Canadian Advisors Reduce Expectations for Stock Returns

TORONTO, July 19, 2012 /CNW/ - Fewer Canadian advisors are bullish on stocks than they were three months ago, according to the Q3 Advisor Sentiment Survey (the "Q3 Survey") conducted by Horizons Exchange Traded Funds Inc. ("Horizons ETFs").

The Q3 Survey asked more than 200 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 majority of advisors are still bullish on stocks, but confidence is declining after a relatively difficult quarter in stock returns. Bullish sentiment on the S&P/TSX 60 (Total Return) declined from 59% in the previous advisor survey ("Q2 Survey") to 54% after a 6.14% loss last quarter. After a 3.29% loss last quarter, bullish sentiment dropped on the S&P 500 from 63% in the Q2 Survey to 58% in the Q3 survey.  Bullish sentiment on the NASDAQ 100 declined from 65% to 59% after a 5.06% loss on the quarter.

The biggest drop in confidence occurred in emerging market equity as represented by the MSCI Emerging Market Index, which dropped from 59% in the Q2 survey to 48% this quarter after a 10% decline in returns last quarter.

"Up until recently, Canadian advisors had a lot of confidence in stocks. After a quarter of difficult returns, that enthusiasm seems to be waning," said Howard Atkinson, CEO of Horizons ETFs. "Emerging market equities have historically been a little more volatile than developed nation stocks, so it would stand to reason that bearish sentiment on those stocks has increased more dramatically."

Bullish sentiment on many commodities actually increased.  The most remarkable turnaround was in sentiment on natural gas, which increased 18 percentage points from the Q2 survey to 48%, an increase in bullish sentiment that comes in the wake of a 32.83% increase in gas prices.

Similarly, sentiment on Crude Oil swung to strongly to the bullish side, as bullish sentiment increased from 44% to 55%, despite the fact that oil declined 17.53%.

"Natural gas has been such a poor performer for so long, I can't remember the last time when advisors were bullish on natural gas. With a nearly 33% return last quarter, some advisors may feel that natural gas is finally turning a corner towards the upside," said Mr. Atkinson. "Advisors may think that the pullback in oil prices has been overdone which could explain the strong uptick in bullish sentiment we've seen in crude oil."

Advisors are increasingly bullish on precious metals as well. Bullish sentiment on gold bullion increased 5 percentage points to 59% and bullish sentiment on silver bullion increased 4 percentage points to 56% from the Q2 Survey. Both gold and silver bullion delivered negative returns last quarter. Bullish sentiment on gold stocks increased even higher - by 11 percentage points - to 55%, after the S&P/TSX Global Gold Stock Index lost 9.53% last quarter.

"The increase in bullish outlook on precious metals may be similar to what we have seen in oil, in so much as advisors may feel these two metals are now undervalued after being beaten up last quarter," said Mr. Atkinson. "It seems clear that advisors expect gold stocks to outperform bullion over the next quarter."

Sentiment on base metal stocks seems mixed after the S&P/TSX Global Base Metals Stock Index lost 12.65% last quarter, with only 39% of advisors bullish on the index. One of the primary base metals is copper. Bullish sentiment on copper did in fact increase slightly to 44% from 41% after copper futures lost more than 8% last quarter.  Horizons ETFs is the only ETF provider in Canada that allows investors to invest in copper.

After modest gains against the U.S. dollar (1.76%), bearish sentiment on the Canadian dollar increased dramatically from 18% of Canadian advisors to 31%. It appears that sentiment on the loonie is moving from neutral to bearish, suggesting that more Canadian advisors expect a pullback in the value of the loonie versus the U.S. dollar.

Government bonds, as represented by the U.S. 30-year treasuries, only increased slightly last quarter by 0.39%. The majority of advisors (54%) remain neutral on the direction of 30-year treasuries.

"This survey saw one of the biggest shifts in sentiment on the loonie that we've seen in quite some time. As the loonie traded at or near par, advisors have tended to be neutral on its direction, it appears a lot more advisors are expecting the U.S. dollar to outperform the loonie over the next quarter," said Mr. Atkinson. "Neutral sentiment held steady on the direction of U.S. government bonds. In the past few surveys advisors have been hesitant to make a directional call on government bonds because a rate increase will have a big impact on bond prices, but there have been no signs that the Fed will raise rates anytime soon."

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 81 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.

Howard Atkinson, CEO, Horizons Exchange Traded Funds Inc., [phone] [email protected]