Canadian investment advisors expect stocks to continue their torrid pace in the first quarter of 2014, but are bearish on every other asset class.
That’s according to the Q1 2014 Advisor Sentiment Survey conducted by Toronto-based Horizons ETFs Management (Canada) Inc.
The survey asked Canadian advisors to share their outlook on 15 distinct asset classes, indicating whether they were, at the time the survey was conducted, bullish, bearish or neutral on the anticipated returns from these asset classes in Q1 2014. Collectively, advisors were bullish on only six of the 15 asset classes surveyed, all of which were equity indices.
Nearly three quarters of Canadian advisors (74%) are bullish on the S&P/TSX 60 Index, which saw bullish sentiment increase from 68% in our previous survey. Canadian stocks generated a 6.94% return last quarter.
The same bullish sentiment, 74%, was observed on the S&P 500 Index as well, after an approximately 10% return in Q4 2013. Bullish sentiment on the Nasdaq-100 Index is at 75%, after a Q4 2013 return of 11.62%.
“We are seeing almost unprecedented levels of bullishness on large-cap stocks across the board,” said Howard Atkinson, president of Horizons ETFs. “Canadian stocks lagged U.S. stock returns over the last year, and investors may be expecting Canadian stocks to rally on a relative performance basis to close the gap on the U.S.”
Bullish sentiment on the MSCI Emerging Markets Index rose a substantial 11 percentage points from 60% to 71% after this index generated a 1.54% return last quarter.
“Emerging markets were an unloved asset class last year, with equity risk appetite increasing, it would stand to reason that investors may be growing more comfortable with emerging market equities,” Atkinson said.
Precious metals did not receive the same vote of confidence. Only 32% of advisors are bullish on gold bullion — only a percentage point lower than last quarter — despite the fact that gold bullion lost 9.28%. Similarly, silver bullion lost 10.27% last quarter.
Bearish sentiment on the Canadian dollar rose dramatically from 41% in the previous quarter’s survey to 70% in the Q1 survey with seven out of 10 advisors surveyed believing that the Canadian dollar will decrease in value versus the U.S. dollar over the next quarter.
“There has been a lot of media coverage of negative outlooks for the Canadian dollar, so this is not surprising, but still a 30 percentage point increase in bearish sentiment is quite substantial,” said Atkinson.
“For this reason, we’ve also seen a preference, as highlighted in ETF flows, for non-hedged U.S. equity — investors want to get direct exposure to the U.S. dollar as the value of the Loonie falls.”
Bullish sentiment on volatility increased slightly to 48% in the Q1 survey from 45% in the previous quarter’s survey after the S&P 500 VIX Short-Term Futures Index lost nearly 27.50% last quarter.
Full survey results are available at: http://www.HorizonsETFs.com/sentimentsurvey.