State Street Global Markets says its Investor Confidence Index is up sharply in March, by 3.3 points from February’s revised reading of 89.8.
The index measures investor confidence on a quantitative basis, analyzing actual buying and selling patterns of institutional investors. The index is based on the financial theory that assigns precise meaning to changes in investor risk sentiment, or the willingness of investors to hold proportionally more or less of their portfolio in higher-risk investments.
“This month the risk appetite of institutional investors unambiguously improved, as we’ve witnessed an increasing willingness among professional investors to hold risky assets in their portfolios,” comments one of its creators. “Leading the way in this movement are U.S. investors, while it appears that Asian and European investors actually saw reductions in levels of institutional investor confidence.”
“A key feature of the State Street Investor Confidence Index is that it doesn’t always move in the same direction as market prices,” adds another analyst. “Although equity prices have been flat or declining over the past month, analysis of institutional investor holdings shows an increased demand for risky assets, and this may be partly a function of interest rates. Investors’ risk tolerance is also currently well up from the levels seen throughout much of 2004.”