Investors bullish, but advisors are wary

Given the heroic recovery of Canadian stock markets over the past year, and the Canadian predilection for chasing returns, it may come as no surprise that investors are feeling quite optimistic these days.

Canadians think it’s a good time to invest in virtually every possible asset, according to a national poll by Manulife Financial.

The overall reading of the index stands at +33, just two points below the survey’s all-time high of +35 points in early 2000. The index reflects the percentage of those who say they believe it is a good or very good time to invest minus those who feel the opposite.

“We’re seeing much more positive news about the economy and that certainly helps Canadians’ attitudes,” says Paul Rooney, president and CEO with Manulife Canada. “Given the economic challenges in 2008 and 2009, we’re now seeing some steady job growth and a renewed confidence in many areas.”

Each category in the index gained ground—some sharply—to register the biggest jump in the quarterly poll in a decade, up 15 percentage points to +33. That’s just shy of its peak of +35, which it reached exactly 10 years ago.

The principal residents remain the most-favoured investment, with sentiment rising 10 points to +62. Only 7% of respondents said it was a bad time to pay down the mortgage or invest in renovations, compared with the 69% who said the time was right. The remaining 24% were undecided.

Sentiment toward investment property rose 13 points to +40, allowing this asset to maintain it second place in the hearts—and wallets—of Canadians.

Balanced funds were the most popular pure financial instruments, with sentiment rising 15 points to +31. Only 15% said it was a bad time to invest in balanced funds, compared with the 46% who were optimistic toward the asset.

Fixed income jumped 17 points to +27, while the sharpest increase in optimism was in attitudes toward stocks—the sentiment reading for them rose 23 points to +18. The poll found 38% thought it was a good time to invest in equities, either directly or via mutual funds, compared with the 20% who disagreed.

Cash, GICs and annuities fell to last place, but sentiment still rose seven points to +17.

Manulife also asked investors about their attitudes toward a variety of investment vehicles in which to hold these assets. Ranking first was the tax-free savings account (TFSA), with 68% of Canadians saying it was a good time to choose a TFSA.

RRSPs were second most popular, with 65% saying it’s a good time to invest through these accounts, compared with just 11% who disagreed.

Canadians also approve of registered education savings plans, with 59% saying it was a good time to employ one, compared with the 10% who said it was a bad time.

Segregated funds increased in popularity in March, rising 11 points to +27. Forty-four percent said they were a good choice, while 17% disagreed.

Mutual funds were the right choice for 43% of respondents, while 18% thought now was a bad time to invest in funds and 23% had no opinion.

“We always encourage people to work closely with an advisor and stick to a financial plan,” Rooney says. “That helps them stay focused on their long-term goals, balance their various types of investments and better manage their cash flows.”

Given the optimism of clients, there may be some friction in meetings with their advisors. According to Horizons BetaPro’s quarterly Advisor Sentiment Survey, investment professionals are increasingly bearish, especially toward major equity indices.

“Most markets have seen a tremendous run-up since hitting lows in March 2009, but it appears there are a growing number of advisors who are unsure [if]the pace of returns are sustainable,” says Howard Atkinson, president of BetaPro. “Previous Advisor Sentiment Surveys have been fairly accurate — including accurate forecasts for 11 of 15 asset classes in Q1 2010. These Q2 2010 forecasts seem to suggest increased uncertainty amongst advisors.”

The survey asked 200 advisors with a combined AUM of $20 billion whether they were bullish, bearish or neutral on a variety of investment options.

Bullishness toward Canadian large caps, using the S&P/TSX 60 Index as a proxy, has fallen 12 percentage points from the previous quarter, to 58%. Following the index’s 19% rally since the Q1 survey, 30% of advisors are now bearish.

Sentiment toward the energy sector also declined, with bullishness falling from 54% to 44%.

Just over half (51%) of advisors are bullish on the Canadian dollar, in relation to its U.S. counterpart.

“The preference for the Canadian dollar is part of a long-standing preference for Canadian asset classes over American asset classes,” says Atkinson.

This pessimism is especially pronounced in attitudes toward U.S. bonds, with bearishness reaching an all-time high of 55%. On the U.S. equity front, only 44% of advisors were bullish on the S&P 500, down from 58%.

Advisors remain largely bullish (56%) on emerging markets, as represented by the MSCI Emerging Markets Index, but that’s still a decline from 64% in the Q1 survey.

(04/07/10)