Horizons ETFs’ latest sentiment survey results show advisors souring on Canadian equities and investors growing cautious on Marijuana

TORONTO – July 18, 2019 – With the S&P 500 Index and the NYSE setting record highs and growing concerns about global deflation, advisors and investors are pivoting towards Gold and U.S. equities, shirking Canada and its burgeoning Cannabis sector, according to the third-quarter 2019 Advisor and Investor Sentiment Surveys (“Q3 Surveys”) from Horizons ETFs Management (Canada) Inc. (“Horizons ETFs”).

Horizons ETFs’ previous sentiment survey indicated market confidence after early 2019 volatility, with 10 of the 14 asset classes recording an overall bullish sentiment rating. Heading into Q3 2019, both advisors and investors registered a pullback in optimism on nearly all equities, while turning favourably to Gold Bullion and its producers.

Every quarter, Horizons ETFs surveys investment advisors and investors for their outlook on expected returns for 14 distinct asset classes. These expectations are expressed in terms of bullish, bearish or neutral sentiment. The Q3 Surveys cover the period beginning July 1, 2019, and ending September 30, 2019.

It’s A-OK in the USA

As U.S. equity indices continue to close at record levels, both advisors and investors are bullish on the U.S. economy, according to the Q3 Surveys.

The most popular U.S. benchmark for advisors is the NASDAQ-100 Index, with 60% of advisors bullish on this growth-focused benchmark. Similarly, 57% of advisors are bullish on the broader S&P 500 Index. The NASDAQ-100 Index delivered a 3.96% return last quarter, and is up more than 23% year-to-date. Investors were strongly bullish on these two indices as well.

Emerging Markets, as represented by the MSCI Emerging Markets Index, did not fare as well. Despite a marginal -0.31% performance loss last quarter, advisors and investors indicated a large departure from global investing, with advisors decreasing their bullish stance by -15% – their largest sentiment swing across all asset classes. Investors similarly signaled a retreat, by a lesser degree of -7%.

Most of the movement in U.S. equities and sentiment results are the product of big moves in technology stocks – primarily the FAANGs,” said Steve Hawkins, President and CEO of Horizons ETFs. “Companies such as Facebook and Netflix are up more than 40% year-to-date. A combination of strong earnings growth and an accommodative federal policy – which may bring a rate cut by the end of 2019 – are providing strong support for the U.S equity market.”

Canadian Concerns

While most Canadian indices posted modest performance gains during Q2 2019, advisors and investors once again signaled caution on domestic equities, continuing a sentiment trend that has endured throughout 2019.

According to the Q3 Surveys, only 40% of advisors are bullish on the broad Canadian equity market, as represented by the benchmark S&P/TSX 60 Index. That value represents a decline in bullishness of -10% – one of the largest sentiment pullbacks by advisors measured in this survey. Investors waned as well, but only by -2%. The S&P/TSX 60 Index delivered a modest 2.10% return last quarter.

Two key Canadian equity sub-sectors, the S&P/TSX Capped Financials™ Index and the S&P/TSX Capped Energy™ Index, saw bullish sentiment retreat to 42% and 46% respectively, among advisors. In contrast, investor confidence in Canadian Financials rose 8%.

Overall, returns on U.S. equities, as represented by the S&P 500 Index, have been essentially neck-and-neck with Canadian equities this year. On a go-forward basis, U.S. equities likely seem more attractive, given that trade war concerns about the U.S. and China are largely abating. This heavily favours areas such as the U.S. Technology sector, which represent a significant (or large) share of the U.S. market.

Despite tepidity on Canadian equities, advisors and investors both saw greater value in the Canadian dollar versus the U.S. dollar. While both camps are still firmly bearish, investors and advisors both increased their bullish position in the Canadian dollar by 9%.

Once again, we’re seeing how closely linked Canadian market sentiment is to the performance of our Energy sector,” said Mr. Hawkins. “A resurgence in oil prices could serve to buoy investor’s domestic confidence – with pipeline relief potentially on the horizon, that may be sooner than we think.

Gold is Brighter than Bonds

With interest rates declining globally, advisors and investors are increasingly looking towards Gold equities and Bullion as a valuable investment. Gold equities, as represented by the S&P/TSX Global Gold Index, were the best-performing asset class or sector covered by the Q3 Surveys, with a nearly 13% return last quarter.

The gold-hued optimism was particularly strong among advisors – their bullishness on producers of the precious metal grew 14% to a commanding 60% overall, with Gold Bullion confidence similarly growing by 10%. Investor bullishness on Gold grew to a lesser degree – 7% on producers and 4% on bullion – but was already at a greater level of conviction compared to advisors, according to Horizons ETFs’ Q2 Sentiment Survey.

Traditionally, Gold equities tend to move with leverage versus Gold Bullion prices, meaning they decline more than Bullion when there is a pullback in its price and increase more when prices are rising.

