Advisors are bullish on U.S. equities, Canadian financial stocks and emerging markets
TORONTO – August 3, 2017 – Canadian investment advisors seem neither bullish nor bearish on most of the asset classes surveyed in the Q3 2017 Advisor Sentiment Survey (“Q3 Survey”) conducted by Horizons ETFs Management (Canada) Inc. (“Horizons ETFs”).
The Q3 Survey asked Canadian investment advisors for their expectations of returns – bullish, bearish or neutral – on 15 distinct asset classes for the upcoming quarter (Q3 2017).
Sentiment on Canadian equities amongst Canadian investment advisors remains mixed. On the S&P/TSX 60™ Index, only 40% of advisors are bullish on the Canadian blue-chip equity index, while 33% are neutral and 27% are bearish.
However, sentiment on the key Canadian equity subsectors of financial and energy stocks was very different. Canadian financial stocks, as represented by the S&P/TSX Capped Financials Index, saw one of the biggest sentiment increases of the quarter, as 54% of advisors offered a bullish outlook on financial stocks versus 37% last quarter. On energy equities, as represented by the S&P/TSX Capped Energy Index, only 40% of advisors were bullish versus 47% last quarter.
“The huge divergence in sentiment on Canada’s two key stock sectors, energy and financials, may explain the overall sentiment on the Canadian equity market,” said Steve Hawkins, President and Co-CEO of Horizons ETFs. “Canadian financials continue to perform quite well as part of a rebound in most banking-focused stocks related in part to the rapidly improving global economy. The Canadian market, and to a lesser extent, the financial stocks in Canada, can be dependent on energy prices, which continue to struggle.”
Sentiment on U.S. equities turned mildly positive this quarter compared to last with 53% of Canadian advisors bullish on the S&P 500 Index and 50% bullish on the NASDAQ-100 Index. The S&P 500 generated positive returns last quarter, delivering a 2.57% return. The NASDAQ-100 was also positive on the quarter delivering a 3.88% return. However, the NASDAQ-100 did see a steep sell-off in the month of June, where it lost more than 2%, but not enough to offset its solid quarterly gain.
“Valuations on U.S. equities, particularly the tech-focused stocks in the NASDAQ-100, are expensive by almost every valuation metric. This does not mean they won’t continue to go up, but investors need to be cautious,” said Mr. Hawkins. “The swing to bullish sentiment is likely the result of the dip we saw in June in NASDAQ valuations, so many advisors might be looking to that as an entry point to buy into some of the leading tech stocks that have led market returns over the last year.”
Crude oil, as represented by WTI Crude Oil prices, lost around 9% last quarter. Bullish sentiment on crude oil fell from 44% last quarter to 40% this quarter – 28% were bearish and 31% were neutral. Advisors showed uncertain sentiment on Natural Gas, with 50% neutral, 28% bullish and 22% bearish. Natural gas prices declined nearly 5% last quarter.
On U.S. bonds, 52% of advisors were bearish on the S&P U.S. Treasury Bond 7-10 Year Index (total return), while only 16% were bullish. Despite fears about rising interest rates, this asset class is up about 1.40% over the last quarter. In Canada however, the Bank of Canada did in fact raise rates in mid-July, which should favour the Canadian dollar, but sentiment remained mixed on the direction of the Canadian dollar which rallied strongly during the quarter in anticipation of rate increases. Only about 37% of advisors were bullish on the loonie, whereas 32% were neutral and 31% were bearish.
“Positive returns in U.S. bonds continues to be one of the more perplexing trends as investors have been anticipating interest rate rises which haven’t really materialized or weren’t already priced-in during the sell-off in bonds earlier this year,” said Mr. Hawkins. “On this side of the border, strong economic growth has forced the Bank of Canada to raise rates. The loonie has increased in value while Canadian bonds have fallen in value.”
The asset class with the most amount of bullish sentiment was Emerging Market equities as represented by the MSCI Emerging Markets Index. Bullish sentiment on Emerging Markets increased from 53% last quarter to 60% for Q3. The MSCI Emerging Markets Index was up 5.74% last quarter.
“Concerns about risk in the emerging markets have largely been replaced with optimism about the economic growth, particularly in China, which is a key driver of emerging market returns.” Mr. Hawkins said. “We continue to see both institutions and advisors chase a relative valuation trade – buying cheaper equities in emerging markets and international markets such as Europe and Japan. Equity valuations in these regions continue to generally be much lower than North America.”
The asset class with the biggest upside movement in bullish sentiment in the Q3 Survey was Volatility, as measured by the S&P 500 VIX Short-Term Futures Index. Volatility continues to hit near generational lows, and lost nearly 19% last quarter. A strong majority, 59%, of Canadian advisors expect volatility to bounce back next quarter.
A new asset class was added to this survey, which was the North American Medical Marijuana Index, which is tracked by the Horizons Marijuana Life Sciences Index ETF (HMMJ). On this asset class, sentiment was mixed, with 42% of advisors bearish, 34% bullish and 24% neutral.
“The marijuana stock sector is quite a new sector, so I’m not surprised on the mixed sentiment on marijuana-focused stocks,” said Mr. Hawkins. “It’s probably too early to read sentiment into this sector which is a highly news-driven space. Many of the large medical marijuana stock producers have had very large returns over the last couple of years but saw a significant decline in May and June.”
About the Q3 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 ‘Q3 2017 Advisor and Investor Sentiment Surveys.’ The surveys quantitatively measure advisors’ and investors’ quarterly outlooks as they relate to 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. 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 approximately $8 billion of assets under management and 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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President and Co-CEO,
Horizons ETFs Management (Canada) Inc.