Among a broader bullish sentiment increase, traditional and alternative energy commodities stand out
TORONTO – April 19, 2022 – Despite a beginning to 2022 marked by geopolitical conflict, market volatility and inflationary pressures, both Canadian investors and advisors have increased their general bullish sentiment, particularly towards commodities, according to the second-quarter 2022 Advisor and Investor Sentiment Surveys (“Q2 Surveys”) from Horizons ETFs Management (Canada) Inc. (“Horizons ETFs”).
Every quarter, Horizons ETFs surveys Canadian investors and investment advisors for their outlook on expected returns for distinct asset classes. These expectations are expressed in terms of bullish, bearish or neutral sentiment. The Q2 Surveys cover the period beginning April 1, 2022, and ending June 30, 2022.
Oil, Gas and Alternative Energy
Natural gas futures were the best performing of the asset classes measured by the Q2 Surveys, posting a +51.26% return in Q1 2022. Sensing a continuing trend, both investors and advisors increased their bullish sentiment, with investors increasing it by 7 percentage points to 48% bullishness, while advisor sentiment rocketed 13 percentage points upward to 51% bullishness overall.
Similarly, advisors and investors were bullish on crude oil. Amid global supply shortages, pricing for crude oil futures surged in Q1 2022, with a gain of +33.33% – the third highest performance increase among measured asset classes and sectors in the Q2 Surveys. In response, investors added 15 percentage points of bullish sentiment, reaching 54% bullishness overall. Advisors, previously split on the commodity, affirmed their confidence after adding 6 percentage points of bullish sentiment for a score of 46% bullishness.
With one of the highest-ever reported bullish sentiment ratings, lithium achieved a 75% bullishness rating from investors – an increase of 32 percentage points of bullishness – following a +21.60% return in the Solactive Global Lithium Producers Index. Advisors were more cautious, reducing their bullishness by 5 percentage points to 40% bullishness, according to the Q2 Surveys.
Uranium, as represented by the Solactive Global Uranium Pure-Play Index, posted a return of +10.50% in Q1 2022. In response to the strong performance, investors added 25 percentage points of bullishness for 63% bullishness overall – their third-highest bullish rating in the Q2 Surveys. Advisors also sensed value in the nuclear fuel, adding 5 percentage points of bullish sentiment to reach a score of 46% bullishness.
Hydrogen was the only commodity measured by the Q2 Surveys with a negative return, falling -6.85% in Q1 2022. Despite the retraction in performance, both investors and advisors increased their confidence in the prospects of hydrogen adoption, with investors adding 15 percentage points of bullish sentiment for a score of 52% bullishness and advisors adding 6 percentage points of bullish sentiment, landing at 43% bullishness.
“From inflationary pressures to the impacts of the Russian invasion of Ukraine, we have entered a ‘perfect storm’ for commodities,” said Mark Noble, Executive Vice President, ETF Strategy, at Horizons ETFs. “While oil and natural gas – the traditional energy commodities – continue to be impacted by shortages, sanctions and supply chain disruption, we’re simultaneously seeing increased demand for their replacements: uranium, lithium and hydrogen – the fuels of the future. In particular, the rising cost of gasoline has accelerated electric vehicle adoption; elevating the demand for lithium even further.”
Canadian Equities and the Dollar
During Q1 2022, Canada’s major equities benchmark – the S&P/TSX 60™ Index – grew a modest +2.77%. Both investors and advisors were optimistic about the Canadian market, with investors increasing their bullish sentiment by 14 percentage points to 53% bullishness overall. In comparison, advisors added 8 percentage points of bullish sentiment for a score of 48% bullishness.
Energy stocks, represented by the S&P/TSX Capped Energy Index, registered a +36.17% return in Q1 2022 – the second highest quarter-over-quarter return of the measured asset classes in Horizons ETFs’ Q2 Survey. In response, investors’ bullish sentiment increased by 27 percentage points to a robust 67% bullishness overall. In contrast, advisors withdrew a single percentage point of bullish sentiment, landing at 43% bullishness on the index.
Financials, as represented by the S&P/TSX Capped Financials Index, posted a modest return of +1.39% in the first quarter of 2022. Again, investors and advisors differed on what the quarter ahead holds for Canada’s banks. Investors decided to add 13 percentage points of bullish sentiment to 53% bullishness overall. Similar to their approach on Canada’s energy sector, advisors cautiously withdrew a single percentage point of bullish sentiment for a score of 44% bullishness on the financial index.
Following a +1.05% gain in the Canadian dollar vs. the U.S. dollar in Q1 2022, both investors and advisors were more bullish about the loonie’s fortunes against the greenback, with advisors markedly so. According to the Q2 Surveys, investors were mostly neutral while increasing their bullish sentiment by 5 percentage points to 36% bullishness. Marking one of their largest increases in confidence, advisors added 14 percentage points of bullish sentiment, reaching 47% bullishness. In contrast, according to the last survey, the majority of advisors were bearish on the Canadian dollar’s prospects against the U.S. dollar.
“With sanctions limiting Russia ability to dominate as an energy exporter, Canada is well-positioned to help alleviate global energy supply issues while benefiting from the higher oil and gas prices,” said Mr. Noble. “Commodities and financial services historically do well during an inflationary environment. Compared to the U.S., we have generally seen stronger relative returns from Canada, which has heavy weights to energy, materials and financial services – sectors that have benefitted from higher projected revenues from rising commodity prices and interest rates.”
