Advisors still bullish on equities, commodities

Canadian investment advisors remain bullish on equities and commodities despite poor returns in many of those asset classes last quarter, according to the Q3 Advisor Sentiment Survey conducted by Horizons Exchange Traded Funds.

The Q3 survey asked Canadian investment advisors to give their outlook on 17 distinct asset classes. Advisors responded whether they were bullish, bearish or neutral on the anticipated returns for these asset classes over the next quarter.

The second quarter of 2011 was a difficult time to be an investor. Most of the asset classes covered by the sentiment survey delivered negative returns over those three months. Despite this, Canadian advisors are only slightly less bullish on most of the equity and commodity asset classes they favoured during the last quarter’s survey.

For example, advisor sentiment on the S&P/TSX 60 Index was only slightly less bullish at 58% versus the Q2 Survey’s bullish sentiment of 62%, despite a -5.2% return on the quarter. Similarly, advisors have remained bullish on both U.S. large cap equities and emerging market equities. In fact, bullish sentiment on the S&P 500 increased 6 percentage points over the last quarter, despite a slightly negative return on the S&P 500 of 0.88%.

“The results of this survey seem to suggest that Canadian advisors may view the pullback that occurred last quarter as a buying opportunity rather than a warning,” said Howard Atkinson, CEO of Horizons ETFs. “In fact, oil prices declined much more than stocks last quarter, relatively speaking, but the bullish sentiment of advisors actually increased for crude oil, which again seems to suggest advisors may have a longer term bullish outlook for a number of asset classes.”

Bullish sentiment on crude oil increased significantly over the last quarter, by 12 percentage points to 53%, despite the fact that crude oil futures saw more than an 11.5% decrease over the quarter. Bullishness on the S&P/TSX Capped Energy Index also remained strong at 55%.

The Q3 survey also saw bullish sentiment increase on gold bullion and gold equities. Bullish sentiment on gold bullion increased 4 percentage points to 57% from the Q2 survey, as the precious metal was one of the few asset classes that delivered a positive (+5.23%) return during the last quarter. Advisor sentiment was even more bullish on gold equities, which have drastically lagged behind bullion over the last few months.

“Advisors may feel that gold equities are undervalued versus the physical commodity, considering that their bullish sentiment on S&P/TSX Global Gold Index increased from 51% to 60% over the last quarter, despite a negative return of 6.83% last quarter,” Atkinson said.

Advisor sentiment on the value of the Canadian dollar versus its U.S. counterpart remains, for the most part, undecided—much like last quarter. Bullishness on the Canadian dollar increased slightly to 40% from the Q2 Survey.

In addition, advisors’ sentiment continues to be mixed on the direction of the 30-year U.S. Treasury Bond, which will be impacted by a rise in interest rates—but anticipated rate rises have failed to materialize. There was a sharp increase in the number of advisors who have a neutral view on the direction of the 30-year U.S. Treasury Bond, rising from 37% last quarter to 51% this quarter.

Bullish sentiment on base metal stocks, represented by the S&P/TSX Global Base Metals Index, dropped from 51% to 48% this quarter. However, one key base metal—copper—continues to be in favour with advisors. Bullish sentiment on copper increased from 50% to 52% over the last quarter, after the industrial metal delivered a slight positive return for the quarter.

“The fortunes of copper are closely tied to China,” Atkinson said. “With economic growth remaining robust there, speculation continues that copper could continue to see its price rise over the coming quarter.”

Sentiment on Canadian junior oil and gas stocks dropped from clearly bullish last quarter at 62%, to mixed this quarter with only 45% of advisors believing the GMP Junior Oil and Gas Index would post a good return over the next quarter. The GMP Junior Oil and Gas Index declined significantly last quarter along with oil prices, losing 10.4%.

Advisors’ predictions on market direction struck out on 12 of the 17 tracked indices last quarter, as most asset classes delivered negative returns. However, many asset classes had little movement, with six benchmarks returning between -1% and +1%.

“This is a stark reversal from the previous quarter when they predicted 10 out of the 16 tracked indices correctly,” Atkinson said. “Historically, advisors have been accurate most of the time in predicting the direction of asset classes surveyed.”

Staff

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