Canadian financial advisors were still bullish on U.S. equities as they headed into the first quarter of 2016 (Q1), according to Horizons ETFs Management (Canada) Inc.’s Q1 2016 Advisor and Investor Sentiment Surveys (Q1 Surveys).

The Q1 Surveys asked both advisors and investors for their expectations of returns — bullish, bearish or neutral — on 14 distinct asset classes for Q1. Advisors were bullish on four classes only, which included the S&P 500 composite index, the Nasdaq 100 as well as S&P/TSX 60 index and the S&P/TSX capped financials index. However, the degree of bullishness declined for each of these indices.

Of the advisors surveyed, 71% said they are bullish on the S&P 500 for Q1 2016 compared with 78% in the fourth quarter of 2015 (Q4). Similarly, advisors’ bullishness for the Nasdaq 100 for Q1 fell to 68% from 71% in Q4.

“The decline of the Canadian dollar (C$) against the greenback has had a significant effect on U.S. equities returns, and advisors realize that an active currency hedging strategy can play a very important role in ultimate returns,” says Steve Hawkins, co-CEO with Horizons ETFs in a statement.

“The [U.S. Federal Reserve Board] also raised rates in December, which is generally considered a signal of strength for their markets overall, and that may have been what has kept the majority of advisor sentiment bullish on U.S. equity markets,” Hawkins adds.

As for the Canadian indices, 60% of advisors surveyed said they were bullish on the S&P/TSX 60 index for Q1 vs 62% for Q4. Meanwhile, the percentage of advisors bullish on the S&P/TSX capped financial index declined to 54% for Q1 from 62% in Q4.

“After a near 8% decline in the S&P/TSX 60 in 2015, advisors may think Canadian equities could be poised for a comeback,” Hawkins says. “While the performance of financials may have been flat over Q4, advisors may see the banks as a value opportunity over the coming quarter and of course they are always a great source of dividend income for Canadian investors.”

In contrast, sentiment for crude oil rose somewhat quarter-over-quarter as the percentage of advisors bullish on crude oil rose to 45% from 39% in Q4 while the percentage of advisors bearish on crude fell to 24% from 30%.

Similarly, the percentage of advisors bullish on the S&P/TSX capped energy index also rose slightly, to 40% from 37% quarter-over-quarter, while the percentage of bearish advisors remained flat at 33%.

“Advisors increased their positive sentiment toward crude oil heading into Q1, thinking its price may have bottomed. Unfortunately, this has not been the case so far with [West Texas Intermediate] trading well below where it ended the year,” Hawkins says. “There’s also positive sentiment around energy producers which are very oversold at the moment. If there is a bounce back in crude oil prices, investors are expecting energy stocks to really ramp up performance.”

Expectations for crude may have factored into sentiment for the C$ versus the greenback. Advisors were more bullish and less bearish on the loonie compared with Q4. The percentage of bullish advisors rose to 28% from 21% in Q4 while advisors bearish on the C$ declined to 43% from 44% last quarter.

“The loonie has been pretty much in free-fall since the start of 2015 and could continue to fall relative to the U.S. dollar if we don’t see a rebound in energy prices,” Hawkins says. “Fear that the Canadian dollar could fall even lower, may continue to push investors and advisors to look on the other side of the border for investment opportunities.”

Horizons ETFs conducts a quarterly sentiment survey of Canadian advisors. This was the third quarter that an additional investor sentiment survey was conducted. The surveys measure advisors’ and investors’ quarterly outlooks quantitatively as it relates to key benchmarks covering equities, bonds, currencies and commodities.

For full survey results, visit http://www.HorizonsETFs.com/sentimentsurvey.