Equity returns during the last quarter of 2011 were reasonably strong and it seems the majority of advisors believe the good times will continue through the first quarter of 2012, according to the latest Advisor Sentiment Survey from Horizons ETFs.
The Q1 survey asked Canadian investment advisors to give their outlook on 18 distinct asset classes. Advisors then responded whether they were bullish, bearish or neutral on the anticipated returns for these asset classes over the coming quarter.
Sentiment rebounded in the fourth quarter of 2011 for a number of asset classes, most notably equities. Roughly two out of three Canadian advisors (60%) were bullish on Canadian equities, as represented by the S&P/TSX 60 (Total Return) Index, after it posted a positive 2.07% return on the quarter.
Similarly, bullish sentiment increased more than seven percentage points from the previous survey on U.S. large cap equities after an 11% gain on the S&P 500 last quarter. Favour also increased for the NASDAQ, from 54% to 60%, after a 6.48% return last quarter.
“Stocks were a good asset class to be invested in last quarter, and it’s clear that many Canadian advisors expect them to deliver strong returns for the first part of 2012,” said Howard Atkinson, CEO of Horizons ETFs.
“Advisors batted .500 last quarter in terms of the number of asset class directional moves they predicted accurately,” Atkinson said. “It should be noted that on a number of asset classes where there were positive returns, advisor sentiment was mixed. There were few instances of advisors collectively being on the wrong side of their predictions.”
Bullish sentiment on most energy asset classes held through the last quarter. Crude oil delivered stellar returns in Q4, gaining nearly 25%. More than half of Canadian advisors (55%) remain positive in their outlook for crude oil for this coming quarter. Similarly, the S&P/TSX Capped Energy Index is expected to do well by 57% respondents after the sector returned 11.3% last quarter.
The same optimism does not exist for natural gas prices, however, after natural gas investors had a dreadful Q4, losing 18.5%. Bullish sentiment on gas prices dropped 17%, to just 28%, since the lion’s share of advisors (47%) remains neutral in their outlook for gas for this coming quarter.
“Energy prices had already been on a downward trajectory going into the third quarter, but most Canadian advisors had remained bullish in the Q4 Survey. That conviction would have paid off for them, as most oil related asset classes delivered great returns.” Atkinson said. “The exception is natural gas, which continued to slide in Q4. Advisors don’t expect there to be any meaningful improvement in gas prices in the near future.”
2011 was a year marked by high volatility, but in last quarter’s sentiment survey the majority of advisors predicted that volatility would decrease. They were correct, since volatility did decline by 33.4%, but bearish sentiment on the VIX Index of implied volatility still dropped this quarter to 42%.
Another poorly performing asset class last quarter was gold. Gold bullion declined 3.7% last quarter, even while expectations held at about 50%. That said, the outlook on gold producer equities, which dropped more than 8% in the last quarter of 2011, declined dramatically from 57% last quarter to 49%.
“Gold is a traditional safe-haven during volatile markets. With sort of muted expectations on volatility from advisors, it would make sense that their appetite for gold investing has also decreased,” Atkinson said.
Sentiment on the value of the Canadian dollar versus the U.S. dollar was mixed, with as many bears on the loonie (37%) as bulls (38%).
In addition, this is the second quarter that the survey has tracked advisor opinion on the Canadian dollar versus the Australian dollar, and the view so far is very perceptive. Since the Australian dollar and the loonie tend to move in the same direction versus the U.S. dollar, more than three quarters of advisors were neutral on the direction of this relationship.