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Investor Confidence Way Up, but Not Equity Allocation

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Three separate investor surveys show strong boosts of confidence, though many high-net-worth investors remain hesitant about jumping into the markets.

“Non-millionaires were particularly active investors in March,” said George Walper (right), president of Spectrem Group, in a statement. “There was a dramatic increase this month in the number who chose to invest. Millionaires, however, expressed more caution, with a rise in the number who chose to remain on the sidelines.”

Strong gains in the U.S. equity markets, lower unemployment and encouraging news from the European debt crisis all contributed to a dramatic increase in economic optimism among high-net-worth and mass-affluent investors, according to Phoenix Marketing International’s latest survey of close to 1,200 individuals released Tuesday.

In the widest swing ever recorded by PMI’s economic-outlook indicator, the optimistic trend line rocketed upward by 19% among wealthy investors – to 53% in February/March from 34% in December/January. The economic optimism trend line also increased among the mass affluent, moving to 41% from 29%.

About 28% of mass-affluent investors surveyed by PMI increased their commitment to funding their portfolios, up from 23% in the prior period. And for the third two-month period in a row, these investors indicated that they were expanding their real-estate holdings.

High-net-worth investors, though, seemed somewhat cautious in their three-month investment outlook, perhaps anticipating that the strong equity markets rally may be winding down.

“About 12% of these investors stated they would likely make net decreases in their positions, a relatively high percentage considering their ebullience over the U.S. economy,” PMI explained in its report. However, for the third period in a row, many of these high-net-worth investors increased funding for their retirement accounts.

Spectrem Results

Spectrem Group said Wednesday that its Spectrem Affluent Investor Confidence Index jumped 10 points in March to 5, the highest level in nearly five years. The index, which measures the investment confidence and outlook of households with $500,000 or more in investable assets, has posted gains for the past seven months in a row.

Meanwhile, the Spectrem Millionaire Investor Confidence Index gained six points to hit 10, the highest reading in just over a year. In both the millionaire and non-millionaire households, there was a shift toward investing in equities, signaling stronger engagement in the market, the research firm says.

Both millionaires and non-millionaires decreased their investment in cash and upped their investment in stocks, but more millionaires than last month chose to not invest, according to Spectrum.

Affluent investors, Spectrum notes, cited the partisan political climate as the most serious threat to achieving their financial goals at this time. A similar percentage said the economy itself was the biggest obstacle.

State Street

State Street Global Markets (STT), which released the March results of its State Street Investor Confidence Index for institutional investors on Tuesday, said the ICI rose to 91.6, up five points from February’s revised level of 86.6. (The 100 mark is considered a neutral investment level, at which investors are not increasing or decreasing their actual trading positions in risky assets.)

“This month we saw a significant curtailment of the selling that institutional investors have been engaged in since late 2011,” said Harvard University professor Kenneth Froot, in a statement. “Indeed we observed net buying of equities by real money investors in the week ended March 19.

“As mentioned in past commentaries, institutions have been content to play the role of liquidity provider over much of the recent rally, taking the other side of non-institutional trades,” Froot added. “This month they have engaged in more liquidity-taking behavior, adding further to core equity positions.”

According to the research group, the increase was driven by North American investors, whose confidence rose 8.7 points to 89.5.  European investors’ confidence moved up 5.4 points to 100.6 from a revised February reading of 95.2. Among Asian institutional investors, sentiment dropped slightly, down 2.2 points from a revised February reading of 96.7 to end at 94.5.

“Looking regionally, investor behavior was in line with macroeconomic developments,” Paul O’Connell of State Street Associates said in a press release.  

“The continued easing of financial conditions in Europe, in response to policy commitments, has improved sentiment among that region’s investors,” O’Connell said. “By contrast, evidence of some softening of the Asian growth trajectory muted risk appetite in that region. We would note that all investors, both within and outside Asia, displayed a renewed appetite for Japanese equities this month, confirming a trend that began in the third quarter of 2011.”


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