Where bearish advisors can look for opportunity

By Staff | April 18, 2018 | Last updated on April 18, 2018
3 min read

Inflows to international ETFs in the first quarter of 2018 totalled more than $2 million, according to National Bank Financial.

In particular, emerging markets represent the biggest investment opportunity in Q2 for advisors, says Steve Hawkins, president and co-CEO of Horizons ETFs, in a release. “Especially as Canadian and U.S. equities remain somewhat volatile compared to the rest of the world,” he says.

Read: What investors should know about China’s evolving economy

His comments follow the release of Horizons’ Q1 advisor sentiment survey, which reveals that Canadian advisors have a bearish outlook on most asset classes, attributable to first-quarter volatility.

Still, the survey finds that 67% of advisors are bullish on emerging markets heading into Q2. However, that’s a slight decline from 72% who were bullish on EM during the last quarter. The MSCI Emerging Markets index was fairly level over Q1, rising 0.93%—better than the performance of many other indexes in Q1.

Advisors less bullish

On the S&P/TSX 60—down more than 5% in Q1—48% of advisors are bullish, compared to 65% who were bullish last quarter.

Advisors’ bullish sentiment for the S&P 500 also dropped significantly heading into Q2, dipping to 56% from 65% last quarter. Similarly, the percentage of advisors bullish on the NASDAQ 100 declined to 57% from 65% in Q1.

In the quarter, the S&P 500 declined 1.22%; the NASDAQ 100 rose 2.89%.

Read: S&P and TSX positioning as the cycle winds down

Bullish sentiment among most advisors heading into Q2 also declined for Canadian financials, as represented by the S&P/TSX Capped Financials index, where sentiment dipped to 50% from 63% (Q2 versus Q1 survey). The index declined 4.22% over Q1.

Of the 15 asset classes and indexes in the survey, U.S. bonds were among the few for which advisors were increasingly bullish. Bullish sentiment on the U.S. 7-10 Year Bond index (total return) rose to 27% from 16% last quarter. However, more advisors (37%) remain bearish. Advisors’ fears about rising interest rates are justified, as the performance of the index fell 1.87% last quarter.

Read: Why Canadian investors need more technology exposure

Underwhelmed by energy

Bullish sentiment in Q2 for natural gas dropped considerably, to 27%, down from 42% in Q1. Natural gas performance fell by more than 7.45% over Q1.

Expectations for energy, represented by sentiment for the S&P/TSX Capped Energy index, fell slightly, with bullish sentiment declining to 50% from 53% in Q1. The index’s performance fell significantly, dropping 8.09% by the end of Q1.

Bullish sentiment for crude oil remained flat, despite the asset’s strong performance in Q1. Q2 bullish sentiment for crude was at 45%, up slightly from 44%. The asset class was up 7.48% by the end of Q1, with the price of crude reaching US$64.17 a barrel (as at March 31).

Rising oil prices haven’t improved the outlook for Canadian energy producers. “U.S. shale producers seem to be able to pump oil at a lower cost and continue to have quicker access to that market […],” says Hawkins, which impedes the value of Canadian-producer stocks.

Read: What investors should know about oil and geopolitical risk

Bearish on loonie

On the loonie, almost half of advisors continue to be outright bearish, with 48% believing the Canuck buck will decline in value (relative to the U.S. dollar) over Q2. This is a small decrease from the 53% of advisors who were bearish last quarter. The loonie depreciated by 2.43% against the U.S. dollar over the course of Q1.

“We might see a reversal in sentiment on the Canadian dollar when Canadian interest rates pick up, or if the price of Canadian-produced oil rises higher,” says Hawkins.

For full results, see the Horizons ETFs advisor sentiment survey.

Advisor.ca staff


The staff of Advisor.ca have been covering news for financial advisors since 1998.