Canadian advisors and investors are increasingly bearish on the majority of asset classes heading into the second quarter, according to a survey conducted by Toronto-based Horizons ETFs Management (Canada) Inc.
The firm conducts a quarterly survey that asks advisors and investors for their expectations of returns on 13 distinct asset classes in the upcoming calendar quarter. The respondents are asked to declare whether they are bullish, bearish or neutral regarding those asset classes.
Declining oil prices seem to have had a significant effect on advisors and investors’ bullish sentiments regarding Canadian indices.
Canadian reliance on the energy sector has both groups questioning the domestic market’s overall stability, says Howard Atkinson, president of Horizons ETFs.
For instance, 54% of advisors said they were bullish on S&P/TSX 60 Index, compared to 57% that said the same in the first quarter. Investors were much less bullish, with 42% choosing this option as opposed to 53% in the last quarter.
At the end of Q1, the index only rose by 1.69%, as at March 31.
“Considering advisors are more bullish on the sector, they need to encourage clients to consider the long-term view and avoid making trades based on volatility or low short- term gains,” says Atkinson.
Regarding the S&P/TSX Capped Financial Index, 40% of advisors are bullish compared to 57% in Q1. The number of investors who are bullish regarding this index also experienced a significant drop, from 48% in Q1 to 36% in Q2.
While financial stocks are one of the most consistent drivers of returns in the Canadian equity space, says Atkinson, the fall in oil prices may have more investors worried about the earnings prospects for the country’s large financial institutions.
Looking at the S&P/TSX Capped Energy Index, advisors’ bullish sentiment was at 41% of advisors in Q2 while one-third of investors said they were bullish. This index fell 1.61% for the three-month period ending Mar. 31, 2015.
When it comes to U.S. indices, advisors and investors remain bullish but less so than the last quarter. For instance, in Q2, 68% of advisors are bullish on the S&P 500, down from 74% in Q1 while investor bullishness lands at 48%, down from 59% in Q2.
Bullishness for crude oil prices fell for both groups by 9%, with 48% of advisors and 35% of investors expressing such sentiment heading into Q2. For the Q1 period, the spot price of crude oil fell 10.6%, down to US$55.41/barrel.
Advisors and investors are slightly more encouraged by the Canadian dollar, with both advisor and investor bullishness rising 3% to 23% and 24%. The Canadian dollar lost more than 8% against the U.S. dollar last quarter.
“Canadian investors and advisors seem to suggest that the dollar is likely in a holding pattern now in the 80 to 85 cent range,” says Atkinson.
Of the other commodities, advisors and investors diverged in their sentiment towards gold bullion. The number of investors bullish on gold jumped to 43%, compared to 39% last quarter. Meanwhile, bullish advisors declined to 30% from 34%.
Investors also showed increased bullishness for silver bullion, moving to 41% from 36% last quarter. The majority of advisors were neutral on silver, at 43%.
“We saw a slight uptick on the bullishness for gold last quarter. With many other regions of the world, most notably Asia and Europe, currently loosening their monetary policy, it’s not a surprise to see an increase in the outlook for gold,” says Atkinson.