Canadian financial advisors have gone from morose to outright bullish in the last few months, according to Horizons BetaPro Management’s quarterly advisor sentiment study.
The survey of 300 Canadian advisors representing roughly $20 billion in assets under management finds sentiment has become bullish on the outlook for broader equity markets, the Canadian dollar and commodities, while remaining cautious on Canadian financials and U.S. longer-dated bonds.
“This quarter, advisors are most bullish on a diverse group of benchmarks, in particular, emerging market equities, commodities and the Canadian dollar,” says Howard Atkinson, president of BetaPro. “This paints a picture of a recovery led by emerging countries, one that demands resources — of which Canada has plenty — to fuel economic growth.”
Atkinson told Advisor.ca that he’s somewhat surprised at how fast the turnaround in sentiment has been from when BetaPro conducted its third quarter study in July.
Back in July, advisors believed there were some good commodity plays, such as 53% bullish on gold and 54% bullish on silver. Only 45% were bullish on oil, and more than half (55%) of advisors were bearish on the U.S. 30-year bond.
Atkinson points out that, collectively, advisors who would have acted on many of these sentiments would have lost out on some large run-ups, particularly in U.S. equities, where only 28% of advisors were bullish on the sector.
Now, 68% of advisors are bullish on silver and oil, and 60% are bullish on natural gas and gold. Expected strength in commodities seems to be supporting optimism for the loonie, with 68% of advisors expecting gains against the U.S. greenback. As well, advisors have increased their positive outlook for emerging markets (68% versus 47% bullish last quarter).
Possibly consistent with the theme on commodities and ongoing concerns for the economy and corporate earnings south of the border, advisors are less bullish on U.S. equities versus the resource-heavy Canadian stocks this quarter (49% for the S&P 500 versus 62% for the TSX 60).
Horizons BetaPro offers 15 pairs of leveraged bull and inverse bear sector-tracking exchange-traded funds (ETFs) and, in many cases, now one-to-one tracking sector ETFs, so inflows in the funds — market action — can be compared to advisor sentiment, although it should be noted that roughly 60% of the firm’s ETFs are held by institutional investors.
“Advisors are putting their money where their mouth is. Our top holdings right now are HNU, our natural gas bull ETF, HOU, our crude oil bull ETF and HGU, which tracks global gold stocks,” Atkinson says.
In their short existence, the leveraged ETFs have tended to be contrarian indicators of trend performance.
In the past, investors have tended to invest or divest in the ETFs before a major turn in the market. For example, Horizons BetaPro pointed out at recent hearings of the U.S. Commodity Trading Futures Commission that during the last days of the run-up in oil prices, HBP ETF investors sold their crude exposure as oil rose from $75 to $150, and subsequently they increased inflows into natural gas as it fell from $6 to $3.
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“From what I’ve been able to tell, flows enter early and leave early,” Atkinson says. “You can have some large returns in a relatively short time — you make 15% to 45% return in a matter of weeks, and many investors like to lock in those gains.”
(10/07/09)