When compared to Gold’s shine, Bond sentiment, as represented by the US 7-10 Year Bond Index, appears much duller for advisors: bearish sentiment has reached 48%, compared to only 24% last quarter. Investors on the other hand, still see value, increasing their bullish take by 4% and putting it just ahead of its bearish onlookers.

With the yield on five-year U.S. treasury bonds down -29.66% year-to-date, it makes sense that investors are looking to tangible commodities for stability and value,” said Mr. Hawkins. “I expect to see greater interest in other ‘hard assets’, like real estate, if the global trend of declining interest rates continues”.

Moody on Marijuana

Once again, sentiment on Marijuana equities prove that volatility is a given in this emerging industry. According to the Q3 Surveys, both advisors and investors have walked back their respective optimism on Cannabis equities, as represented by the North American Marijuana Index, as the sector’s performance fell nearly -16%.

Historically, there has been a huge variance between advisors and investors on Marijuana equities. Last quarter, a whopping 70% of retail investors were bullish on marijuana equities, compared to a still sizable 47% of advisors, according to our Q2 Sentiment Surveys. This quarter, bullish sentiment on Marijuana equities dropped to 58% with end-investors and 36% for advisors, representing a near tandem decline of -12% and -11%, respectively.

These sentiment declines come at a time when valuations on Marijuana stocks remain very high, despite a retreat from bloated pricing from earlier this year. Among the top-ten holdings of the Horizons Marijuana Life Sciences Index ETF, several companies have price-to-book ratios near and in the double-digits – a sign that pricing in this burgeoning sector remains relatively untethered to fundamentals.

It may still be too early to say that the Marijuana sector’s post-legalization afterglow has come to an end, but it’s becoming apparent that it has lost some of its ‘shine’, particularly among hard-won advisors,” said Mr. Hawkins. “However, this is likely also related to increased competition, south of the border. As U.S. legalization ramps up, state-by-state, it will be more challenging for Canadian cannabis companies to maintain their dominance. Concerns about the Canadian marijuana sector could soon be overshadowed by euphoria on the global industry, which continues to grow at a break-neck pace."

Consistency in Commodities

Despite a -13.3% performance last quarter, Natural Gas Futures moved toward greater bullishness among advisors, as bearishness decreased by 22%. Much of this sentiment movement is likely due to seasonal strength – increased energy demands to fuel air conditioning amid the summer heat tends to buoy natural gas pricing.

Crude Oil Futures remained relatively unchanged amid near stagnant performance last quarter, at -2.78%. Advisors and investors are still overwhelmingly bullish on the commodity, advisors increased their stake by one percent to 50% bullishness overall and investors pulled away in equal amount to 48%.

Similarly, Silver Bullion also remained relatively constant: with a performance growth of 1.27% in Q2 2019, investors decided to stay the course, leaving their 45% bullishness rating unchanged from our Q2 Sentiment Survey. The mild performance bump was enough to propel advisors to increase their bullish weighting to 36% overall; however the majority remain chiefly in the neutral camp.

Amid the gold fervor, its lesser cousin silver, is largely forgotten,” said Mr. Hawkins. “Despite tensions in the Persian Gulf, Crude Oil and Natural Gas have proven stable. Much of that resiliency can be traced to the increasing U.S. production that has come online.

About the Q3 2019 Advisor and Investor Sentiment Survey

Horizons ETFs conducts the only quarterly sentiment survey of Canadian advisors and investors. The survey quantitatively measure advisors’ and investors’ quarterly outlooks of key benchmarks covering equities, bonds, currencies and commodities. For full survey results, visit www.horizonsetfs.com/sentimentsurvey.

About Horizons ETFs Management (Canada) Inc. (www.HorizonsETFs.com)

Horizons ETFs Management (Canada) Inc. is an innovative financial services company and offers one of the largest suites of exchange traded funds in Canada. The Horizons ETFs product family includes a broadly diversified range of solutions for investors of all experience levels to meet their investment objectives in a variety of market conditions. Horizons ETFs has more than $10 billion of assets under management and 90 ETFs listed on major Canadian stock exchanges. Horizons ETFs Management (Canada) Inc. is a member of the Mirae Asset Global Investments Group.

For investor inquiries:
Contact Horizons ETFs at 1-866-641-5739 (toll-free) or (416) 933-5745

For media inquiries:
Contact Jonathan McGuire
External Communications Manager
Horizons ETFs Management (Canada) Inc.
(416) 640-2956

Certain statements may constitute a forward-looking statement, including those identified by the expression “expect” and similar expressions (including grammatical variations thereof). The forward-looking statements are not historical facts but reflect the author’s current expectations regarding future results or events. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations. These and other factors should be considered carefully and readers should not place undue reliance on such forward looking statements. These forward-looking statements are made as of the date hereof and the authors do not undertake to update any forward-looking statement that is contained herein, whether as a result of new information, future events or otherwise, unless required by applicable law.

