Canadian investment advisors are bullish on domestic equities and commodities heading into the third quarter of 2014, which is a pickup in sentiment from the negative expectations they had towards 11 out of 15 asset classes in the second quarter, according to Horizons ETFs survey.
The change in sentiment was reported in the Q3 edition of the 2014 Advisor Sentiment Survey ("Q3 Survey"), conducted by Horizons ETFs Management (Canada) Inc. ("Horizons ETFs").
The Q3 Survey asked Canadian investment advisors to share their outlook on 15 distinct asset classes and express their sentiment — bullish, bearish or neutral — on the anticipated returns for these asset classes in the upcoming calendar quarter (Q3). Collectively, advisors were bullish on the following Canadian asset classes: S&P/TSX 60TM Index and S&P/TSX Capped Energy Index.
For Q3, 61% of advisors said they were bullish on the S&P/TSX 60TM Index, which is a large increase in sentiment from the Q2 survey, where less than half (47%) of the Canadian advisors were bullish on Canadian equities. For Q2, the three-month period ending June 30, 2014, the Index returned 6.32%.
Meanwhile, expectations regarding U.S. equities remained positive, but stagnant, with 57% of advisors bullish on the S&P 500® for Q3, up from 53% last quarter. Over the Q2 period, the S&P 500® had a total return of 1.68%.
Canadian advisors have also become optimistic about energy, with 70% stating they are bullish on the S&P/TSX Capped Energy Index heading into Q3, compared to the 53% that were bullish on the Index last quarter.
Similarly, sentiment for natural gas rose dramatically, where nearly half of advisors (48%) said they are bullish this upcoming quarter, compared to the 30% that were bullish last quarter. For Q2, the S&P/TSX Capped Energy Index returned 13.19%.
"Canadian advisors are seeing a lot more value in domestic asset classes than their U.S. counterparts," said Howard Atkinson, President of Horizons ETFs. "With the bull run we’ve had in the U.S. since December, advisors believe that U.S. equities are overvalued, whereas the Canadian market is ripe for growth and returns."
Other notable findings included a 12% increase in bullish sentiment for the S&P 500 VIX Short-Term FuturesTM Index, where 54% of advisors felt positive about the Index going into Q3, up from 42% last quarter. Meanwhile, the VIX futures Index returned -32.40% over Q2.
"The positive expectations for a turnaround in VIX futures suggests that advisors are expecting more volatility in the U.S. marketplace in the upcoming quarter," said Atkinson. "This explains why bullishness on the U.S. equities has been muted, and we’ve seen an uptick in commodities and precious metals expectations heading into Q3."
For Q3, 46% of advisors were bullish on gold bullion, compared to the 43% that were positive in Q2. Nearly 50% of advisors increased their positive expectations for the S&P/TSX Global Gold IndexTM up from the 42% that were bullish last quarter. For Q2, the Index had a total return of 2.57%, while gold returned 3.01%. Bullish expectations for silver bullion have also risen to 42% from 38% quarter over quarter, silver bullion returned 6.35% in Q2.
"Increased expectations for volatility are pushing advisors to become more bullish on precious metals, like gold, which are seen as a store of value," said Atkinson. "Regardless of gold’s price performance, gold equities are expected to retain their value in a potential stock market correction."
Advisors expressed more positivity towards the Canadian dollar versus the U.S. dollar. In Q3, positive sentiment towards the Canadian dollar rose to 25% from 20% in Q2. The Canadian dollar fluctuated between approximately 91.7 cents and 93.8 cents per U.S. dollar over Q2.
"The market keeps expecting interest rates to rise, and as a result, the demand for the Canadian dollar has slowly recovered from its dip below 90 cents (U.S.) in early 2013," said Mr. Atkinson. "While the current recovery in the dollar is minor, it further reflects the positive sentiment advisors are displaying towards domestic asset classes in Q3, which is critical for Canadian investors looking to keep their assets north of the border."