North of the Border

Canada Bullish on U.S. equities

Advisors and Investors alike view recent volatility as ‘a short-term blip’


TORONTO, Oct. 19, 2015 /CNW/ – Heading into the fourth quarter of 2015 (“Q4”), both Canadian advisors and investors are increasingly bullish on Canadian and U.S. equities, according to the Q4 2015 Advisor and Investor Sentiment Surveys (“Q4 Surveys”) conducted by Horizons ETFs Management (Canada) Inc. (“Horizons ETFs”).

The Q4 Surveys asked both advisors and investors for their expectations of returns — bullish, bearish or neutral — on 13 distinct asset classes for the upcoming calendar quarter (Q4 2015).

For both advisors and investors, the largest pickups in bullish sentiment were observed when asked about key indices such as S&P 500®, NASDAQ-100® and S&P/TSX 60TM.

Of the advisors surveyed, 78% said they are bullish on the S&P 500® heading into Q4, compared to 57% in the third quarter (“Q3”), an increase of 21 percentage points. The number of bullish investors increased to 51%, up from 37% last quarter.

Similarly, advisors’ bullish sentiment for the NASDAQ-100® going into Q4 jumped to 71% from 57% last quarter. Investors’ bullish sentiment for the NASDAQ-100® also rose, to 57% from 42%. This bullish sentiment is irrespective of the performance of both indices last quarter, where the S&P 500® had a dip in performance of 6.94% and the NASDAQ-100® dropped 4.91% (as at September 30, 2015).

Advisors recognize cyclical patterns

“It’s clear that investors and advisors view the recent volatility in U.S. equity markets as a short-term blip in a longer-term upward trajectory,” said Howard Atkinson, President of Horizons ETFs “It’s not surprising that advisors are more bullish than investors, being closer to the markets, and knowing that markets typically sell-off in the summer months and rebound towards the end of the year.”

Looking ahead to Q4, 62% of advisors said they were bullish on the S&P/TSX 60TM Index, compared to 39% for Q3, an increase of 23 percentage points. Investors were not as optimistic about the index heading into Q4, despite their bullish sentiment rising 15 percentage points to 44%, compared to the 29% who said they were bullish last quarter. Advisor and investor bullish sentiment for the index was one of the largest sentiment disparities in the surveys, differing by 18%. At the end of Q3, the index was down 7.46% (as at September 30, 2015).

“This is a high amount of bullishness on behalf of advisors considering a lot of dangerous headwinds for the Canadian market, including depressed oil prices and slower economic growth,” said Mr. Atkinson. “It may be that advisors, and to a lesser extent investors, are expecting Canadian financials, the largest sector weight in the Canadian stock market, to make up for weakness in the energy sector.

The number of advisors bullish on the S&P/TSX Capped Financial IndexTM jumped significantly to 62% up from 40%. Similarly, the number of investors bullish on the index rose to 46%, up from 36% last quarter. Expectations are out of line with performance for Q3, with the index falling by 4.16% (as at September 30, 2015).

For the S&P/TSX Capped Energy IndexTM, sentiment for advisors dropped in bullishness to 37%, from 41% last quarter, with the number of advisors that expressed neutral sentiment rising to 30% from 23% last quarter. The number of investors that were bullish on the energy index also declined to 29% from 33% heading into Q4. Over Q3, the index fell 19.07% (as at September 30, 2015).

Crude, natural gas expectations

The number of advisors bullish on crude oil prices for Q4 slightly declined to 39% from 41%, with the number of bearish advisors at 30%. Meanwhile, the number of investors bullish on the asset class fell to 31% from 42%. Bearish investors on the asset class increased to 40% from 32%. For the Q3 period, the near-month spot price of crude oil fell approximately 24% to approximately $US45/barrel (as at September 30, 2015).

Bullishness for natural gas increased for both advisors and investors heading into the upcoming quarter. Advisors’ bullish sentiment rose to 34% from 28%, while investors’ bullish sentiment increased 13 percentage points to 43% from 30%. The price of a natural gas’ one-month forward contract fell approximately 11% in Q3 (as at September 30, 2015).

