As the year comes to a close, advisors and investors are taking a more defensive approach to investing in the final quarter of 2019.
The latest Advisor and Investor Sentiment Survey from Horizons ETFs Management Inc., published on Tuesday, finds that as cannabis stocks cool, a greater emphasis is placed on traditionally defensive asset classes, such as precious metals.
After a downward spiral in Q2, optimism has resurfaced among advisors for investing in Canadian equities, with indexes hosting stronger average returns than their U.S. counterparts in Q3.
The survey found advisors registered an 8% increase in bullishness toward the S&P/TSX 60 index, alongside a 3% increase on Canada’s banks. Confidence among investors also increased, jumping to 60% from 4% bullishness toward S&P/TSX global gold index.
Sentiment shifted south of the border for both advisors and investors after the two major U.S. indexes slowed, with Q3 returns for the S&P 500 and NASDAQ-100 a modest 1.70% and 1.29%, respectively.
Steve Hawkins, president and CEO of Horizons ETFs, says despite the shift in sentiment, advisors and investors are still skeptical of the growth of Canadian equities, especially when compared with U.S. equities.
“U.S. equities are on pace to finish the year with impressive double-digit returns, which likely explains why these stocks remain somewhat favourable with advisors despite the decline in sentiment,” Hawkins said.
While investors’ reliance on gold and silver has remained steady throughout 2019, advisors’ preference for the precious metals has improved, jumping 23% for gold and 17% for silver.
“Gold is and will remain a defensive standard for investors,” Hawkins said.
Additionally, outlook for fixed-income has increased after outright bearish lows, represented by the Solactive US 7-10 year treasury bond index’s growth of 2.73% in Q3. Advisors have increased their bullish confidence to 29% from 16%, positioning it alongside bearish skeptics. In contrast, investors’ faith dwindled, revealing a -5% pullback on an already bearish sentiment.
As we enter natural gas’s traditionally strong season, advisors are becoming bulls, awarding the commodity a 10% increase in confidence, followed closely by investors with a heightened 9%.
Alternatively, both advisors and investors withdrew support for crude oil by -9% and -4%, respectively. Despite the decrease, the sentiment still remains outright bullish.
Sentiment for cannabis equities continues to decline among both advisors and investors, as represented by the North American marijuana index.
The sector saw the largest decrease of all asset classes after a pitiful -36.07% performance in Q3. Bearish sentiment increased to 42% from 3% for advisors.
Investors dropped -15% in bullishness toward pot stocks as well, but the bulls still edge out the bears at 43% to 39%.
“There is a silver lining to these significant sector declines, and that is valuations are now more aligned with fundamentals, establishing a more balanced entry point for investing in cannabis,” Hawkins said.
Every quarter, Horizons ETFs polls advisors and investors for their outlooks on expected returns for 14 asset classes. Expectations are expressed in terms of “bullish,” “bearish” or “neutral” sentiment. The Q4 survey covers the period beginning Sept. 30, 2019 and ending Dec. 31, 2019.
For full results, view the Advisor and Investor Sentiment Survey here.