Heading into the fourth quarter of 2015, Canadian advisors and investors are bullish on equities, says the Q4 2015 Advisor and Investor Sentiment Surveys conducted by Horizons ETFs Management (Canada).
The Q4 Surveys quizzed respondents about their expectations of returns for main asset classes for the upcoming quarter.
The largest pickups in bullish sentiment were seen when both advisors and investors were asked about the S&P 500, NASDAQ-100 and S&P/TSX 60.
Of the advisors surveyed, 78% were bullish on the S&P 500 heading into Q4, compared to 57% in the third quarter—an increase of 21 percentage points. Meanwhile, the number of bullish investors increased to 51%, up from 37% last quarter.
Similarly, advisor sentiment for the NASDAQ-100 for Q4 jumped to 71%, up from 57% for Q3. Investors’ bullish sentiment for that index also rose, from 42% to 57%.
Interestingly, the S&P 500 saw a dip in performance of 6.94% in Q3, and the NASDAQ-100 dropped 4.91% (as at September 30, 2015).
Read: When value beats growth
Looking ahead to Q4, more than half of advisors (62%) say they’re bullish on the S&P/TSX 60 Index, compared to 39% for Q3. Investors are not as optimistic about the index heading into Q4, however, despite their bullish sentiment rising 15 percentage points to 44%.
At the end of Q3, the S&P/TSX 60 Index was down 7.46% (as at September 30, 2015).
The number of advisors bullish on the S&P/TSX Capped Financial Index jumped to 62% up from 40%. Similarly, the number of investors bullish on that index rose to 46%, up from 36% in Q3.
For the S&P/TSX Capped Energy Index, sentiment for advisors dropped in bullishness to 37%, from 41% last quarter. The number of investors that were bullish on the energy index also declined, from 33% in Q3 to 29%.
Over Q3, the S&P/TSX Capped Energy Index fell 19.07% (as at September 30, 2015).
“Excess crude oil supply continues to depress global crude oil prices,” says Howard Atkinson, president of Horizons ETFs. So, “the sentiment indicators from both advisors and investors suggest they don’t expect this to change anytime soon.”
Yet, he adds, “The fourth quarter is historically stronger for natural gas returns from a seasonal perspective. As the temperature declines, [that] necessitates higher usage, and we see this sentiment reflected in the increased bullishness.”
Expectations for crude and natural gas also played into sentiment for the Canadian dollar versus the U.S. dollar: both advisors and investors displayed more bullishness and less bearishness for domestic currency, compared to Q3.
The number of bullish advisors increased seven percentage points to 21% from the 14% last quarter, while bearish advisors declined to 44% from 53% last quarter. Meanwhile, investors’ bullishness rose slightly to 24% from 22% quarter-over-quarter, and bearish investors remained flat at 44%.
The Canadian dollar fell 6.14% against the U.S. dollar over Q3 (as at September 30, 2015).
“The two biggest drivers of return for the loonie are interest rates and oil prices, both of which appear to have stabilized over the last quarter, and that may explain why sentiment is mixed and not overly bearish or bullish,” says Atkinson. But, “there is an ongoing fear that the Canadian dollar could fall even lower, if either of those two factors were to tilt negative any further.”
Looking to commodities other than oil, Atkinson says, “We saw a slight drop in the bullishness for gold this quarter, which was likely due to the renewed optimism that advisors and investors have for North American equities. A strong U.S. dollar will keep the gold bugs at bay.”
Finally, sentiment for the S&P 500 VIX Short-Term Futures Index remained fairly bearish for both groups, even though it was the only asset class that performed positively throughout Q3.
Turns out, only 34% of advisors say they’re bullish on the asset class heading into Q4, compared to 54% last quarter. Investors’ sentiment also fell to 38% from 44%. The S&P 500 VIX Short-Term Futures Index jumped almost 30% in Q3. Atkinson says, “Given that volatility historically tends to be inversely correlated to equity prices, it makes sense that investors wouldn’t be bullish on volatility if they are optimistic on stocks.”