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Advisors more bullish than investors in Q4, says Horizons ETFs survey

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Canadian investment advisors are more bullish than Canadian investors in 13 out of 15 asset classes, particularly Canadian and US stocks, according to a survey by Horizons ETFs Management.

The Q4 surveys asked both advisors and investors for their expectations on 15 distinct asset classes — bullish, bearish or neutral — on the anticipated returns for these asset classes in the upcoming calendar quarter (Q4).
 
For Q4, 69 per cent of advisors said they were bullish on the S&P 500, up from the 57 per cent of advisors that expressed bullish sentiment in the Q3 Advisor Survey. Of the 15 asset classes, bullishness for the S&P 500 rose the most among advisors, up 12 per cent quarter over quarter. This was the highest rise in sentiment along with the S&P/TSX Capped Financials Index, where bullishness also increased by 12 per cent to 58 per cent during the same period.
 
For investors, 62 per cent expressed positive sentiment towards the S&P 500. In terms of performance, the S&P 500 rose 0.62 per cent during Q3, the three-month period ended 30 September 2014. Since 1 October, the S&P 500 was up 0.55 per cent, as at 28 October 2014.
 
"Given the recent market volatility the S&P 500 has experienced, and the positive sentiment at the time the survey was conducted, the overall results highlight how quickly market conditions and sentiment can change," says Howard Atkinson, president of Horizons ETFs. "This is a great opportunity for investors to re-examine their diversification strategies, and whether or not their portfolios can handle increased volatility."
 
Looking at domestic markets, bullish sentiment for S&P/TSX 60 Index remained relatively flat for advisors, rising to 62 per cent, up one per cent from last quarter. Investors were more cautious on their outlook with just over half (53 per cent) stating they were bullish on the Index.
 
One of the most notable findings in the survey was the discrepancy in sentiment between advisors and investors for the S&P 500 VIX Short-Term Futures Index. Just over half of advisors (51 per cent) expect to see a higher VIX Index at quarter-end compared to 37 per cent of investors. Over the course of Q3, the S&P 500 VIX Short-Term Futures Index rose 9.84 per cent.
 
"The difference in sentiment around the VIX suggests that advisors anticipate volatility rising in the market, but remain optimistic about overall long-term stock returns," says Atkinson.
 
Energy stocks and miners experienced the largest declines in positive sentiment. Heading into Q4, 55 per cent of advisors were bullish towards the S&P/TSX Capped Energy Index compared to the 70 per cent who were bullish last quarter. This was the sharpest drop in sentiment followed by the S&P/TSX Global Base Metals Index, where advisor sentiment declined 14 percentage points, down to 26 per cent from 40 per cent last quarter. During Q3, the S&P/TSX Capped Energy Index returned -12.38 per cent.
 
Of the commodities, investors expressed the most positive sentiment towards natural gas at 65 per cent, compared to advisors at 58 per cent. Advisor bullish sentiment also increased in this area by 10 percentage points, up from 48 per cent last quarter.
 
"The drop in sentiment for commodities coincides with the dip in oil prices we have seen since June, with barrels of West Texas Intermediate (WTI) Crude Oil falling to below 85 dollars a barrel," says Atkinson. "The devalaution of oil could also be a factor impacting the demand for the Canadian dollar."
 
Bearishness towards the Canadian dollar versus the US dollar increased, where 59 per cent of advisors – compared to 44 per cent last quarter – indicated they were bearish.  More than half (52 per cent) of investors were bearish on the loonie.
 
For Q4, only 34 per cent of advisors were bullish on gold bullion, compared to the 46 per cent that expressed positive sentiment last quarter. Investor sentiment for gold bullion was comparable at 32 per cent. Similarly for the gold stocks, 35 per cent of advisors were bullish on the S&P/TSX Global Gold Index heading into Q4, a large decline of 11 percentage points from the 46 per cent that were bullish last quarter.  For Q3, the S&P/TSX Global Gold Index had a total return of -15.26 per cent per cent, while gold bullion returned -8.98 per cent.
 
"We might see gold come back if the equity market selloff continues. Gold is typically inversely correlated to stocks and was one of the few asset classes that did well during the financial crisis in 2008/2009," says Atkinson.

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