Horizons ETFs’ Q2 Sentiment Survey results show a reversal in sentiment from Q1, where bullish sentiment has declined in almost all asset classes
TORONTO – April 18, 2018 – After a volatile quarter, the number of Canadian investment advisors who are bullish on Canadian equities, U.S. equities and a number of other industry benchmarks, has declined significantly, according to the Q2 2018 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 15 distinct asset classes for the upcoming quarter (Q2 2018), which will end on June 30, 2018.
The bullish sentiment of Canadian investment advisors fell for both Canadian and U.S. equity indices, likely due to increased volatility in the first quarter of 2018, a period which ended March 31, 2018 (“Q1”). In the Q2 Survey, 48% of advisors stated they were bullish on the S&P/TSX 60™ Index, compared to 65% who were bullish in the Q1 2018 Advisor Sentiment Survey (“Q1 Survey”), which was consistent with performance, where the index fell 5.28% over Q1.
For U.S. equities, advisors’ bullish sentiment for the S&P 500® Index also dropped significantly heading into Q2, dipping to 56% from 65% last quarter. Similarly, the percentage of advisors bullish on the NASDAQ 100® Index declined to 57% from 65% in Q1. Performance in Q1 for U.S. equities was quite flat, where the S&P 500® Index declined 1.22% and the NASDAQ 100® Index rose slightly, up 2.89%.
“The high levels of volatility that we recently saw in the Canadian and U.S. equity markets has likely reduced the enthusiasm that advisors have for North American stock markets,” said Steve Hawkins, President and Co-CEO of Horizons ETFs.
Bullish sentiment for Crude Oil remained flat, despite the asset class’ strong performance in Q1. Q2 bullish sentiment for Crude Oil was at 45%, up slightly from 44%. The asset class was up 7.48% by the end of Q1, with the price of Crude Oil reaching USD $64.17 a barrel (as at March 31, 2018).
Expectations for the Energy sector, represented by sentiment for the S&P/TSX Capped Energy™ Index, fell slightly, with bullish sentiment declining to 50% from 53% in Q1. Performance of the index fell significantly, dropping 8.09% by the end of Q1.
Bullish sentiment in Q2 for Natural Gas dropped considerably, to 27%, down from 42% in Q1. Performance for Natural Gas fell by over 7.45% over Q1.
“Although oil prices have dramatically risen in the first quarter, we haven’t seen that benefitting the outlook for Canadian energy producers,” said Mr. Hawkins. “U.S. shale producers seem to be able to pump oil at a lower cost and continue to have quicker access to that market, more so expensive Canadian crude oil. This has in our view impeded the value of Canadian-producer stocks from them benefitting from a rise in oil prices.”
Bullish sentiment among the majority of Canadian advisors heading into Q2 has also declined for Canadian financials, as represented by the S&P/TSX Capped Financials™ Index, where sentiment dipped to 50% from 63% (Q2 versus Q1 Survey). The index also declined 4.22% over Q1.
Of the 15 asset classes and indices, U.S. bonds were one of the few asset classes that advisors were increasingly bullish on. Bullish sentiment on the U.S. 7-10 Year Bond Index (Total Return) rose to 27% from 16% last quarter. However, the majority of advisors (46%) were still bearish. Fears about rising interest rates for advisors are justified, as the performance of U.S. mid-term bonds fell by 1.87% last quarter.
Almost half of Canadian advisors continue to be outright bearish on the direction of the Canadian dollar, with 48% of advisors believing it will decline in value (relative to the U.S. dollar) over Q2. This is a small decrease from the 53% of advisors that were bearish last quarter. The Canadian dollar depreciated by 2.43% against the U.S. dollar over the course of Q1.
“Since the onset of 2018, the Canadian dollar has yet to maintain any real positive momentum to the U.S. dollar,” Mr. Hawkins said. “We might see a reversal in sentiment on the Canadian dollar when Canadian interest rates pickup, or if the price of Canadian-produced oil rises higher.”
Bullish sentiment for Emerging Market equities (as represented by the MSCI Emerging Markets Index) remained fairly flat, but positive. The survey revealed that 67% of advisors are bullish heading into Q2, a slight decline from the 72% who were bullish on Emerging Markets during the last quarter. The MSCI Emerging Markets Index was fairly level over Q1, only rising 0.93% last quarter.
“For advisors, Emerging Markets represented the biggest investment opportunity for Q2 of 2018, especially as Canadian and U.S. equities remain somewhat volatile compared to the rest of the world,” Mr. Hawkins said. “We continue to see strong value in markets such as Europe and China, with inflows of over CAD $2 billion into international equity ETFs in the last quarter, according to National Bank Financial.”
About the Q2 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 ‘Q2 2018 Advisor and Investor Sentiment Surveys.’ The surveys quantitatively measure advisors’ and investors’ quarterly outlooks of key benchmarks covering equities, bonds, currencies and commodities. For full survey results, visit https://horizonsetfs.com/sentimentsurvey.
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 has approximately $10 billion of assets under management and 81 ETFs listed on major Canadian stock exchanges. Horizons ETFs Management (Canada) Inc. is a member of the Mirae Asset Global Investments Group.
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Advisor Sentiment Survey Results
Investor Sentiment Survey Results