Advisors still confident in stocks

There’s nothing like a massive sell-off to spark renewed interest in equities, and the third quarter of this year appears to prove it. Horizons ETFs’ latest quarterly Advisor Sentiment Survey found financial professionals remain bullish on stocks.

Bullish sentiment toward the S&P/TSX 60 Index (Total Return) dipped just three percentage points, to 55%. That came after a loss of nearly 13% for the index in Q3.

Advisors were also slightly bullish on U.S. large cap equities (52%), despite a more than 14% decline in the S&P 500 Index.

Sentiment toward emerging markets equities improved four percentage points, to 57% of advisors being bullish, even though the MSCI Emerging Markets Index dropped more than 23%.

“Clearly advisor sentiment has not been dampened by the market volatility that occurred last quarter in the stock markets,” said Howard Atkinson, CEO of Horizons ETFs. “The fact that bullish sentiment remains strong suggests advisors may think that the market turmoil is nearing an end, and current valuations may in fact offer a buying opportunity.”

Not only did sentiment toward stocks improve after the Q3 sell-off, but sentiment toward gold bullion eroded after it gained nearly 8%. Bullish sentiment dropped five percentage points, to 52%.

“Gold investors had a good quarter in general. In our Q3 Survey, advisors had chosen to go with gold equities versus gold bullion. This tactic definitely paid off,” Mr. Atkinson said. “Gold equities have underperformed versus the physical commodity for a long time. That gap narrowed slightly last quarter.”

The popularity of base metals also waned, as advisor bullishness on the S&P/TSX Global Base Metals Index fell three percentage points to 45%. Copper was shunned, with bullishness falling eight percentage points, suggesting the outlook for the global economy is not strong.

But energy remained popular, with half of advisors bullish on crude oil, following a 17% drop in oil prices in Q3. Natural gas posted a similar decline last quarter, but bullish sentiment rose 5 percentage points to 46%.

“Energy prices had already been on a downward trajectory going into the third quarter,” Atkinson said. “It could be that advisors are viewing further depressed energy prices as a buying opportunity, with an expectation that energy prices will bounce back over the next quarter.”

The prospect of higher energy prices also boosted optimism about the Canadian dollar, with 47% of advisors expressing optimism, up from 40% in Q3.

The third quarter tarnished the track record of advisors, who as a group tend to be accurate in predicting the direction of asset classes, Atkinson said. In Q3, however, they were wrong on all by two.

Staff

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