Horizons ETFs poll shows disparity between advisor and client on the best asset classes to perform for the rest of 2021
With just two months of 2021 remaining, financial advisors and their clients are hoping to end the year on a high.
But finding the best returns may cause some tension as the two groups disagree over where most market indices and asset classes are headed for the remainder of the year.
According to the Horizons ETFs fourth-quarter 2021 Advisor and Investor Sentiment Surveys, clients are generally wary while advisors are in bullish mood.
However, there are some areas of agreement, such as Bitcoin.
The volatile cryptocurrency has continued to cause some sleepless nights in 2021, but with a 26% price gain in the third quarter, both advisors and investors have turned bullish with positive sentiment scores of 53% and 52% respectively.
"Bitcoin, one of the most unpredictable asset classes that our surveys measure, seems to have sentiment swings to match, with both advisors and investors shedding their bearish conviction and charging ahead as bulls into the last quarter of 2021," said Mark Noble, Executive Vice President, ETF Strategy at Horizons ETFs.
Psychedelics and marijuana
Psychedelics have enjoyed some favourable commentary in recent months, but investors are unconvinced, posting a neutral position due to poor performance in the third quarter with negative returns (-16.6%). But advisors may sense a value opportunity and are bullish on the sector.
Marijuana is also out of favour with investors. The negative returns (-25%) of the third quarter means they remain bullish (42%) but this sentiment has slipped from the previous quarter. Again, advisors are more upbeat.
“The emerging sectors of marijuana and psychedelics have languished amid that same market volatility, awaiting news of broader U.S. liberalization that could lift their fortunes," added Noble.
Canadian equities and dollar
The third quarter performance of Canadian equities was disappointing and while investors remain bullish in the latest survey, sentiment has weakened while advisors increased their bullishness.
"The broader resilience of Canada's economy and the recent run-up in energy, in particular, crude oil, seems to have boosted confidence in Canada's markets, as represented by the S&P/TSX 60," explained Noble. "Sentiment has cooled on Canadian financials – the largest proportion of the overall sector weighting of the Canadian marketplace. This could be due to a variety of factors, including proposed policies to increase taxes on Canadian banks, or simply because of valuations, which have risen to become relatively high in the last year, after a strong run up."
For the loonie, investors were bearish overall while advisors increased their bullishness.
International equities
For international equity markets, both investors and advisors have turned more cautious on US stocks, and both groups were also less confident in emerging markets following weaker returns in the third quarter (MSCI EM Index down almost 9%).
"Valuations on U.S. equities continue to stay near all-time highs. This likely has investors and advisors assessing what could drive U.S. equity earnings higher given that economic growth seems to be moderating after its huge spike in the last year and with seems to be the worst of the COVID-19 pandemic behind us," said Noble. "Meanwhile, concerns about the impacts of China's market interventions and the knock-on effects of lingering debt-default issues, such as those with Evergrande, appear to have cooled some prospects for speculation on emerging markets."
What about commodities?
High demand has helped drive up commodity prices since lockdowns began to ease globally.
Natural gas was the leader with returns of almost 61% in the third quarter and advisors and investors are understandably bullish as western economies head into the winter months. Oil futures also gained.
But there are some other assets within the commodities group that Canadian advisors and investors are starting to consider. They are the so-called fuels of the future: uranium, lithium, and hydrogen.
"While traditional commodities like natural gas and crude oil continue to be strong performers, the initial bullishness in our surveys on these three alternative energies suggests a recognition that they could disrupt and usurp market share as governments and consumers become more aware of cleaner energy options and averse to traditionally carbon-intensive commodities," Noble said.
Getting defensive
The traditional defensive asset classes such as gold and silver performed less well than might have been expected, but advisors and investors remain bullish.
On fixed income, advisors posted a jump in sentiment while investors were neutral on their potential. US Treasuries disappointed in the third quarter.
"There is a growing conversation as to whether the inflation that consumers are seeing is transitory or here to stay. The answer to that question will influence how an advisor or investor feels about the current fixed income market and precious metals like gold and silver," said Noble.
