CHICAGO (HedgeWorld.com)–The end of the war with Iraq apparently will not be enough to lift optimism for the stock market among affluent investors but could bode well for hedge funds, according to a recent survey.

Cash sitting on the sidelines and in other asset categories is not likely to flow back into stocks anytime soon, even with the war in Iraq reaching a conclusion, said George H. Walper Jr., president and director of Spectrem Group. Spectrem conducted a survey of investors with more than US$500,000 to invest, on April 15 through April 21.

The money will go into other classes, such as hedge funds, real estate and cash. Hedge funds in absolute terms are still a small percentage of portfolios, according to the survey, but still jumped sharply in absolute terms. Hedge funds were about 2.3% of assets, up from 0.8%, according to Spectrem. People don’t yet naturally turn to hedge funds as an alternative without some type of guidance, and the industry isn’t in a position to do that to a significant degree, Mr. Walper said.

But relative conservatism is keeping assets out of stocks, too, contrary to some expectations. “I would’ve expected more optimistic feelings from investors,” Mr. Walper said. “That surprised me. It surprised all of us,” he said.

But the reaction has a recent precedent. “Overall, their behavior … is somewhat similar to the fall of 2001,” he said.

Investors with relatively more to invest, those with greater than US$1 million, are more comfortable with investing in stocks, in part because they rely more on professional advice, Mr. Walper said. Investors with US$500,000 to US$1 million to invest, meanwhile, historically relied less on advisers and are a little more cautious.

Spectrem is selling the survey report, “Affluent Investors’ Attitudes after Operation Iraqi Freedom,” on its web site for US$2,000 at www.spectrem.com.

PBarr@HedgeWorld.com