Investment advisors expect negative returns over the next few months, finds a quarterly advisor sentiment survey released by Horizons ETFs.
The survey asked Canadian advisors to share their outlooks on 15 asset classes by stating whether they were bullish, bearish or neutral on anticipated returns. Those polled are only bullish on three out of 15 classes: they’re most optimistic about the S&P/TSX Capped Energy Index, the S&P 500 Index and the NASDAQ–100 Index.
Overall, less than half (47%) expect Canadian stocks to perform well. In contrast, more than 70% were bullish on the S&P/TSX 60 Index for Q1.
Sentiment also dropped in relation to U.S. stocks. While the majority of advisors (74%) were optimistic about U.S. returns for Q1, only 53% have maintained that view. That’s largely because the S&P 500 delivered a modest 1.3% return over the last few months.
The hardest-hit equity category was emerging markets, with advisors’ sentiment level dropping from 71% for Q1 to 32% for Q2.
“Advisors are adopting [cautious] attitude[s] towards Canadian and U.S. equities since their current valuations remain on the high side,” says Howard Atkinson, president of Horizons ETFs.
Due to “growing credit concerns and slower than expected economic growth,” he adds, “their skepticism carries over to emerging markets, which have been an unloved asset class over the last 18 months.”
Atkinson notes there could be buying opportunities in global markets, but advisors expect them to decline further.
Invest in commodities
Advisors are most optimistic about gold, energy and the Canadian dollar for Q2 2014.
Bullish sentiment on gold bullion has reached 43% for Q2, up from 32% in Q1, and sentiment on gold stocks has risen from 32% to 42%. Not only did gold bullion produce a 6.5% return over the last few months, but also the S&P/TSX Global Gold Index surged by 15.6%.
“Precious metals and stocks have a history of inversely correlated performance, [so] you expect to see advisors increase their bullish attitude on gold when they are bearish on equities,” says Atkinson.
Read: Gold rally set to melt, for more market risks
As well, energy stocks are expected to hold steady this quarter after the S&P/TSX Capped Energy Index returned 8.8% in Q1.
“Canadian investors [could] tak[e] an alternative approach [by] overweighting materials and energy stocks versus financials, for example, says Atkinson. “For index investors, this may mean looking beyond the S&P/TSX Composite [and] S&P/TSX 60, so they can focus on other products that offer equal-weight exposure.”
Surprisingly, advisors have become much more positive about the future of the Canadian dollar. For Q2, one fifth of advisors (20%) are bullish about the loonie, whereas only 12% were optimistic about its performance in Q1. Many more advisors stated they were neutral about the currency, which resulted in bearishness falling from 70% for Q1 to 49% for Q2.
“Advisors [say] the decline of the loonie has followed its course,” says Atkinson. They “have about a 10-cent valuation band for the loonie: as it nears US$0.90 cents, they get bullish. And as it nears par value with the U.S. dollar, they get bearish.”