Originally from our sister publication, Advisor.ca.
After an impressive rally in global stock markets during the first quarter of 2012, the majority of Canadian investment advisors remain bullish on equities over the next few months.
The Q2 Advisor Sentiment Survey, conducted by Horizons ETFs, asked Canadian advisors for their outlook on 18 distinct asset classes and on the anticipated returns for these assets over the next quarter. In the Q1 survey, advisors correctly predicted 13 of the 18 asset classes tracked.
The first quarter stock market rally surprised investors, particularly the returns delivered by the U.S. stock market. After banking up to 12% returns, advisors’ bullish sentiment on the S&P 500 rose to 63%, up 5% from the Q1 survey.
On the tech-heavy NASDAQ 100, bullish sentiment increased to 65% after an almost 21% return for the index last quarter. Emerging market equities saw a modest increase in bullish sentiment, going from 50% in the Q1 survey to 59% on the Q2 survey.
Canadian financial advisors remain overwhelming bullish on most broad stock indices. Positive sentiment toward the S&P/TSX 60 held at 60% in the Q2 survey, after a roughly 4% return in the previous quarter.
“Canadian stocks haven’t rallied to the extent U.S. stocks have, but Canadian advisors are nonetheless still bullish on the asset class,” said Howard Atkinson, CEO of Horizons. “Developed markets tend to be correlated to each other.”
He adds, “The Q2 survey results suggests that if U.S. stocks produce positive returns this quarter, which the majority of advisors who answered the survey expect, Canadian stocks should also rise.”
Despite a 4% gain in crude oil prices last quarter, sentiment decreased this quarter from 55% to 44%. Attitudes toward the S&P/TSX Capped Energy Index also fell 3% to 54%, after the index lost 2% last quarter.
The survey results weren’t always driven by index performance, however. Natural gas prices had a poor first quarter and lost almost 29%, but bullish sentiment on the category increased by 2% to 30%.
“We’re seeing reversals in sentiment on energy prices,” says Atkinson. “Advisors feel that oil has had a good run since the fall and as a result, pulled back in bullish sentiment. Meanwhile, natural gas performance couldn’t get possibly any worse, after two quarters of absolutely horrendous returns, and advisors are feeling positive on that asset class.”
In last quarter’s survey, the majority of advisors correctly predicted that stock market volatility would decrease—volatility was high in 2011 and did indeed decrease by 55%. Only 42% of advisors expect volatility, as measured by the VIX index, to increase in the second quarter.
Sentiment on gold bullion increased slightly to 54%, up from 50%, after it delivered a 6% plus return in the first quarter. Bullish sentiment on gold producer stocks however, dropped slightly from 44% after a loss of more than 6% in Q1. The survey indicates that bullion and gold stocks are viewed as separate asset classes by advisors.
Metal stocks, represented by the S&P/TSX Global Base Metals Index, decreased this quarter from 48% to 42% after modest returns. One of the primary base metals is copper, and the general price of copper decreased from 49% to 41% in the Q2 survey despite strong returns.
Sentiment on the value of the loonie versus the U.S. dollar was mixed, with the bulk of advisors (47%) having a neutral view on the direction of Canadian currency. In general, advisors tend to be undecided about the loonie when it trades near parity.