TORONTO, April 13, 2012 /CNW/ - After an impressive rally in global stock markets during the first quarter of 2012, the majority of Canadian investment advisors are of the view that equity markets should increase again during the first quarter of 2012, according to the Q2 Advisor Sentiment Survey (the "Q2 Survey") conducted by Horizons Exchange Traded Funds Inc. ("Horizons ETFs").
The Q2 Survey asked Canadian investment advisors to give their outlook on 18 distinct asset classes. Advisors responded whether they were bullish, bearish or neutral on the anticipated returns for these asset classes over the next quarter.
The big story in the capital markets during the first quarter of 2012 was the impressive rally in stock markets, particularly the returns delivered by the U.S. stock market. After a 12% return during the last quarter, bullish sentiment on the S&P 500® Index rose from 58% in the previous advisor survey (the "Q1 Survey") to 63% in the Q2 Survey. Similarly, on the tech-heavy NASDAQ 100® Index, bullish sentiment also increased from 60% in the Q1 Survey to 65% on the Q2 Survey after an almost 21% return for the index last quarter. Emerging Market Equities also saw a modest increase in bullish sentiment going from 50% in the Q1 Survey to 59% on the Q2 Survey.
Canadian financial advisors also remain overwhelming bullish on most of the broad stock indices. Bullish advisor sentiment on the S&P/TSX 60™ (Total Return) Index held at 60% in the Q2 Survey versus the Q1 Survey, after a roughly 4% return for the quarter.
"Canadian stocks haven't rallied to the extent U.S. stocks have, but Canadian advisors are nonetheless still bullish on the asset class," said Howard Atkinson, CEO of Horizons Exchange Traded Funds. "Developed markets tend to be correlated to each other, so the Q2 Survey results suggests that if U.S. stocks produce positive returns this quarter, which the majority of advisors who answered the survey expect, Canadian stocks should also rise."
Despite decent returns in crude oil last quarter, which returned more than 4%, bullish sentiment on crude oil decreased this quarter from last quarter from 55% to 44%. Bullishness on the S&P/TSX Capped Energy Index™ also decreased from 57% to 54% after the index lost almost 2% last quarter.
On the flip-side of things, natural gas prices had a dreadful first quarter losing almost 29%, yet bullish sentiment on natural gas only increased slightly to 30% in the Q2 Survey from 28% in the Q1 Survey.
"We may be seeing slight reversals in sentiment on energy prices. Advisors may be feeling that oil has had a good run since the fall, hence the pullback in bullish sentiment while also feeling that things in natural gas couldn't get possibly any worse after two quarters of absolutely horrendous returns," Mr. Atkinson said.
In last quarter's sentiment survey, the majority of advisors correctly predicted that stock market volatility, as represented by the VIX Index would decrease, which it did by 55%. Only 42% of advisors expect volatility, as measured by the VIX index, to increase in the second quarter.
"Stock market volatility was higher in 2011, but has fallen substantially since the beginning of 2012. Investing in volatility is very much a two-way street with swings occurring rapidly in both directions," said Mr. Atkinson. "Now there are volatility index based ETFs in Canada which can produce positive returns for investors from declining volatiltiy."
Bullish sentiment on gold bullion increased slightly to 54% in the Q2 Survey compared to 50% in the Q1 Survey after that asset class delivered a nice 6% plus return for the first quarter. Bullish sentiment on gold producer stocks however, represented by the S&P/TSX Global Gold Producers Index™, dropped slightly from the Q1 Survey to 44% as that asset class has a loss of more than 6% which was the opposite of what bullion gained.
"We've seen a trend in the market where gold stocks are not always travelling in the same direction as gold bullion," said Mr. Atkinson. "The Q2 survey shows now that Canadian advisors are really looking at bullion and gold stocks as two very separate asset classes."
Bullish sentiment on base metal stocks, represented by the S&P/TSX Global Base Metals Index™ decreased this quarter from 48% to 42% as the index had a modest less than 3% return last quarter. One of the primary base metals is the commodity copper - Horizon ETFs is the only ETF provider in Canada that offers ETFs linked to the price of copper futures - and bullish sentiment for the general price of copper decreased from 49% in the Q1 Survey to 41% in the Q2 Survey despite a strong quarter for returns of slightly more than 11%.
Sentiment on the value of the Canadian dollar versus the U.S. dollar was mixed, with the bulk of advisors (47%) having a neutral view on the direction of the Canadian dollar, with 38% having a bullish view.
"We've seen for a number of months now that when the loonie trades near parity advisor sentiment tends to be undecided or neutral," Mr. Atkinson said. "This could suggest most advisors peg the value of the loonie probably at par give or take a few pennies in either direction."
Advisor sentiment remained primarily neutral on 30-year U.S Treasury bonds at 51% ,and an additional 29% are bearish, while this asset class lost more than 8% last quarter.
"With interest rates at historic lows, there are very few advisors that are bullish on government bonds. The Q2 survey suggests that advisors expect U.S. long-term bonds to hold steady or decline for the next quarter," said Mr. Atkinson.
Advisors correctly predicting 13 of the 18 asset classes tracked in the Q1 Survey.
"Historically, advisors have been accurate most of the time in predicting the direction of asset classes surveyed," said Mr. Atkinson. "They certainly returned to their winning ways this quarter."
About the Sentiment Survey
Horizons Exchange Traded Funds Inc. conducts the only quarterly sentiment survey of Canadian investment advisors. The survey quantitatively measures advisors' quarterly outlook as it relates to key benchmarks covering equities, bonds, currencies and commodities. Full survey results are available at http://www.horizonsetfs.com/sentimentSurvey.asp.
About Horizons Exchange Traded Funds Inc. (www.horizonsetfs.com)
Horizons ETFs is an innovative financial services company offering the Horizons ETFs family of ETFs. 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. With more than $3.3 billion in assets under management and 84 ETFs listed on the TSX, the Horizons ETFs family makes up one of the largest families of ETFs in Canada. Horizons ETFs is a subsidiary of Horizons ETFs Management (Canada) Inc. and a member of the Mirae Asset Financial Group.
For further information:
Howard Atkinson, CEO, Horizons Exchange Traded Funds Inc., (416) 777-5167 [email protected].