Canadian financial advisors appear to be bracing for inflation, expressing bullish sentiment toward precious metals and the broad stock markets. But there is one notable exception to the inflation-fighting mood.
The outlook for gold stocks has improved, with 51% now bullish on the S&P/TSX Global Gold Index, up from just 38% in the Q1 Survey. On bullion itself, bullishness rose to 53%, up from 35% in the Q1 Survey. Advisors were even more optimistic about the price of silver, with 60% expecting it to rise in the coming quarter.
“After one quarter of doubt, it appears advisors once again see value in investing in precious metals. Bullish sentiment on both gold and silver was very strong in the Q2 Survey,” said Howard Atkinson, president of BetaPro.
Optimism toward materials was not limited to precious metals, as 50% were bullish toward copper, compared to 26% who were bearish.
While metals are often seen as a hedge against inflation, another popular inflation beneficiary appears to have run its course, at least in the minds of advisors.
The survey found 44% of advisors are bearish on the near-term price of crude, with only 41% expressing bullish sentiment. That’s down from 61% who were bullish in the Q1 survey.
Energy stocks suffered a smaller decline in sentiment, with bullishness slipping from 73% in Q1 to 63% in the most recent survey.
“With questions surrounding demand from Japan and the impact a higher oil price can have on global economic recovery, our survey shows that a larger number of advisors feel oil prices don’t have much room to grow over the next quarter,” Atkinson said.
Sixty-two percent of advisors remained bullish on the S&P/TSX 60 Index for the coming 3 months, while optimism toward the S&P 500 slipped, from 63% in Q1 to 52% in Q2. Bullishness on the MSCI Emerging Markets Index also declined 11 percentage points, to 58%.
“While the stock market has had one of its strongest two-year periods of returns in the last 70 years, it would appear advisors still think there is still more growth potential for stocks,” Atkinson said. “It’s important to note that stocks are a broad asset class, so advisors may be looking to utilize more conservative equity strategies, such as increasing their holdings of mature dividend-paying stocks or using covered call strategies.”
Advisors continued their overall winning streak in predicting the direction of markets. Last quarter, they accurately predicted the direction of 10 asset classes out of the 16 surveyed.
“Since the inception of this survey, advisors have generally been accurate in predicting the direction of asset classes surveyed,” according to Atkinson. “Interestingly, even when sentiment is mixed, like it was on the VIX Index, the returns tended to be muted or flat, possibly reflecting the lack of conviction advisors as a whole may have in the direction of a certain asset class.”
The survey asked Canadian investment advisors to give their outlook on 17 distinct asset classes. This most recent survey was conducted between March 27 and March 31, 2011, and gauged the opinions of more than 130 Canadian investment advisors.