Interesting change by State Street in its monthly sounding of its institutional investor clients. The firm has gone back over all its data and rebased it in order to get an indicator that not only marks up and down changes in investor confidence but also suggests what regime investors are in. Ken Froot, the Harvard professor who co-developed the index, describes the move thus:
“We have revised the Investor Confidence Index to provide a better guide as to the level of risk tolerance. Specifically, we have rebased the index so that a level of 100 is ‘neutral’: readings above this level tell us that institutional investors are increasing their allocations to risky assets, while readings below 100 indicate that institutional investors are reducing such allocations.”
So what does this month tell us? The global index is now at a 10-month high, having risen every month since December. But according to the new rebased reading, it has only been in territory that indicates the buying of risky assets for the past two months.
The optimist would say this means investors are only just warming up. The pessimist that they have only been recovering from an overshoot.