Advisors are more confident on most Canadian sectors; mixed on Marijuana post-legalization
TORONTO – October 19, 2018 – Canadian investment advisors signaled increased confidence in Canadian Equities heading into the final quarter of 2018, according to the fourth quarter 2018 Advisor Sentiment Survey (“Q4 Survey”) conducted by Horizons ETFs Management (Canada) Inc. (“Horizons ETFs”).
Every quarter, Horizons ETFs surveys investment advisors and investors for their outlook on the potential returns for 14 distinct asset classes. These expectations are expressed in terms of bullish, bearish or neutral sentiment. The Q4 Survey covers the period beginning October 1, 2018 and ending December 31, 2018.
The Global Outlook
More than 56% of advisors indicated a bullish outlook on Canadian Equities – compared to only 47% in the Q3 Survey, despite a 1.35% fall in the S&P/TSX 60™ Index (total return) since last quarter.
Correspondingly, advisors were more optimistic on the Canadian dollar versus the U.S. dollar, lowering their bearish stance by 8% compared to last quarter’s survey.
“Given the recent, landmark agreement on NAFTA’s successor, the USMCA, it makes sense that advisors are increasingly bullish on Canada amid a renewed free trade environment,” said Steve Hawkins, President and CEO of Horizons ETFs. “There’s likely a sense that Canadian Equities have been trading at a historical discount, relative to the U.S. given the strong economic growth in Canada and rising oil prices. The elimination of trade concerns around NAFTA has likely renewed optimism for Canadian stocks.”
Bullish expectations increased on U.S. Equities as represented by the S&P 500® Index, growing from 56% to a staggering 68%. Advisors were similarly enthusiastic about the NASDAQ 100® Index – which surged 8.33% on a total return basis since last quarter.
“Despite trading at record highs, Canadian advisors continue to believe that the U.S. stock market will continue to rise,” said Mr. Hawkins. “We suspect a lot of this enthusiasm stems from the fact that most of the world’s largest technology companies are based in the U.S. and the technology sectors continue to lead most of the equity growth globally.”
Expectations of global growth have also appeared to have buoyed advisors’ Emerging Markets outlook, with 8% more advisors bullish about the asset class compared to the last survey, despite a 2% decrease in the representative MSCI Emerging Markets Index (total return) last quarter.
This index includes equities from 24 countries, including Brazil, Russia, India and China – representing 10% of world market capitalization.
“There has been a huge growth in bullish sentiment in Emerging Markets,” said Mr. Hawkins. “It’s quite possible that advisors feel the sell-off we’ve witnessed in the Emerging Markets this year is overdone even with trade concerns still lingering. Similar to the Canadian Equity outlook, advisors might be expecting Emerging Market stocks to start to play catch-up relative to developed markets.”
Advisors Put a Lid on Pot Stock Expectations
Surprisingly, one of the most newsworthy asset classes of late, Marijuana, saw a 10% drop in bullish sentiment from advisors compared to the Q3 Survey, bringing the bulls (48%) in close contention with the bears (45%), despite the highest index gain of all tracked asset classes during the quarter (the North American Marijuana Index, which returned 34.45% on a total return basis for the quarter ending September 30, 2018). With the legalization of recreational cannabis in Canada on October 17th, this change in sentiment could reflect a growing outlook of overvaluation within the Marijuana sector.
“At an expressed 71% bullish sentiment, investors are considerably more optimistic about Marijuana than advisors, by a margin of 23%,” said Mr. Hawkins. “Marijuana investing has been driven primarily by retail end-investors seeking exposure to this budding sector. Valuations on these stocks are very high relative to almost all other sectors. In our view, it makes sense that risk-averse advisors managing client portfolios may be reserved following a turbulent quarter with a wait-and-see mentality considering that legalization is just around the corner.”
Energized Attitudes on Energy
Energy, as represented by the S&P/TSX Capped Energy™ Index, surged more than 12% – second only in advisor confidence next to the S&P 500® Index – despite a 5.73% loss (on a total return basis) last quarter. Other Energy indicators saw greater bullishness, despite tepid performance, including Crude Oil, as represented by WTI Crude Oil Futures (+1% bullish sentiment growth, -1.21% pricing) and Natural Gas (+12% bullishness, +2.87% pricing).
“Bullish sentiment on natural gas has been empowered by recent infrastructure decisions, including the announcement that the $40 billion LNG Canada project would officially proceed,” said Mr. Hawkins. “While globally, Crude Oil prices as represented by the WTI Crude Oil benchmark have continued their upswing, Canada’s heavy crude benchmark has unfortunately missed out on the rising environment and continued to stagnate. Based on global supply constraints, there may be some hope that the Canadian benchmark can close the gap on WTI oil.”
All that Glitters Isn’t Gold
Advisors signaled a departure from bullish sentiment on precious metals. Bullish sentiment on the S&P/TSX Global Gold™ Index fell by 8% compared to the last survey, with a 4% increase in bearishness on Gold Bullion pricing expectations.
Silver Bullion also saw a slight decline in bullishness, while the U.S. 7-10 Year Bond Index also saw an increased bearish sentiment of 4% compared to last quarter, amid outperformance by U.S. equities and expectations of rising interest rates.
About the Q4 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 ‘Q4 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 www.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 more than $11 billion of assets under management and 83 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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