Canadian investment advisors are bullish on domestic equities and commodities heading into the third quarter of 2014, which is a pickup in sentiment from the negative expectations they had toward 11 out of 15 asset classes in the second quarter, finds a survey by Horizons ETFs Management.
The Q3 survey asked Canadian investment advisors to share their outlook on 15 asset classes and express their sentiment—bullish, bearish or neutral—on the anticipated returns for these asset classes.
For Q3, 61% of advisors said they were bullish on the S&P/TSX 60 Index, which is a large increase in sentiment from the Q2 survey, where 47% of the Canadian advisors were bullish on Canadian equities. For Q2, the three-month period ending June 30, 2014, the Index returned 6.32%. Meanwhile, expectations regarding U.S. equities remained positive, but stagnant, with 57% of advisors bullish on the S&P 500 for Q3, up from 53% last quarter. Over the Q2 period, the S&P 500 had a total return of 1.68%.
Canadian advisors have also become optimistic about energy, with 70% stating they are bullish on the S&P/TSX Capped Energy Index heading into Q3, compared to the 53% that were bullish on the Index last quarter. Similarly, sentiment for natural gas rose dramatically, where 48% said they are bullish this upcoming quarter, compared to the 30% that were bullish last quarter. For Q2, the S&P/TSX Capped Energy Index returned 13.19%.
“With the bull run we’ve had in the U.S. since December, advisors believe that U.S. equities are overvalued, whereas the Canadian market is ripe for growth and returns,” says Howard Atkinson, President of Horizons ETFs.
Other notable findings included a 12% increase in bullish sentiment for the S&P 500 VIX Short-Term Futures Index, where 54% of advisors felt positive about the Index going into Q3, up from 42% last quarter. Meanwhile, the VIX futures index returned -32.40% over Q2.
“The positive expectations for a turnaround in VIX futures suggests that advisors are expecting more volatility in the U.S. marketplace in the upcoming quarter,” says Atkinson. “This explains why bullishness on the U.S. equities has been muted, and we’ve seen an uptick in commodities and precious metals expectations heading into Q3.”
For Q3, 46% of advisors were bullish on gold bullion, compared to the 43% that were positive in Q2. Nearly 50% of advisors increased their positive expectations for the S&P/TSX Global Gold Index up from the 42% that were bullish last quarter. For Q2, the Index had a total return of 2.57%, while gold returned 3.01%. Bullish expectations for silver bullion have also risen to 42% from 38% quarter over quarter, silver bullion returned 6.35% in Q2.
“Increased expectations for volatility are pushing advisors to become more bullish on precious metals, like gold, which are seen as a store of value,” says Atkinson. “Regardless of gold’s price performance, gold equities are expected to retain their value in a potential stock market correction.”