After experiencing some abnormal end-of-year volatility, bullish sentiment has fallen and investors see opportunities in gold and silver
TORONTO – January 18, 2019 – After significant volatility in the fourth quarter of 2018, the results of the first quarter 2019 Advisor and Investor Sentiment Surveys (“Q1 Surveys”) from Horizons ETFs Management Canada Inc. (“Horizons ETFs”) suggest that Canadian advisor and investor bullishness has declined on nearly all asset classes heading into the new year.
There is also a growing sentiment gap between advisors and investors: investor outlook for the new quarter has dropped significantly compared to that of advisors.
Every quarter, Horizons ETFs surveys investment advisors and investors for their outlook on their expected returns for 14 distinct asset classes. These expectations are expressed in terms of bullish, bearish or neutral sentiment. The Q1 Survey covers the period beginning January 1, 2019 and ending March 31, 2019.
The Global Outlook
In the face of a near 10% drop in the S&P/TSX 60™ Index last quarter, 56% of advisors have maintained their bullish outlook on Canadian Equities going into 2019, quarter-over-quarter. Similarly, advisors’ expectations for U.S. Equities, as represented by the S&P 500 ®, remained extraordinarily high at 67%, despite a 13.97% drop in the S&P 500 last quarter.
However, investors seem to think things will get worse: bullish sentiment among investors fell by 15% or more for all three of the major North American indices, which includes the S&P/TSX 60, NASDAQ-100 ® and the S&P 500. Investors are now outright bearish on Canadian Equities and divided on U.S. Equities.
Advisors were also very bullish on Canadian stocks. Bullish sentiment among advisors on the S&P/TSX Capped Financials™ Index was 58%, a four percentage point increase over last quarter, despite the fact the sector lost more than 12% in Q4 2018. Again, investors took a more bearish tone, with only 40% of investors bullish on Canadian Financials, a 9% drop from last quarter.
“Despite end-of-year volatility, advisors appear to still expect Canadian and U.S. Equities to generate positive returns over the next three months,” said Steve Hawkins, President and CEO of Horizons ETFs. “While advisors may be viewing the sell-off from last quarter as a buying opportunity, investors clearly think there is more pain to come.”
Both advisors and investors were more bearish on Emerging Markets, as represented by the MSCI Emerging Markets Index, which includes 24 countries. Only 48% of advisors and 37% of investors were bullish on this asset class after a 7.8% index decline last quarter.
“Emerging Markets actually fared better than most Developed Markets last quarter, but that has done nothing to alleviate both advisor and investor concern about these stocks,” said Mr. Hawkins. “While the USMCA trade deal has alleviated North American industry anxieties, the lingering trade war between the U.S. and China continues to generate pessimism and hesitation for the global marketplace.”
Safety in Precious Metals
Gold, Silver and Gold Equities were three of the four asset classes surveyed that delivered positive returns last quarter (the other was the U.S. 7-10 Treasury Bond Index). In Q4 2018, Gold Bullion generated a 7.54% return and Silver Bullion generated a 5.42% return.
Only one-in-three advisors (35%) were bullish on Gold Bullion going into Q1 2019, while only 34% were bullish on Silver Bullion. This is in stark contrast to investors, where nearly two-out of three investors (60%) were bullish on Gold Bullion and 48% were bullish on Silver Bullion.
Gold Miners, as represented by the S&P/TSX Global Gold™ Index, generated a 20.84% gain in Q4 of 2018. In the Q1 Survey, only 36% of advisors were bearish on Gold stocks versus a 57% expression of bullishness among investors.
“Historically, we’ve seen a huge gap in the preference of precious metal assets with advisors and investors – with investors having a stronger disposition towards precious metals and precious metals equities,” said Mr. Hawkins. “Since these are generally viewed as defensive assets, it makes sense that advisors – who are generally bullish – would favour stocks over Gold and Silver. In contrast, investors favour the precious metals over most of the major stock indices.”
With the first quarter of marijuana legalization having come and gone, advisors and investors are stopping to take stock of a sector previously buoyed by enthusiasm for the potential of the emerging industry that has fallen short with disappointing fundamentals.
Marijuana equities, as represented by the North American Marijuana Index, lost more than 40% after recreational legalization in Canada. In lockstep, both advisors and investors registered a steep loss of positive expectation for the sector. Bullish sentiment amongst advisors and investors fell by 15% or more. For Q1 2019, only 31% of advisors were bullish on Marijuana vs. 56% of investors.
“It’s clear that the post-legalization correction has resulted in a more reserved attitude toward Q1 2019 performance,” said Mr. Hawkins. “As more of these Cannabis-sector companies begin to demonstrate their fundamentals through financial reporting, there will be a solid footing for analysts upon which to base their expectations for the industry – ensuring a measured outlook on growth.”
No Pipeline to Energy Positivity
Another victim of advisor and investor sentiment was Energy, as represented by the S&P/TSX Capped Energy™ Index. With a deep performance erosion of 28.62% last quarter, the change in outlook represents a significant departure from the last survey when advisors commanded an overwhelming 67% bullishness. In the Q1 Survey, only 40% of investors were bullish on the sector, with 51% of advisors still optimistic.
Natural Gas, as well as Crude Oil One-Month Futures, also tumbled into the new year, with the latter hemorrhaging some bullishness into bearishness, amid a -38.01% rout in Q4 2018. Despite the severe drop, 50% of advisors and investors remain bullish on the commodity. Natural Gas saw a greater loss in confidence from investors, moving from a bull to bear, after losing only 2.26% in Q4 2018.
“Much of growing pessimism among Canadian advisors and investors about the Energy sector can be traced to ongoing issues with stalled and challenged energy infrastructure projects across the country,” said Mr. Hawkins.
About the Q1 2019 Advisor and Investor Sentiment Survey
Horizons ETFs conducts the only quarterly sentiment survey of Canadian advisors and investors. Both results have been collectively branded under the title ‘Q1 2019 Advisor and Investor Sentiment Survey’. The survey quantitatively measure advisors’ and investors’ quarterly outlooks of key benchmarks covering equities, bonds, currencies and commodities. For full survey results, visit www.HorizonsETFs.com/sentimentsurvey.
About Horizons ETFs Management (Canada) Inc. (www.HorizonsETFs.com)
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 more than $9.5 billion of assets under management and 85 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