Canadian advisors are less bullish on North American equities than in Q4, according to Q1 surveys conducted by Horizons ETFs Management (Canada).
The two surveys asked advisors and investors about their return expectations for 14 asset classes. And, even though advisors are bullish on four classes (those are the S&P 500, NASDAQ-100, S&P/TSX 60 Index and S&P/TSX Capped Financials Index), the degree of optimism for each has declined since December.
Of the advisors surveyed, 71% said they were bullish on the S&P 500 heading into Q1, compared to 78% in the fourth quarter of 2015. Similarly, advisors’ sentiment for the NASDAQ-100 has fallen to 68% from 71% over the same period. As well, the number of advisors bullish on the S&P/TSX Capped Financial Index dipped to 54% from 62% because financials had relatively flat performance throughout Q4.
But, “Advisors may see the banks as a value opportunity over the coming quarter. They are a source of dividend income for Canadian investors,” says Steve Hawkins, co-chief executive officer at Horizons ETFs.
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Overall, he notes, “The decline of the Canadian dollar against the greenback has had a significant effect on U.S. equity returns, and advisors realize that an active currency hedging strategy can play a very important role in ultimate returns.” He suggests the Fed raising rates in December was likely a factor in boosting advisors’ sentiment at the end of Q4.
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What’s surprising is sentiment for crude oil rose quarter-over-quarter between now and December, says the survey. The number of bullish advisors on crude oil rose to 45%, from 39% last quarter, while the number of advisors that expressed bearish sentiment fell to 24% from 30%.
Similarly, the number of advisors bullish on the S&P/TSX Capped Energy Index also rose slightly to 40%, from 37% last quarter, while the number of bearish advisors remained flat at 33%. Overall the energy index declined slightly over the quarter by 2.41%, as at December 31, 2015.
Hawkins says,“Advisors [may have] increased their positive sentiment towards crude oil heading into Q1, thinking its price may have bottomed. Unfortunately, this has not been the case so far, with WTI trading well below where it ended in .”
Looking to the U.S. and Canadian dollar, the survey finds advisors displayed more bullishness for our domestic currency for Q1 2016. The number of bullish advisors increased to 28% from 21% last quarter, while bearish advisors declined to 43% from 44% last quarter. But, the loonie fell 3.79% against the U.S. dollar throughout Q4.
“The loonie has been pretty much in freefall since the start of 2015, and [it] could continue to fall relative to the U.S. dollar if we don’t see a rebound in energy prices,” says Hawkins.
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In terms of other commodities, he adds, “There’s renewed optimism for gold with the increased volatility in the market. However, a strengthening U.S. dollar does offset some of the returns that gold bugs would typically expect to receive.”
Click here to check out the full results of both surveys.
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