada. The Horizons ETFs' product suite 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 $6 billion of assets under management and has 75 ETFs listed on the Toronto Stock Exchange. Horizons ETFs Management (Canada) Inc. and AlphaPro Management Inc. are members of the Mirae Asset Global Investments Group.
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