Advisors bullish on marijuana, financials, emerging markets: survey

In Q4 2017, Canadian and U.S. equity indexes gave a relatively flat performance compared to Q3, returning 4.11% (in Q3, the S&P 500 Index delivered a 3.96% return). But that hasn’t stamped out advisors’ bullish outlooks, says Horizons’ Q1 2018 Advisor Sentiment Survey.

The survey, which asked Canadian advisors about their Q1 return expectations for 15 distinct asset classes, finds 65% of respondents are bullish on both the S&P/TSX 60 for Q1 (compared to 62% in Q4 2017) and S&P 500 (compared to 53% last quarter). The same percentage are bullish on the Nasdaq 100 for Q1, up from 51% in Q4.

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The industry that advisors are most excited about is cannabis, the survey says. Almost two-thirds of respondents (64%) say they’re bullish on the North American Marijuana Index for Q1, compared to 46% in Q4. That’s not surprising, given the space gave a strong performance in the last quarter, up by 95.26%, the survey adds. (Horizons could soon have two marijuana ETFs: it filed a preliminary prospectus earlier this month for the Horizons Junior Marijuana Growers Index ETF.)

When it comes to commodities, advisors are less optimistic. Their sentiment toward crude oil fell to 44% from 53%, the survey says, while their sentiment toward the overall energy sector (represented by the S&P/TSX Capped Energy Index) remained flat at 53%—that matched the flat performance of the index in Q4.

Bullish sentiment for natural gas in Q1 dropped to 43%, down from 47% in Q4.

“Advisors still remain skeptical of the energy sector’s performance heading into 2018, since they are reluctant to believe that oil will rise enough to really move energy stock valuations higher,” says Steve Hawkins, president and co-CEO of Horizons ETFs.

Read: Investing in volatile energy stocks

Other highlights

The majority of advisors continue to have positive expectations for Canadian financials, as represented by S&P/TSX Capped Financials Index. Sentiment rose slightly to 63% from 62% (Q1 verses Q4), while the index was up 4.73% over the Q4 period.
Only 16% of advisors were bullish on the S&P U.S. Treasury Bond 7-10 Year Index (Total Return), while 50% were bearish—on the back of fears about rising interest rates.
Advisors are also bearish on the loonie, with 53% expecting the CAD will decline over the next quarter.
On emerging markets, most advisors (72%) said they were bullish heading into Q1, up from 63% last quarter.

Clients’ expectations

Canadian investors are also bullish, with average return expectations of 8.6% over five years, finds a Schroders investor study from November.

Broken down, the survey says nearly half of Canadian investors (46%) expect returns of 5% to 9%, while 22% are especially optimistic: they’re predicting 10% to 19% in returns.

Despite advisors’ overall optimism, they’ll need to temper these outsized expectations—especially because more than half of Canadian respondents (54%) don’t want to take on risk in their portfolios.

Click here to read more about study results.

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