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The Horizons Exchange Traded Products include our BetaPro products (the “BetaPro Products”). The BetaPro Products are alternative mutual funds within the meaning of National Instrument 81-102 Investment Funds, and are permitted to use strategies generally prohibited by conventional mutual funds: the ability to invest more than 10% of their net asset value in securities of a single issuer, to employ leverage, and engage in short selling to a greater extent than is permitted in conventional mutual funds. While these strategies will only be used in accordance with the investment objectives and strategies of the BetaPro Products, during certain market conditions they may accelerate the risk that an investment in shares of a BetaPro Product decreases in value. The BetaPro Products consist of our Daily Bull and Daily Bear ETFs (“Leveraged and Inverse Leveraged ETFs”), Inverse ETFs (“Inverse ETFs”) and our BetaPro S&P 500 VIX Short-Term Futures™ ETF (the “VIX ETF”). Included in the Leveraged and Inverse Leveraged ETFs and the Inverse ETFs are the BetaPro Marijuana Companies 2x Daily Bull ETF (“HMJU”) and BetaPro Marijuana Companies Inverse ETF (“HMJI”), which track the North American MOC Marijuana Index (NTR) and North American MOC Marijuana Index (TR), respectively. The Leveraged and Inverse Leveraged ETFs and certain other BetaPro Products use leveraged investment techniques that can magnify gains and losses and may result in greater volatility of returns. These BetaPro Products are subject to leverage risk and may be subject to aggressive investment risk and price volatility risk, among other risks, which are described in their respective prospectuses. Each Leveraged and Inverse Leveraged ETF seeks a return, before fees and expenses, that is either up to, or equal to, either 200% or –200% of the performance of a specified underlying index, commodity futures index or benchmark (the “Target”) for a single day. Each Inverse ETF seeks a return that is –100% of the performance of its Target. Due to the compounding of daily returns a Leveraged and Inverse Leveraged ETF’s or Inverse ETF’s returns over periods other than one day will likely differ in amount and, particularly in the case of the Leveraged and Inverse Leveraged ETFs, possibly direction from the performance of their respective Target(s) for the same period. For certain Leveraged and Inverse Leveraged ETFs that seek up to 200% or up to or -200% leveraged exposure, the Manager anticipates, under normal market conditions, managing the leverage ratio as close to two times (200%) as practicable however, the Manager may, at its sole discretion, change the leverage ratio based on its assessment of the current market conditions and negotiations with the respective ETF’s counterparties at that time. Hedging costs charged to BetaPro Products reduce the value of the forward price payable to that ETF. Due to the high cost of borrowing the securities of marijuana companies in particular, the hedging costs charged to HMJI are expected to be material and are expected to materially reduce the returns of HMJI to unitholders and materially impair the ability of HMJI to meet its investment objectives. Currently, the manager expects the hedging costs to be charged to HMJI and borne by unitholders will be between 10.00% and 45.00% per annum of the aggregate notional exposure of HMJI’s forward documents. The hedging costs may increase above this range. The manager publishes on its website, the updated monthly fixed hedging cost for HMJI for the upcoming month as negotiated with the counterparty to the forward documents, based on the then current market conditions. The VIX ETF, which is a 1x ETF, as described in the prospectus, is a speculative investment tool that is not a conventional investment. The VIX ETF’s Target is highly volatile. As a result, the VIX ETF is not intended as a stand-alone long-term investment. Historically, the VIX ETF’s Target has tended to revert to a historical mean. As a result, the performance of the VIX ETF’s Target is expected to be negative over the longer term and neither the VIX ETF nor its target is expected to have positive long-term performance. Investors should monitor their holdings in BetaPro Products and their performance at least as frequently as daily to ensure such investment(s) remain consistent with their investment strategies.

Horizons Total Return Index ETFs (“Horizons TRI ETFs”) are generally index-tracking ETFs that use an innovative investment structure known as a Total Return Swap to deliver index returns in a low-cost and tax-efficient manner. Unlike a physical replication ETF that typically purchases the securities found in the relevant index in the same proportions as the index, most Horizons TRI ETFs use a synthetic structure that never buys the securities of an index directly. Instead, the ETF receives the total return of the index through entering into a Total Return Swap agreement with one or more counterparties, typically large financial institutions, which will provide the ETF with the total return of the index in exchange for the interest earned on the cash held by the ETF. Any distributions which are paid by the index constituents are reflected automatically in the net asset value (NAV) of the ETF. As a result, the Horizons TRI ETF receives the total return of the index (before fees), which is reflected in the ETF’s share price, and investors are not expected to receive any taxable distributions. Certain Horizons TRI ETFs (Horizons Nasdaq-100 ® Index ETF and Horizons US Large Cap Index ETF) use physical replication instead of a total return swap. The Horizons Cash Maximizer ETF and Horizons USD Cash Maximizer ETF use cash accounts and do not track an index but rather a compounding rate of interest paid on the cash deposits that can change over time.

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