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Feeling the market

Survey gauges global investor sentiment, but is that a guide?

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Are you feeling lucky?

It's not just a question Dirty Harry might ask a so-called punk. As an investor, you might want to ask yourself the same question when you are about to pour money into the stock market.

Quick facts

How do Canadians measure up against worldwide market sentiment? Here's what Franklin Templeton's Global Investor Sentiment Survey found from its poll of tens of thousands of investors worldwide.

 

Best asset-category return for this year? (Investors were asked to select their top-three best-performing categories)

Canadian investors

1. Stocks: 62 per cent

2. Property: 47 per cent

3. Non-metal commodities: 43 per cent

The rest of the world

1. Stocks: 55 per cent

2. Real estate: 52 per cent

3. Precious metals: 39 per cent

Are you on track to reach your personal financial goals with your investments?

Canadians: 81 per cent

Globally: 80 per cent

Expected average rate of return?

Canadian investors

Next 10 years: 9.3 per cent

This year: 7.3 per cent

Global investors

Next 10 years: 12.4 per cent

This year: 8.9 per cent

Will you follow a more conservative investment strategy in 2014?

Canadian investors: 44 per cent

Global investors: 52 per cent

After all, you could be blowing your cash away -- or right on target for reaping a profit.

Maybe even more valuable is determining whether other investors feel the same.

Well, it's your lucky day (punk).

A recent survey by one of the world's largest mutual-fund firms can save you some time and effort.

Franklin Templeton Investments' annual global investors sentiment survey takes the temperature of 22,000 investors from 11 nations, including Canada, to find out just how hot and bothered we get about stock markets.

What Franklin Templeton found for 2014 is we're cautiously optimistic -- a little more so than last year.

Sixty-five per cent of Canadian investors surveyed think Canada's stock market will be up in 2014. That's an increase from 60 per cent in 2013.

And we're a little more upbeat than the global average of 62 per cent of those surveyed who were optimistic about the stock market.

"The Canadians we interviewed felt the best opportunities would be in Canada for both equities and fixed income," says Philip Bensen, head of national sales for Canada at Franklin Templeton Investments.

In its fourth year of surveying Canadians, the poll found we have a fairly conservative outlook for this year and even the next decade, but one group stood out as particularly pessimistic: investors with assets less than $75,000.

Although the survey is one of the largest of its kind, you probably can't help but ask: Is it all that useful?

Bensen says it can be. Investor sentiment can be used as a barometer of where the markets are headed.

"Sir John Templeton said well before there was a lot of statistical data that bull markets are born on pessimism, they rise on skepticism, they mature on optimism, and they peak on euphoria," Bensen says.

"When your taxi driver is talking about how well the stock market is doing, that might be an indication of euphoria, right?"

So what can we take away from a survey finding investors are cautiously optimistic? A specialist in monitoring investor sentiment says not all that much, if it's taken in isolation of a host of other indicators.

"We're not really keen on those (investor-sentiment surveys), because they focus on what people are saying and not what they're actually doing, so we prefer to look at where people are actually putting their money," says Jason Goepfert, CEO and president of Sundial Capital Research and Sentimentrader.com.

Goepfert's Minneapolis-based market-research firm provides data on investor sentiment for the U.S. and global stock markets to clients such as mutual, hedge and pension funds.

Goepfert uses a variety of indicators to measure investors' appetite for risk, including trading in the options and futures markets and flows of cash in and out of markets.

What the data are telling him now is not that far off what the Franklin Templeton survey uncovered. Investors are optimistic, but not overly so.

But the latest data isn't nearly as important as what he saw in early January, when optimism seemed to have peaked.

"That's certainly a warning sign, and it's typically three to 12 months for where that information is most effective, so when we think about those readings we saw in early January, it's historically difficult for equities to make much headway in the next several months."

Goepfert says he is reluctant to use the term "bubble" to describe market conditions then and now, even though some observers are adamant prices today have run too high.

But some indicators do show investors have a strong appetite for risk that would point to an increase in frothiness.

Initial public offerings (IPOs), for example, are very popular, and investors seem willing to sink cash into them despite the fact many are losing money.

"Right now, we're seeing the greatest share of money-losing IPOs than any other time in history besides 2000," he says.

"That's not a good sign longer-term."

For the average long-term investor, however, market sentiment generally amounts to a lot of noise that can be ignored.

"An important signal comes along rarely," he says. "There are some times like 2000, 2002, 2007 and 2009 where we get true historical extremes of a very long-term time frame."

When optimism peaks, as in 2007, markets can still go upward for a long time, he says.

"Latecomers will keep adding to the price gains, and stocks won't peak for some time," he says.

"It tends to be the opposite at bottoms, when people panic. They all panic at the same time, and we'll see true historical extremes in pessimism at the same time when markets bottom. That was the case in 2009."

Given optimism peaked earlier this year, one might assume we're heading for a crash, but Goepfert says we're more likely facing a market correction. When that will occur is unclear.

So what's an investor to do?

Consider stalling your investments in the U.S. stock market for the short term, he says. (The Canadian market might be a different story, and his firm doesn't provide sentiment data on it.)

"As a longer-term investor, it can help if you hold off a little bit, and I think you'll get better prices."

Another option for investors when markets are getting a little too lofty for comfort is to do some selling and solidify some gains of the last few years into cold, hard profit, says Darren Quiring, an investment adviser with Edward Jones in Winnipeg.

"They (clients) are happy and relieved when they're looking at their portfolios, because they've been up considerably, but you need to sell when you're excited and proud and buy when you're upset and hear those rumblings, so we have been selling out of the States -- right or wrong -- and buying more European investments," he says. "Or we've been just buying bonds with the profits and happy making 2.5 per cent returns."

Yet if you're in the market for the long haul, with a time horizon stretching several years before you need the money, it's a difficult decision to sell stocks and move into more conservative assets such as bonds.

In the long run, you might be best off simply staying the course.

"My gut may be telling me there is a correction coming, but there is no statistical evidence to prove it," Quiring says. "So there is no reason to sell a good company today besides your personality becoming more conservative in terms of risk or your time horizon for needing that money is now shorter."

giganticsmile@gmail.com

Republished from the Winnipeg Free Press print edition May 24, 2014 B11

History

Updated on Wednesday, May 28, 2014 at 9:15 AM CDT: Corrects spelling of Philip Bensen

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