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Looking at the final quarter of 2020, advisors are optimistic about a broad market recovery — especially in equities — while investors remain cautious, according to results from the fourth-quarter advisor and investor sentiment surveys from Horizons ETFs Management (Canada) Inc. The finding suggests client-facing advisors may have more virtual hand-holding to do in the coming weeks.

Every quarter, Horizons ETFs polls investment advisors and investors for their outlooks on expected returns for 14 asset classes. Expectations are expressed in terms of bullish, bearish or neutral sentiments. The fourth-quarter surveys cover the period beginning Oct. 1, 2020, and ending Dec. 31, 2020.

Advisors, investors diverge on Canadian equities

In the third quarter, the S&P/TSX composite index posted a moderate gain of 3.54%. For Q4, advisors’ and investors’ sentiments on the index largely diverged.

Advisors interpreted the index’s third-quarter growth as “a sign of things to come,” as they increased their bullishness by 16 percentage points to an “overwhelming” 61%, Horizons ETFs said in a release.

The result represented advisors’ second-highest rated asset class of the survey. (As discussed below, advisors’ top rating went to the Nasdaq-100 index, for which 64% of advisors were bullish.)

In contrast, investors remained wary on domestic equities, with bearishness outstripping bullishness by one percentage point, at 38% bearish overall.

In the release, Steve Hawkins, president and CEO of Horizons ETFs, said the divergence between advisors and investors may be explained by “advisor fixation on market performance, while investors are ‘baking in’ their personal experiences with unemployment, gas consumption, mortgage deferrals and other timely economic indicators into their outlook equation.”

Financials was another category where advisors and investors differed.

As represented by the S&P/TSX capped financials index, Canadian financials recorded a 2.78% gain in the third quarter.

Advisor confidence on the asset class grew by five percentage points to 46% bullishness overall. Investors decreased their bullishness by two percentage points to 30%, with a 43% bearish rating overall on the Canadian banks.

Investors were also more bearish on the S&P/TSX capped energy index, though sentiment for the category dropped by investors and advisors alike. The index dropped almost 15% in the third quarter — the largest decline in all asset classes measured.

Investors increased their bearishness on the index by eight percentage points to 51% bearishness overall.

Advisor bullishness dropped 10 percentage points, resulting in an equal split of bullishness and bearishness (36%).

Of note, investors were most bullish on a defensive asset class: gold bullion.

Investors increased their bullishness for the category by seven percentage points to 66%.

Advisor sentiment wasn’t too far behind: advisors increased bullish sentiment for gold bullion by five percentage points to 59% overall.

More bullish on international, U.S. equities

International equities, as represented by the MSCI emerging markets index, recorded a performance gain of 8.73% during the third quarter.

Advisors were overwhelmingly bullish on the category, adding 17 percentage points of bullishness for 59% bullishness overall — their largest sentiment increase of any category this quarter.

Investors shed their bearish attitudes on international equities and increased bullishness by seven percentage points to 41% — four percentage points ahead of the category’s bears.

The S&P 500 and Nasdaq-100 posted gains of 8.47% and 12.42% in the third quarter, respectively.

Advisors increased their bullishness for the S&P 500 by 12 percentage points to 60% overall, and increased their bullishness for the Nasdaq by four percentage points, to a 64% bullishness weighting — their top rating among asset classes.

While still bullish overall, investors were once again more hesitant, recording no sentiment gain on the S&P 500, leaving it at a flat 43% bullishness. On the Nasdaq, investors’ outlook slid one percentage point to 48% bullishness overall.

Sentiment falls in fixed income

Within fixed income, advisor and investor sentiments were more closely aligned.

On U.S. Treasuries, as represented by the Solactive U.S. 7-10 Year Treasury Bond index, investors decreased their bullishness by six percentage points to just 20% — their lowest bullishness for any category.

Advisors were even more pessimistic, reducing their outlook by four percentage points to 14% bullishness.

Investor sentiment soars for natural gas futures

Of the 14 asset classes measured in the Q4 surveys, natural gas futures had the strongest performance in the third quarter, with a 44.32% performance gain.

Accordingly, both advisors and investors increased bullish sentiment in the commodity.

Advisors increased positive sentiment by four percentage points to 44% bullish overall.

Investors increased positive sentiment by 21 percentage points to 54% bullish overall — investors’ largest category gain in the survey.

In contrast, both advisors and investors significantly reduced their bullish attitudes on crude oil futures, which gained 2.42% in the third quarter.

Advisors reduced bullishness on crude oil futures by 12 percentage points to 39% bullishness overall. Investors responded with a 14 percentage point drop to 35% bullishness.