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Advisors more bullish than investors in Q1 on US equities and energy prices

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Nearly three out of four Canadian advisors are bullish on US equities compared to only 60% of Canadian investors, according to a survey by Horizons ETFs.

The Q1 Surveys asked both advisors and investors for their expectations of returns on 15 distinct asset classes — bullish, bearish or neutral — in the upcoming calendar quarter (Q1, 2015).

For Q1, 74% of advisors said they were bullish on the S&P 500, up from the 69% of advisors who expressed bullish sentiment in the last quarterly survey. The S&P 500 had the second largest disparity in sentiment of the asset classes being surveyed, with a 15% gap between advisors and investors in bullishness, and only 59% of investors were bullish this quarter, a drop from the 62% of investors that were bullish last quarter. A similar 14% gap in bullish sentiment occurred with the NASDAQ-100 Index, where 76% of advisors were bullish versus 62% of investors.

In terms of performance, the S&P 500 rose 4.39% during Q4, 2014, and since then, is down 2.12% year-to-date, as at 14 January, 2015. The NASDAQ-100 Index rose 4.61% during Q4 and has since fallen 2.13% for the year-to-date, as at 14 January, 2015.

"Given the S&P 500's rally in the last quarter and the end of quantitative easing, our survey results indicate that advisors expect the momentum to continue, while investors remain cautious and less trusting of the signals of true recovery," says Howard Atkinson, President of Horizons ETFs. "Canadian investors seem somewhat more focused on our domestic markets; this is an opportunity for advisors to continue communicating the importance of diversification and investing outside of Canada."

Looking at domestic markets, bullish sentiment for the S&P/TSX 60 Index fell slightly among advisors to 57% in Q1 from 62% last quarter (Q4), meanwhile, it remained flat for investors at 53% who remained more cautious in their outlook.

Of the commodities, advisors and investors greatly diverged in sentiment for crude oil in the Q1 Surveys, with 57% of advisors bullish for the asset class and only 41% of investors echoing similar sentiment. Compared to last quarter, advisor sentiment was bullish for oil prices, increasing to 57% from 51% in the Q1 Surveys, while investor bullish sentiment fell seven percentage points to 41% from 48%. The spot price of crude oil fell 41.28% to USD53.27 from USD90.73 for Q4, the three-month period ended 31 December, 2014.

Also in regards to commodities, natural gas showed the largest declines in bullish sentiment among both advisors and investors. Advisors bullishness towards the asset class fell 10 percentage points to 48% from 58%, and for investors the decline was 19 percentage points, where 44% were bullish in Q1, compared to the 65% that were bullish in Q4.

"The decline in crude oil has been accompanied by deflated natural gas prices," said Mr. Atkinson. "Both investors and advisors seem to expect further declines to occur over the next three months."

Bearishness towards the Canadian dollar versus the US dollar also fell slightly, where 50% of advisors — compared to 59% last quarter — indicated they were bearish. More than half (52%) of investors were bearish on the loonie. The Canadian dollar fell 3.54% over Q4 and continues to fall lower so far in 2015.

Energy stocks and miners experienced the largest rise in bullish sentiment from investors, meanwhile advisor sentiment for those sectors remained flat. Heading into Q1, investor bullish sentiment towards the S&P/TSX Capped Energy Index rose 12 percentage points, up from 41% last quarter. Overall, the S&P/TSX Capped Energy Index was one of the only sectors where positive sentiment was equal between advisors and investors at 53%. Meanwhile, advisor bullishness towards this index slightly declined from the 55% that were bullish in Q4.

"It seems that advisors are split on the direction of the Canadian dollar. If we do see a comeback in oil prices, it would likely have a positive effect on the Canadian dollar," said Mr. Atkinson. "Both advisors and investors appear to be bullish on energy equities, which suggests they may feel the worst is over in the energy market decline."

One of the most notable findings in the survey was the drop in advisor sentiment for the S&P 500 VIX Short-Term Futures Index. Advisor bullish sentiment for the VIX fell 12 percentage points down to 39%, compared to last quarter, where over half of the advisors (51%) were positive on the index. Investors echoed advisors' sentiment with only 40% bullish on the index.

"Advisor and investor sentiment around the VIX indicates that both advisors and investors continue to anticipate volatility in the North American equity markets," says Atkinson.

For Q1, there was no change in bullish sentiment towards gold bullion among advisors, which remained at 34% compared to last quarter. Investor sentiment was slightly more bullish at 39%, a slight increase compared to the 32% who expressed bullish sentiment last quarter.

Similarly, for gold stocks, 34% of advisors were bullish on the S&P/TSX Global Gold Index heading into Q1. Investors bullish sentiment was on par with advisors also at 34%, compared to the 30% expressed last quarter.

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