Advisor Sentiment on Canadian Equities Remains Strong

Nearly 70% of Canadian advisors are bullish on Canadian stocks for Q1 2017

TORONTO, Jan. 31, 2017 /CNW/ - Canadian investment advisors expect Canadian and U.S. equities to continue to break record highs in the first quarter of 2017, according to the Q1 2017 Advisor Sentiment Survey ("Q1 Survey") conducted by Horizons ETFs Management (Canada) Inc. ("Horizons ETFs").

The Q1 Survey asked Canadian investment advisors for their expectations of returns – bullish, bearish or neutral – on 14 distinct asset classes for the upcoming quarter (Q1 2017).  

The highest bullish sentiment among advisors was for the S&P/TSX 60^™ Index. More than two- thirds (63%) of Canadian advisors were bullish on broad Canadian equities going into the fourth quarter. Canada was one of the best-performing global equity markets in 2016, with the blue-chip S&P/TSX 60 Index generating more than a 21% return (on a total return basis), and 5.6% in the last quarter alone.

"Canadian investment advisors clearly expect Canadian equities to continue to climb to new highs," said Steven Hawkins, President and Co-CEO at Horizons ETFs. "It's important to recognize that the broad Canadian benchmark is largely driven by our Financials and Energy sectors, both of which had strong rallies in the previous quarter."

On a sector basis, 56% of Canadian advisors were bullish on the S&P/TSX Capped Financials^™ Index which was up more than 11.5% in Q4. Financials across North America have railed since Trump's election in anticipation of less regulation, rising interest rates and a generally positive outlook for consumer growth and spending.

The other key driver for Canadian equity prices has been a strong resurgence in energy prices. A strong majority of advisors (57%) continue to be bullish on Crude Oil, and a further 68% are bullish on Energy equity prices as represented by the S&P/TSX Capped Energy^™ Index.

Bullish sentiment declined dramatically on Natural Gas prices, dropping to 48% from 55% last quarter, despite the fact that Natural Gas prices rose 28.1% last quarter. Regardless, there is an ancillary benefit to energy equities from the rising crude and natural gas prices, which generated an 11.1% return during the last quarter for S&P/TSX Capped Energy Index.

"For the Canadian equity market to have a chance of going higher, energy prices have to remain stable or continue to rise," said Mr. Hawkins. "The negative sentiment on natural gas could be a result of the dramatic rise in gas prices last quarter, so we would need the second half of winter to be much colder to drive those prices higher." 

About two-thirds (65%) of advisors were bullish on the prospects for the S&P^® 500 Index. The index continued to hit new highs last quarter after the U.S. election. Bullish sentiment was also strong for the NASDAQ-100^® Index, with 62% of advisors bullish on this index. The NASDAQ-100 offered about a 2.6% return (in CAD terms).

"The S&P 500 Index has a trailing P/E of more than 25, which is one of its highest valuation levels ever. Fundamentally, the U.S. economy is on much better footing than most other developed nations, but the prospect of a pullback from lofty valuations and the potential cooling of the Trump rally loom large," said Mr. Hawkins. "Still, for Canadian ETF investors, the U.S. market remains a key investment target, particularly for diversification reasons, since it offers exposure to sectors such as Technology and Health Care, which have a much lower representation in Canada."

On U.S. bonds, only 27% were bullish on the U.S. 7-10 Year Treasury Bond Index (48% were bearish). This asset class lost 5.8% (in CAD terms) last quarter, more than a year's worth of yield. 

"On the flip side of bullish sentiment for equities, is generally negative sentiment on the direction of bonds – which have been negatively impacted by rising or the threat of rising interest rates," said Mr. Hawkins. "More than half of inflows in the ETF industry last year had been to bonds. In December, we saw that trend slow down but flows into fixed income ETFs were still positive. At a certain point, if interest rates on both sides of the border continue to rise we may see advisors becoming net sellers of fixed income, or at least opting for strategies that offer more interest rate protection." 

Sentiment was also varied when it came to the Canadian versus American dollar trade: only 28% of advisors reported being bullish on the loonie heading into Q1, a key driver of this low amount of bullish sentiment is probably due to the fact that the U.S. Fed has said it will raise interest rates, where Canada could see flat or maybe decreasing interest rate increases in 2017. This creates a fairly big rate differential that can motivate currency investors to hold the U.S. dollar.

Sentiment on Gold and Gold Equities declined substantially from the last survey. Bullish sentiment on Gold Bullion declined from 49% to 32% and sentiment on Gold Equities – which was still the best-performing sector in the Canadian market last year – declined from 48% to 30%. Gold Bullion lost about 12% last quarter, and Gold Equities, as represented by the S&P/TSX Global Gold^™ Index, declined about 18.1%.

Bullish sentiment declined on Emerging Markets last quarter, from 52% to 43%. This is likely due to the fact that Trump's "America First" policy is likely to have direct impact on emerging market exports. The MSCI Emerging Markets Index lost about 1.7% (in CAD terms) last quarter, but is already up about 3.8% in early 2017 (as at January 27, 2017).

"Concerns about risk in the emerging markets might be overblown," Mr. Hawkins said. "This level of negative sentiment overlooks some of the key growth drivers in China and other energy dependent emerging markets."  

Advisors were bullish on 6 of 14 industry benchmarks, overall a very bearish sentiment. Five out of six of these benchmarks were equity indices.

About the Q1 2017 Advisor and Investor Sentiment Surveys

Horizons ETFs conducts the only quarterly sentiment survey of Canadian investment advisors. Both results have been collectively branded under the title 'Q1 2017 Advisor and Investor Sentiment Surveys.' The surveys quantitatively measures advisors' and investors' quarterly outlooks as they relate to key benchmarks covering equities, bonds, currencies and commodities. For full survey results, visit http://www.HorizonsETFs.com/sentimentsurvey.

About Horizons ETFs Management (Canada) Inc. (www.HorizonsETFs.com)

Horizons ETFs Management (Canada) Inc. and its affiliate AlphaPro Management Inc. are innovative financial services companies offering the Horizons ETFs family of exchange traded funds. The Horizons ETFs family includes a broadly diversified range of investment tools with solutions for investors of all experience levels to meet their investment objectives in a variety of market conditions. Horizons ETFs has more than $6.9 billion of assets under management. With 77 ETFs listed on the Toronto Stock Exchange, the Horizons ETFs family makes up one of the largest families of ETFs in Canada. Horizons ETFs Management (Canada) Inc. and AlphaPro Management Inc. are members of the Mirae Asset Global Investments Group.

SOURCE Horizons ETFs Management (Canada) Inc.

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Mark Noble, Senior Vice-President and Head of Sales Strategy, Horizons ETFs Management (Canada) Inc., [phone], [email protected]