The strong rally in global stock markets has bolstered the confidence of Canadian investment advisors who are substantially more bullish in their outlook for stocks than they were in third quarter, according to the Q4 Advisor Sentiment Survey conducted by Toronto-based Horizons Exchange Traded Funds Inc.
The Q4 survey asked Canadian investment advisors to give their outlook on 16 distinct asset classes. Advisers responded whether they were bullish, bearish or neutral on the anticipated returns for these asset classes over the next quarter.
The majority of the almost 200 advisors who responded to the Q4 survey are very bullish on stocks. Bullish sentiment on the S&P/TSX 60 Index increased to 68% in Q4 from 54% in Q3 after a 5.9% return on that index last quarter. A similar uptick in confidence was observed with the S&P 500 Index after it returned 5.8% last quarter, with 63% of advisors now bullish on the benchmark U.S. index. Bullish sentiment on the technology heavy NASDAQ 100 Index also increased to 62% from 59% after a 7% gain on the quarter.
Even certain stock sub-sectors received strong votes of confidence, such as the S&P/TSX Capped Financial Index, which saw bullish sentiment rise 13 percentage points to 53% in the Q4 survey from 40% in Q3. Bullish sentiment for gold stocks increased even more, by 16 percentage points to 71%, after the S&P/TSX Global Gold Stock Index delivered a 14.8% return in Q3.
Only the MSCI Emerging Markets Index saw a decline in advisor confidence where bullish sentiment dropped to 45% in the Q4 survey from 48% in Q3 even though the index generated a 7.0% return in Q3.
“The vast majority of Canadian advisors expect the rally in North American stocks we saw in the third quarter to continue through until the end of the year,” said Howard Atkinson, CEO of Horizons Exchange Traded Funds. “The exception being emerging market stocks which, despite strong returns last quarter, Canadian advisors clearly expect to underperform North American stocks.”
The bullish sentiment on stocks paled in comparison to the glimmer coming from precious metals. High levels of bullish sentiment in the Q4 Survey were seen with gold and silver bullion where both were at 69%. Gold bullion delivered a 10.9% return in Q3, while Silver bullion delivered a huge 25.7% return.
Bullish sentiment on natural gas actually moved into majority territory, increasing to 55% in the Q4 survey from 48% in Q3. This comes on the heels of a 17.6% return in Q3. Similarly, sentiment on crude oil also increased to 57% from 55%, after delivering an 8.5% return in Q3. However, bullish sentiment on energy stocks represented by the S&P/TSX Capped Energy Index dropped slightly to 56% in the Q4 survey from 58% in Q3
After decent gains against the U.S. dollar (3.3%) in Q3, bearish sentiment on the Canadian dollar dropped from to 24% from 34%. More advisors (39%) now have a neutral outlook for the Canadian dollar versus the bulls and bears.
Horizons notes that advisors accurately predicted the direction of 14 out of the 16 asset classes surveyed last quarter, which is in line with their historical trend of making accurate predictions.