Nearly 70% of Canadian advisors are bearish on Canadian stocks for Q2 2017
TORONTO – April 28, 2017 – After continuing to hit record highs, Canadian investment advisors have turned quite bearish on Canadian and U.S. equities, according to the Q2 2017 Advisor Sentiment Survey (“Q2 Survey”) conducted by Horizons ETFs Management (Canada) Inc. (“Horizons ETFs”).
The Q2 Survey asked Canadian investment advisors for their expectations of returns – bullish, bearish or neutral – on 14 distinct asset classes for the upcoming quarter (Q2 2017). Canadian investment advisors have turned negative on equity indices after extremely high levels of bullish sentiment in the previous two quarters. On the S&P/TSX 60™ Index, only 42% of advisors are bullish on the Canadian blue-chip equity index versus nearly 69% at the start of January.
Similarly, sentiment on the Canadian equity subsectors of financials and energy also dropped from 56% to 37% on financials (Q1 Survey versus Q2 Survey), as represented by the S&P/TSX Capped Financials Index, and 68% in the Q1 Survey versus 47% in the Q2 Survey on energy equities, as represented by the S&P/TSX Capped Energy Index.
“We witnessed a stark reversal in advisor sentiment on Canadian equities. This is likely due to two key factors: high valuations and depressed crude oil prices,” said Steve Hawkins, President and Co-CEO of Horizons ETFs.
This shift in sentiment was also observed in U.S. equity benchmarks, many of which continue to break record highs.
The S&P 500® Index saw bullish sentiment drop from 65% in the Q1 survey to 47% in the Q2 survey. This is despite the fact the S&P 500® delivered a 3.83% 1 return in Q3 and is up 6.07% 1 year to date. Similarly, only 48% of advisors were bullish on the NASDAQ-100® Index, down from 62% last quarter. The NASDAQ-100® continues to top record highs after delivering a 12.09% 1 return year to date.
“A reversal in sentiment on U.S. equities is likely due to valuations. By most valuation metrics, U.S. equities are very expensive, but that doesn’t mean they can’t keep going up as we’ve seen in the last few weeks since the survey was conducted,” said Mr. Hawkins. “Advisors naturally need to temper their return expectations when valuations are so high, which may explain the caution on U.S. stocks.”
Only 44% of advisors were bullish on crude oil, down from 57% the previous quarter and only a paltry 28% were bullish on natural gas. Crude oil prices declined nearly 5.81% 1 last quarter, while natural gas declined 14.34%1
“For the Canadian equity market to have a chance of going higher, energy prices have to remain stable or continue to rise,” said Mr. Hawkins. “Both crude oil and natural gas appear very challenged to go any higher than the levels where they have been trading for most of the year.”
On U.S. bonds, only 18% of advisors were bullish on the S&P U.S. Treasury Bond 7-10 Year Index (total return), while 46% were bearish. Despite fears about rising interest rates, this asset class is up about 1.07% 1 over the last quarter.
“Since late autumn, there have been persistent concerns about rising interest rates. Despite this, most bond asset classes have actually generated a positive return as prices in fixed income securities probably declined a bit too much in anticipation of rate rises,” Mr. Hawkins explained.
Canadian advisors were outright bearish on the direction of the Canadian dollar (“CAD”), with 53% of advisors believing the CAD will decline in value (relative to the U.S. dollar – “USD”) over the next quarter. The CAD versus USD actually had a modest positive return last quarter, but the combination of lower interest rates in Canada and low commodity prices are likely driving this high level of bearish sentiment.
Advisors were only bullish on one asset class – Emerging Markets equities, as represented by the MSCI Emerging Markets Index. Bullish sentiment on Emerging Markets increased from 43% last quarter to 53%. The MSCI Emerging Markets Index was up 11.47% 1 last quarter.
“Concerns about risk in the emerging markets are subsiding, and there appears to be a full economic recovery occurring in China, which is a key driver of emerging market returns.” Mr. Hawkins said. “Similar to Europe, we are seeing both institutions and advisors chase a relative valuation trade in Asia. In general, there is a large view that the world is undergoing a global cycle of ‘reflation’, so investors are opting for lower-valuation equity markets that are currently experiencing strong economic bounce-backs.”
Advisors were bullish on 1 of 14 industry benchmarks; overall a very bearish sentiment.
1In U.S. dollar terms.
About the Q2 2017 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 ‘Q2 2017 Advisor and Investor Sentiment Surveys.’ The surveys quantitatively measures advisors’ and investors’ quarterly outlooks as they relate 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 offering the Horizons ETFs family of exchange traded funds. The Horizons ETFs family includes a broadly diversified range of investment tools with solutions for investors of all experience levels to meet their investment objectives in a variety of market conditions. Horizons ETFs has more than $7.5 billion of assets under management. With 77 ETFs listed on the Toronto Stock Exchange, the Horizons ETFs family makes up one of the largest families of ETFs in Canada. Horizons ETFs Management (Canada) Inc. and AlphaPro Management Inc. are members of the Mirae Asset Global Investments Group.
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Advisor Sentiment Survey Results
Investor Sentiment Survey Results