“Excess crude oil supply continues to depress global crude oil prices. The sentiment indicators from both advisors and investors suggest they don’t expect this to change anytime soon.” said Mr. Atkinson. “The fourth quarter is historically stronger for natural gas returns from a seasonal perspective as the temperature declines, necessitating higher usage, and we see this sentiment reflected in the increased bullishness.”

Expectations for crude and natural gas played into sentiment for the Canadian dollar versus the Greenback. Both advisors and investors displayed more bullishness and less bearishness for domestic currency, compared to last quarter. The number of bullish advisors increased seven percentage points to 21% from the 14% last quarter, while bearish advisors declined to 44% from 53% last quarter. Investors’ bullishness rose slightly to 24% from 22% quarter-over-quarter and bearish investors remained flat at 44%. The Canadian dollar fell 6.14% against the U.S. dollar over Q3 (as at September 30, 2015).

It's clear that investors and advisors view the recent volatility in U.S. equity markets as a short-term blip in a longer-term upward trajectory

“The two biggest drivers of return for the Loonie are interest rates and oil prices, both of which appear to have stabilized over the last quarter, which may explain why sentiment is mixed and not overly bearish or bullish,” said Mr. Atkinson. “There is an ongoing fear that the Canadian dollar could fall even lower, if either of those two factors were to tilt negative any further.”

A gold standard

Of the other commodities, advisors and investors trended similarly bearish in their sentiment towards gold stocks and gold bullion heading into Q4. The percentage of advisors that were bullish on the S&P/TSX Global GoldTM Index declined to 24% from 29% last quarter; the number of investors that were bullish fell to 32% from 42%.

For gold bullion, bullish advisors dropped to 25% from 33% last quarter. Bullish sentiment amongst investors also declined by 12 percentage points to 36% from the 48% last quarter. Gold bullion prices fell 4.89% during Q3.

Bullish sentiment for silver bullion heading into Q4 trended slightly downwards for both advisors and investors. About a fifth of advisors (22%) remained bullish on the metal, compared to a third (31%) last quarter. Similarly, 35% of investors were bullish on silver bullion, an eight percentage point drop from last quarter. Prices for the metal declined approximately 7.73% during the quarter.

“We saw a slight drop in the bullishness for gold this quarter, which was likely due to the renewed optimism that advisors and investors have for North American equities this coming quarter,” says Mr. Atkinson. “A strong U.S. dollar will also keep the gold bugs at bay.”

Sentiment for the S&P 500 VIX Short-Term Futures Index™ remained fairly bearish for both groups, even though it was the only asset class that performed positively over Q3. Only 34% of advisors said they were bullish on the asset class heading into Q4, compared to 54% last quarter. Investors’ sentiment also fell to 38% from 44%. The S&P 500 VIX Short-Term Futures Index™ jumped almost 30% in Q3.

“Given that volatility historically tends to be inversely correlated to equity prices, it makes sense that investors wouldn’t be bullish on volatility if they are optimistic on stocks, despite volatility’s performance spike in the third quarter,” says Mr. Atkinson.




About the Q4 2015 Advisor and Investor Sentiment Surveys
Horizons ETFs conducts the only quarterly sentiment survey of Canadian investment advisors. This was the third quarter that an additional investor sentiment survey was conducted. Both results have been collectively branded under the title ‘Q4 2015 Advisor and Investor Sentiment Surveys.’ The surveys quantitatively measure advisors’ and investors’ quarterly outlooks as it relates to key benchmarks covering equities, bonds, currencies and commodities. For full survey results, visit
About Horizons ETFs Management (Canada) Inc. (
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. Horizons ETFs has more than $5.1 billion of assets under management and with 70 ETFs listed on the Toronto Stock Exchange (as at September 30, 2015), 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 Global Investments Group.
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