TORONTO, Jan. 30, 2012 /CNW/ - After reasonably strong equity returns during the last quarter of 2011, 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 Q1 Advisor Sentiment Survey (the "Q1 Survey") conducted by Horizons Exchange Traded Funds Inc. ("Horizons ETFs").
The Q1 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 fourth quarter of 2011 saw a number of asset classes rebound, most notably equities. The Q1 Survey results indicate that the majority of Canadian advisors expect equity returns to remain in positive territory over the next three months.
Roughly two out of three Canadian advisors (60%) were bullish on Canadian equities, as represented by the S&P/TSX 60™ (Total Return) Index, after this index posted a positive 2.07% return on the quarter. Similarly, bullish sentiment increased more than 7 percentage points from the previous advisor survey on U.S. large cap equities, as represented by the S&P® 500 to 58%, after an 11% gain on that index last quarter. Bullish sentiment also increased for the NASDAQ, from 54% to 60% after a 6.48% return last quarter.
"Stocks were a good asset class to be invested in last quarter, and it's clear that many Canadian advisors expect them to deliver strong returns for the first part of 2012," said Howard Atkinson, CEO of Horizons ETFs.
Bullish sentiment on most energy asset classes held through the last quarter. Crude oil delivered stellar returns in Q4, increasing nearly 25%. More than half of Canadian advisors (55%) remain bullish in their outlook for crude oil for this coming quarter. Similarly, bullish sentiment on the S&P/TSX Capped Energy Index™ was 57% after this sector returned 11.3% last quarter.
The same optimism does not exist for natural gas prices however. Natural gas investors had a dreadful Q4, losing 18.5%. Bullish sentiment on gas prices also dropped 17 percentage points to just 28%. The lion's share of advisors (47%), are neutral in their outlook for gas for this coming quarter.
"Energy prices had already been on a downward trajectory going into the third quarter, but most Canadian advisors had remained bullish in the Q4 Survey. That conviction would have paid off for them, as most oil related asset classes delivered great returns." Mr. Atkinson said. "The exception is natural gas, which continued to slide in Q4, and the Q1 2012 Survey results suggest advisors don't expect there to be any meaningful improvement in gas prices in the near future."
2011 was a year marked by high volatility. In last quarter's sentiment survey, the majority of advisors correctly predicted that volatility, as represented by the VIX Index would decrease, which it did by 33.4%. Bearish sentiment on the VIX Index did however drop this quarter to 42%.
Another poor performing asset class last quarter was gold. Gold bullion declined 3.7% last quarter, however bullish sentiment on gold bullion held at about 50%. That said, bullish sentiment on gold producer equities, which dropped more than 8% in the last quarter of 2011, declined dramatically from 57% last quarter to 49% for this quarter.
"Gold is a traditional safe-haven during volatile markets. With sort of muted expectations on volatility from advisors, it would make sense that their appetite for gold investing has also decreased," Mr. Atkinson said.
Sentiment on the value of the Canadian dollar versus the U.S. dollar was mixed, with there being almost as many bears on the loonie (37%) as there were bulls (38%).
"The Q1 Survey results suggest that many advisors may have a target around parity for the loonie versus the greenback, which the loonie has tended to trade near for the last 6 months," Mr. Atkinson said.
Also on the currency front, this is the second quarter that the advisor sentiment survey has tracked opinion on the Canadian dollar versus the Australian dollar. More than three quarters of advisors were neutral on the direction of this relationship - very perceptive - since the Australian dollar and the loonie tend to move in the same direction versus the U.S. dollar.
"The Australian dollar has a much higher yield, which is why you may see high foreign investment in that currency from low-interest currency regions like Canada and the U.S.," Mr. Atkinson said. .
Advisors' accurately predicted the market direction on 9 out of the 18 asset classes tracked on the survey.
"Advisors batted .500 last quarter in terms of the number of asset class directional moves they predicted accurately," Mr. Atkinson said. "It should be noted that on a number of asset classes where there were positive returns, advisor sentiment was mixed. There were few instances of advisors collectively being on the wrong side of their predictions."
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 $3.2 billion in assets under management and 75 ETFs listed on the Toronto Stock Exchange, the Horizons ETFs family makes up the largest selection of ETFs in Canada. Horizons ETFs is a subsidiary of Horizons ETFs Management (Canada) Inc. and a member of the Mirae Asset Financial Group.
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