Canadian Investment Advisors Stick with Equities for Q3

TORONTO, July 31, 2013 /CNW/ - The U.S. stock market continued its upward march last quarter, while many other asset classes experienced negative returns. It seems Canadian investment advisors expect stocks to continue to rise even as they turn increasingly bearish on precious metals and the Canadian dollar, according to the Q3 2013 Advisor Sentiment Survey (the "Q3 Survey") conducted by Horizons ETFs Management (Canada) Inc. ("Horizons ETFs").

The Q3 Survey asked Canadian advisors to share their outlook on 16 distinct asset classes, indicating whether they were, at the time the survey was conducted, bullish, bearish or neutral on the anticipated returns from these asset classes in Q3 2013. Collectively, advisors were bullish on only 5 of the 16 asset classes surveyed this quarter.

Bullish sentiment on the S&P/TSX 60™ increased from 47% last quarter to 53%, despite a 4.90% decline in the index last quarter. Bullish sentiment on the S&P 500® remained steady this quarter at 55%, after the large-cap U.S. stock index returned 2.36% in Q2. Bullish sentiment on the NASDAQ 100® inched up slightly from 53% to 56% after the index returned 3.23% in Q2.

"Canadian stocks have lagged U.S. stock returns considerably for a number of quarters now, and advisors may be expecting the Canadian market to make up some of that difference given its strong historical correlation to U.S. stocks," said Howard Atkinson, President of Horizons ETFs. "However, the Canadian market has such a heavy weighting in resource stocks, which have been out of favour, it's possible that Canadian stocks will continue to diverge from the fortunes of the U.S. market."

Bearish sentiment on gold bullion rose from 34% to 49%, with 18% of advisors surveyed neutral on the yellow metal in Q3. Bearish sentiment on silver bullion jumped from 28% to 42%.  Bullish sentiment on gold stocks decreased slightly from 40% to 36% after the S&P/TSX Global Gold Stock Index™ lost more than 33% last quarter.

"Gold and silver bullion got hammered last quarter with both asset classes seeing double-digit declines during the quarter. Gold lost 22.69% and silver lost 30.63%," said Mr. Atkinson. "This is probably the lowest we've ever seen sentiment on gold since we started this quarterly survey six years ago. In many ways this might be a contrarian signal, suggesting that sentiment on gold has hit a low."

Bullish sentiment on base metal stocks increased from 29% last quarter to 38% this quarter after the S&P/TSX Global Base Metals Index™ consolidated 13.71% in Q2. Sentiment on copper futures, one of the core base metals, also increased slightly from 32% to 36% after copper futures declined more than 10% last quarter. Both copper and base metals generally tend to do well as economic activity picks up in the emerging markets. Emerging market stocks had a rough 2^nd quarter, with the MSCI Emerging Market Index losing nearly 9%. Bullish sentiment on that index nevertheless increased to 56% from 53% in Q2.

"I don't think it's a coincidence that advisors are slowly coming back around to base metals while becoming more bullish on emerging markets," said Mr. Atkinson. "The two asset classes are correlated, and since emerging-market stocks have lagged developed markets, many advisors may feel that the emerging markets are due to start playing catch-up, which would have a positive impact on base metal prices.

More than half of the Canadian advisors surveyed (52%) expect market volatility, as represented by the S&P 500® VIX Short-Term Futures™ Index, to increase in Q3. This may be a bearish signal, since volatility historically rises during stock market declines.

"The first half of 2013 was marked by very low stock market volatility. Volatility picked up slightly in June, but still remains at historic lows. It seems that the majority of advisors expect volatility to increase and, in fact, it will have to in order to revert to its historical levels," Mr. Atkinson said.

Sentiment on crude oil was little changed this quarter at 45% bullish after crude oil declined 0.69% last quarter. The same holding pattern was observed in energy stocks as represented by the S&P/TSX Capped Energy Index™. Natural gas sentiment remained unchanged at 39% after natural gas lost 11.41% last quarter.

"Crude did not move much one way or the other during the first 6 months of this year, and natural gas pulled back last quarter from a big rally, finishing Q2 essentially flat on the year. All in all, it seems there haven't been any market developments in energy to drastically shift advisor opinion," Mr. Atkinson said.

Bearish sentiment on the Canadian dollar versus the U.S. dollar increased dramatically this quarter from 40% to 52%. The Canadian dollar lost 3.40% against the U.S. dollar in Q2. Many advisors have turned negative on the Canadian dollar as the outlook for U.S. economic growth improves and that for Canada remains flat to negative. Bullish sentiment on the Australian dollar versus the Canada dollar increased dramatically from 4% to 28% for Q3.

"The bearish trend in the Canadian dollar continues this quarter. This might impact investment choices with advisors choosing to buy U.S. dollar denominated or non-Canadian dollar hedged investments. This would mark a reversal of advisors' past preference for currency hedging when investing in foreign securities." Mr. Atkinson said.

About the Advisor Sentiment Survey
Horizons ETFs 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 ETFs (www.HorizonsETFs.com)
Horizons ETFs Management (Canada) Inc. and its affiliate AlphaPro Management Inc. are innovative financial services companies offering the Horizons ETFs family of exchange traded funds. 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 approximately $4.0 billion in assets under management and 71 ETFs listed on the Toronto Stock Exchange, the Horizons ETFs family makes up one of the largest families of ETFs in Canada. Horizons ETFs Management (Canada) Inc. and AlphaPro Management Inc. are members of the Mirae Asset Financial Group.

SOURCE: Horizons ETFs Management (Canada) Inc.

Howard Atkinson, President
Horizons ETFs Management (Canada) Inc.
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