Canadian investment advisors expect stock prices to continue declining over the next quarter, but are increasingly bullish on precious metals and energy, according to the Q3 2010 Advisor Sentiment Survey conducted by BetaPro Management Inc.

The June survey polled nearly 200 advisors, who collectively oversee an estimated $20 billion in client assets, on their outlook for various asset classes.

The outlook for broad-based equity indexes continued to worsen as stock prices plummeted in the second quarter. Advisors’ bullish sentiment for the S&P/TSX 60 Index plunged by nearly 20 percentage points from Q2 to 39%. Nearly half of advisors are now bearish on this index.

The outlook deteriorated for Canadian financial stocks, in particular. Nearly half of advisors are bearish on the S&P/TSX Financials Index, up from 33% last quarter, and only 34% are bullish, down from 40%.

More than half of Canadian advisors are bearish on U.S. large-cap stocks, represented by the S&P 500 Index, and 45% are bearish on the NASDAQ 100 Index. Both indexes retreated by more than 11% during the second quarter.

But advisors’ weakening appetite for stocks was offset by increasing bullishness for precious metals and energy, and in particular, gold and natural gas.

Advisor bullish sentiment for gold stocks on the S&P/TSX Global Gold Index rose to a clear majority of 62%, while sentiment for gold bullion increased by 13 percentage points to 68%. Sixty per cent of advisors are also bullish on silver.

The asset class that enjoyed the biggest increase in advisor bullish sentiment was natural gas, with 59% of advisors expecting the commodity to continue to rise in price, up from just 31% in Q2.

This upswing follows a 12.7% return for the NYMEX Natural Gas Index in the second quarter.

“Natural gas investors who took long positions last quarter have already been well rewarded. It certainly looks like advisors expect natural gas prices to continue to improve through the summer,” said Howard Atkinson, president of BetaPro.

The outlook for U.S. 30-Year bonds, meanwhile, has also improved, despite the asset class’s vulnerability to interest rates. A quarter of advisors are now bullish on these bonds, up from 16% last quarter, while 28% are bearish, down from a 55% majority.

“That inflationary fear associated with U.S. Treasuries seems to have subsided,” Atkinson said. “It should be noted that 45% of advisors are neutral on the direction of the 30-Year U.S. bond, suggesting their real uncertainty about the direction of U.S. government bond prices.”

IE