Advisor favour shifts from gold to stocks

Canadian advisors are moving away from gold and increasingly looking to stocks for higher returns, BetaPro Management’s Q1 2011 Advisor Sentiment Survey reveals.

The BetaPro survey, based on responses from over 100 Canadian investment advisors, shows a massive plunge in bullish sentiment on gold stocks, “despite the fact that [they] delivered returns of more than 25% on the year,” a press release says. Only 33% of respondents to the Q1 survey said they were bullish on gold stocks, down from 64% in the last quarter of 2010.

The numbers for gold bullion were very similar, with the Q1 survey showing bullish sentiment at 35%, a 31% drop from the fourth quarter of last year.

“For the last two years, advisors have been consistently bullish on the prospects for gold, coinciding with phenomenal returns for the asset class. This survey seems to suggest that most Canadian investment advisors feel that gold has had its run and may now be fairly or even over-valued,” said BetaPro president Howard Atkinson.

Bullish sentiment for the S&P/TSX 60 Index, which delivered a 14% return in 2010, was expressed by 62% of advisors. Most advisors—63%—were also bullish on the S&P 500 Index, which returned 10.28% last quarter. Bullish sentiment was slightly higher for the MSCI Emerging Markets Index, with 67% expecting strong returns. The MSCI Emerging Markets Index posted returns of 7.26% in the fourth quarter of 2010.

The Q1 survey showed a dramatic increase in bullish sentiment for the S&P/TSX Financials Index, rising 10% above the 47% recorded in the Q4 survey. The S&P/TSX Financials Index showed positive returns of 8.51% in 2010, with a 5.14% increase in Q4.

Advisors were hugely bullish on energy stocks, with 73% calling for positive returns on the S&P/TSX Energy Index. The Q1 survey numbers on crude oil increased 7 percentage points from Q4’s results, with 61% of advisors expressing bullish sentiment.

The numbers look much different on the direction of the Canadian dollar versus the U.S. dollar: only 39% of advisors are bullish on the loonie, while 44% are neutral.

The report notes Canadian advisors have fared well in predicting future trends in BetaPro advisor sentiment surveys. “Advisors were extremely accurate in predicting the direction for 14 of 15 indices,” Atkinson says. “The uncertainty we observed in previous recent surveys seems to have subsided, with the majority of advisors seemingly making very clear directional bets on certain asset classes.”

Canada alone A separate study released by State Street Global Markets, based on their Investor Confidence Index, shows a very different picture for institutional investor attitudes across the globe.

The index, developed by Harvard University professor Kenneth Froot and Paul O’Connell of State Street Associates, “measures investor confidence … by analyzing the actual buying and selling patterns of institutional investors. The index assigns a precise meaning to changes in investor risk appetite: the greater the percentage allocation to equities, the higher is risk appetite or confidence.”

“A reading of 100 is neutral; it is the level at which investors are neither increasing nor decreasing their allocations to risky assets. The index differs from survey-based measures in that it is based on the actual trades, as opposed to opinions, of institutional investors,” a press release explains.

Globally, confidence fell to 100.9, a 3.3-point drop from December. The risk appetite of North American institutional investors fell to 99.5, from 103.1 in December. This finding doesn’t necessarily conflict with BetaPro’s Canadian data, as State Street’s North American figures will have a strong U.S. component, where the mood is much more glum overall.

In Europe, confidence decreased 3.9 points to 93.5, while Asia saw a 5.4-point decline to 97.5.

“Institutional investors reverted to a more cautious stance this month, balancing improved prospects for global growth against what has been a relatively rapid run-up in prices,” Froot says. “With world equity prices up 6.9% over three months and 20% over six months, valuations have moved up a reasonable amount, prompting some in the institutional community to adopt a ‘wait-and-see’ stance. It remains to be seen whether improved macroeconomic data from the U.S. and policy actions with respect to peripheral European debt will prompt an early reassessment of this stance.”

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.