After an impressive rally in global stock markets during the first quarter of 2012, the majority of Canadian investment advisors are of the view that equity markets should increase again during the second quarter, according to the Q2 Advisor Sentiment Survey conducted by Toronto-based Horizons Exchange Traded Funds Inc.
The big story in the capital markets during the first quarter of 2012 was the impressive rally in stock markets, particularly the returns delivered by the U.S. stock market. After a 12% return during the last quarter, bullish sentiment on the S&P 500 Index rose to 63% in the Q2 Survey from 58% in the previous Q1 advisor survey. Similarly, on the tech-heavy Nasdaq 100 Index, bullish sentiment also increased to 65% from 60% after an almost 21% return for the index last quarter. Emerging market equities also saw a modest increase in bullish sentiment going to 59% from 50%.
Canadian financial advisors also remain overwhelming bullish on most of the broad stock indices. Bullish advisor sentiment on the S&P/TSX 60 (Total Return) Index held at 60%, after a roughly 4% return for the quarter.
“Canadian stocks haven’t rallied to the extent U.S. stocks have, but Canadian advisors are nonetheless still bullish on the asset class,” says Howard Atkinson, CEO of Horizons Exchange Traded Funds. “Developed markets tend to be correlated to each other, so 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 decent returns in crude oil last quarter, which returned more than 4%, bullish sentiment on crude oil decreased this quarter to 44% from 55% last quarter. Bullishness on the S&P/TSX Capped Energy Index also decreased to 54% from 57% after the index lost almost 2% last quarter.
On the flip-side of things, natural gas prices had a dreadful first quarter losing almost 29%, yet bullish sentiment on natural gas only increased slightly to 30% from 28%.
In last quarter’s sentiment survey, the majority of advisors correctly predicted that stock market volatility, as represented by the VIX Index would decrease, which it did by 55%. Only 42% of advisors expect volatility, as measured by the VIX index, to increase in the second quarter.
Bullish sentiment on gold bullion increased slightly to 54% in the Q2 Survey compared to 50% in the Q1 Survey after that asset class delivered a nice 6% plus return for the first quarter. Bullish sentiment on gold producer stocks however, represented by the S&P/TSX Global Gold Producers Index, dropped slightly to 44% as that asset class has a loss of more than 6% which was the opposite of what bullion gained.
Bullish sentiment on base metal stocks, represented by the S&P/TSX Global Base Metals Index decreased this quarter from to 42% from 48% as the index had a modest less than 3% return last quarter. One of the primary base metals is the commodity copper and bullish sentiment for the general price of copper decreased to 41% from 49% despite a strong quarter for returns of slightly more than 11%.
Sentiment on the value of the Canadian dollar versus the U.S. dollar was mixed, with the bulk of advisors (47%) having a neutral view on the direction of the Canadian dollar, with 38% having a bullish view.
Advisor sentiment remained primarily neutral on 30-year U.S Treasury bonds at 51%,and an additional 29% are bearish, while this asset class lost more than 8% last quarter.
The survey asks Canadian investment advisors to give their outlook on 18 distinct asset classes. Advisors responded whether they were bullish, bearish or neutral on the anticipated returns for these asset classes over the next quarter.