Canadian advisors and investors have signalled renewed bullishness on certain asset classes, including Cannabis, Emerging Markets and U.S. Equities, following stronger quarter-over-quarter market performance, according to the second quarter 2019 Advisor and Investor Sentiment Surveys (“Q2 Surveys“) from Horizons ETFs Management (Canada) Inc. (“Horizons ETFs“).

Horizons ETFs’ previous Q1 2019 surveys found that advisor and investor bullish expectations were hampered by late Q4 2018 volatility. After performance gains in Q1 2019 across the majority of indices that Horizons ETFs tracks, both advisors and investors were bullish on 10 of the 14 asset classes measured – but with mixed confidence in Canadian equities.

Every quarter, Horizons ETFs surveys investment advisors and investors for their outlook on their expected returns for 14 distinct asset classes. These expectations are expressed in terms of bullish, bearish or neutral sentiment. The Q2 Surveys cover the period beginning April 1, 2019 and ending June 30, 2019.

Cannabis Confidence Comeback

Cannabis sentiment among advisors and investors is reaching new highs once again, after a loss of confidence heading into Q1 2019.

Investors registered an overwhelming 70% bullishness in the Cannabis space – up 14% from the previous quarter. The bullish bounce-back comes after a 54.55% Q1 2019 return from the North American Marijuana Index – the best performance among indices tracked in the Q2 Surveys.

Advisors, who have traditionally signalled greater caution regarding the nascent sector, also pushed a bullish revival, increasing their support from 31% to 47% and wiping out their previous overall bearish position.

“It’s no surprise that volatility in sentiment towards the Cannabis sector mirrors its performance,” said Steve Hawkins, President and CEO of Horizons ETFs. “Many Cannabis companies have surged in 2019 – buoyed by revenue growth and growing legitimization. With growing global opportunities, including in the burgeoning U.S. Cannabis market, we expect that sentiment could continue to grow.”

Looking Beyond Canada

According to the Q2 Survey, both advisors and investors see opportunities outside of Canada, in U.S. Equities as well as Emerging Markets across the world.

Powerful Q1 2019 rallies following Q4 2018 volatility in U.S. Equities, as represented by the S&P 500^® Index and the NASDAQ-100^® Index, have led advisors to double-down on their American resolve. Advisors indicated their highest confidence in the NASDAQ at 67% bullishness, following a 16.57% growth in the NASDAQ’s performance. While sentiment on the S&P 500 fell 5%, at 62%, it still registered as the sector with the third-highest positive outlook among advisors.

Investors boosted their take on the NASDAQ to 54%, from a previous 41% in the Q1 Survey, then nearly equally matched by a 40% bearish outlook. On the S&P 500, investors shrugged off much of their negative sentiment and reallocated it to neutral and bullish positions; with the latter accounting for nearly half of the overall outlook.

On the fixed income side, investors and advisors are still unsure what to make of the U.S. 7-10 Year Bond Index, despite a 2.85% performance climb. Both are overwhelmingly neutral on the benchmark, but while investor bearishness outpaces the bulls, advisors saw reason to grow their bullish outlook past the bears, by a margin of 5%.

Emerging Markets, as represented by the MSCI Emerging Market Index, saw substantial growth in bullish sentiment from both advisors and investors. After a 9.91% performance gain in Q1 2019, advisors increased their positive outlook by 18% to an overall 66% bullish rating – the largest percentage change of opinion among advisors of any of the tracked indices. Investors were bullish too, but not nearly as much as their advisor counterparts: bullish sentiment among investors increased 8% to 45%, which still fell several percentage points short of the previous Q1 Survey mark for advisors.

“Market trends in Q1 appeared very similar to early 2018, with Canadian advisors showing a strong preference for U.S. and international equities relative to Canadian equities. China was one of the strongest-performing equity markets of the first quarter, as concerns about trade tariffs dissipated,” said Mr. Hawkins. “A big reason for the resurgence in the U.S. equities could be due to the resurgence in technology stocks. We can see that advisors are strongly favouring the tech-heavy NASDAQ-100 vs. the broader S&P 500 Index.”

Cautious but Committed on Canadian Equities

Despite positive performance on all of the tracked Canadian Equity indices, sentiment was still mixed in the Q2 Surveys, suggesting that advisors and investors are still not aligned on the potential trajectory of Canada’s economy.

With a 12.54% return, the S&P/TSX 60 Index was the best-performing Canadian Equity metric in Q1 2019. While investors responded with a 7% boost to bullish sentiment, advisors were not convinced – downgrading their position by 7%, to a 50% bullish weighting.

Both advisors and investors signalled weakened confidence in Canadian Banks, as represented by the S&P/TSX Capped Financials Index. While investor conviction saw a minor erosion of 6%, advisors’ faith in the sector ruptured significantly, falling 14%. Both updates put bullish and bearish sentiment into nearly equal contention.

Canada’s Energy sector, as represented by the S&P/TSX Capped Energy Index rebounded by 12.19% in Q1 2019, following a critical 28.02% drop in Q4 2018. While sentiment in the Energy sector increased by 8% for investors, it grew marginally for advisors at 3%. Both were still ultimately bullish on the sector.

Despite contrary sentiment movements on the Canadian dollar vs. the U.S. dollar, both advisors and investors are downright bearish on the loonie, with investors registering triple the bearish sentiment compared to advisors.

“While Canadian indices mostly recovered their late 2018 losses in Q1 2019, investors are still hesitant to rush back into Canadian staples, like Financials and Energy,” said Mr. Hawkins. “If we continue to see strong performance from Canadian Financial and Energy stocks, we might see more advisors and investors changing their view on the Canadian market in the next survey.”

Energy and Materials

Compared to the leading 21.16% performance hike in Q4 2018, gold miner growth, as represented by the S&P/TSX Global Gold Index was more subdued in Q1 2019, eking out a 4.98% jump. Investors and advisors took that result differently – while advisors saw fit to move out of a bear position and award a 10% bullish sentiment rating to the sector, investor opinion dropped 8% but still held a firm bullish outlook.

Both investors and advisors were virtually unchanged on Crude Oil One-Month Futures, with just a single percentage point drop in bullish sentiment and still overall confident in its performance.

Natural gas was subjected to a greater rout, with investors withdrawing bullish approval by 12% to a 33% bear rating. Advisors are even more bearish – shifting from a neutral outlook to a 45% bearish sentiment.

“Amid volatility, we saw precious metals become a place of refuge from the storm for investors last quarter,” said Mr. Hawkins. “With a bounce-back in the markets, gold standard stability has been traded in for equity performance. Seasonal declines on natural gas were expected and quarter-over-quarter, global demand for crude oil means this is a commodity where investors still see strength.”

SOURCE Horizons ETFs Management (Canada) Inc.