Advisors turn bearish on stocks

Canadian advisors have taken a more gloomy view of the stock market’s performance for the third quarter, according a survey by BetaPro Management.

The latest Advisor Sentiment Survey found that bullishness toward the S&P/TSX 60 Index dropped nearly fell by 20 percentage points since the Q2 survey, to just 39%, while bearishness rose 15 points to 45% of advisors.

Advisors are even less enthusiastic about American stocks, as 52% expressed bearish sentiment toward the S&P 500, while 45% were bearish on the NASDAQ 100.

With stock market expectations worsening, it comes as no surprise that bullishness toward the traditional safe haven investments has increased. Precious metals in general are the darlings of the industry, with 68% of advisors expressing bullishness on gold bullion, and 60% favouring silver.

With bullion expected to rise in value, gold stocks stood out from the rest of the equity market, with sentiment rising eight percentage points to 62% of advisors declaring themselves bullish.

Resources in general benefited from the decline in stock market sentiment, and none rose more than natural gas, long the underdog of the energy sector. In the Q2 survey, only 31% said they were bullish on gas; that has now risen to 59%.

“Natural gas investors who took long positions last quarter have already been well rewarded,” said Howard Atkinson, President of BetaPro, noting that the NYMEX Natural Gas Index gained 12.70% in the last quarter. “It certainly looks like advisors expect natural gas prices to continue to improve through the summer.”

Fixed income also experienced a pop in confidence, as bearish sentiment toward the U.S. Government 30-Year bond feel from 55% to 28%.

“That inflationary fear associated with U.S. Treasuries seems to have subsided,” Atkinson said. “It should be noted that 45% of advisors are neutral on the direction of the 30-Year U.S. bond, suggesting their real uncertainty about the direction of U.S. government bond prices.”

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He points out that, in the past, advisors have had a fairly high success rate in predicting the direction of various asset classes from quarter to quarter. But this track record hit the skids in the second quarter.

“Advisors were incorrect on 12 of their 15 indices forecasts made in the Q2 2010 Advisor Sentiment Survey, although we did feel at the time that there seemed to be a lack of consensus in advisor sentiment,” said Atkinson.

“That disagreement seems to be gone now for many asset classes. Advisors appear much more uniform in where they see certain asset classes moving, particularly in their bullish outlook for precious metals and natural gas.”

The survey was conducted between June 11 and June 30, 2010. Nearly 200 advisors, who collectively oversee an estimated $20 billion in client assets, took part in the Q3 Survey. The Q3 Survey asked advisors to give their outlook on 15 distinct asset classes. Advisors responded whether they were bullish, bearish or neutral on the anticipated returns for these asset classes in the next quarter.

(07/08/10)