U.S. and International Equities
Following multiple quarters of robust growth, the United States’ major indices declined in Q1 2022, with the S&P 500® Index falling -4.95%, while the NASDAQ-100® Index plummeted -9.08% during this time.
Despite the softening, investors saw reasons to remain upbeat, adding 7 percentage points of bullish sentiment to their outlook on the S&P 500® for a score of 46% bullishness and 9 percentage points of bullish sentiment on the NASDAQ-100®, reaching 49% bullishness, according to our Q1 Surveys.
Advisors remained split on the S&P 500®, with equal bullish and bearish scores. On the NASDAQ-100®, previously bearish, advisors increased their bullish sentiment looking ahead into Q2 2022, registering a 6 percentage point increase in bullish sentiment to reach 45% bullishness.
International equities, as represented by the MSCI Emerging Markets Index, were weak in Q1 2022, falling by -7.32%. Both advisors and investors further downgraded their outlook, with investors’ bearish sentiment increasing by 6 percentage points to 41% bearishness. Advisors were less hesitant, adding a single percentage point of bullish sentiment for 44% bullishness score.
“Through the worst of the COVID-19 pandemic, technology stocks propelled U.S. markets to new heights. In Q1 2022, global conflict and inflation seem to have finally caught up with them, ending what was a sizeable bull run,” said Mr. Noble. “Of course, emerging markets benchmarks weren’t spared either, especially given their exposure to Russia. While bullish sentiment with investors and advisors is not where it was last year, the higher sentiment scores suggest that there is growing optimism that the more growth-oriented stock markets might be poised for a comeback in Q2 2022.”
Thematic Asset Classes and Sectors: Bitcoin, Psychedelics and Marijuana
Despite a -1.22% return on the spot price of Bitcoin in Q1 2022, confidence in the world’s most popular cryptocurrency has been reaffirmed by investors and advisors, heading into Q2 2022. Bullish sentiment amongst investors increased by more than 12 percentage points, with 50% of investors respondents bullish on the cryptocurrency. Advisors’ sentiment increased as well, with the number of advisors bullish on Bitcoin increasing by 3 percentage points, to 42% bullishness.
Marijuana companies, as represented by the North American Marijuana Index, have continued their multi-quarter slide in performance with a -11.33% return in Q1 2022. The sector remains one of the lowest ranked by investors and advisors among those measured by the Q2 Surveys, with both groups remaining bearish, despite minor positive sentiment gains. Investors increased their bullishness by 5 percentage points, rising to 34% bullishness. Advisors eked out a single percentage point increase in bullish sentiment, to 37% bullishness.
Following a -27.68% return in the previous quarter on the North American Psychedelics Index, investors have continued to rank the emerging psychedelics industry as their most bearish sector, further reducing their bullishness by 5 percentage points to just 28% bullishness – their lowest score in the Q2 Surveys. This quarter, it appears advisors may have sensed a support level in the psychedelics sector; opting to increase their bullishness by 4 percentage points to 37% bullishness.
“More often than not, market volatility can have an outsized impact on emerging industries. Unfortunately, that has continued to be the case for the marijuana and psychedelics sectors, throughout the first quarter of 2022,” said Mr. Noble. “However, the latest passage of the MORE Act through Congress could offer renewed hope for cannabis reform in the United States, which would be a boon for not just U.S. multi-state operators but Canada’s licensed producers as well, which could finally access the U.S. market. Given the bill’s need for partisan support in the U.S. Senate, legalization has a long road ahead, and investors seem to be expecting volatility in the Marijuana sector to continue.”
Amid the market volatility in Q1 2022, precious metals proved a stable store of value, with gold bullion gaining +5.92% and silver bullion rising +6.37% in the quarter.
Investors registered a 12 percentage point increase in bullish sentiment to 52% bullishness overall on gold bullion. Moving out of bear territory, advisors increased their bullish sentiment by 7 percentage points on the precious metal to 44% bullishness.
Similarly, on silver bullion, investors registered a 14 percentage point increase in bullish sentiment to 51% bullishness overall. At the same time, advisors again moved out of a bearish position after adding 8 percentage points of bullish sentiment to a 43% bullishness score.
On the S&P/TSX Global Gold Index, Q1 2022 saw another quarter of double digit performance from gold miners, with a +19.46% return overall. Investors added 17 percentage points of bullish sentiment, reaching 53% bullishness overall, while advisors added just 6 percentage points of bullish sentiment to land at 46% bullishness.
Record inflation and an uncertain rate environment continue to underwhelm fixed income markets. U.S. Treasuries, as represented by the Solactive 7-10 Year Treasury Bond Index, posted a dismal -6.53% return in Q1 2022. Both advisors and investors remained relatively skeptical on U.S. Treasuries. Each added just a single point of bullish sentiment and both posted a sentiment score of 42% bearishness.
“Investment grade bonds had a worse quarter than equities in Q1 2021, with one of their worst quarterly returns on record. With U.S. inflation in March at 8.5% – its highest since 1981 – coupled with still-low interest rates, fixed income is an area of concern for investors and advisors,” said Mr. Noble.
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