State Street's investor confidence index rose 6.3 points to 89.8 in May from 83.5 in April and 81.3 in March. The index remained below the 100 neutral level, indicating ongoing investor caution about risk assets.

Investor confidence was mixed across regions, with Asia surging, North America better, and Europe falling. The North American ICI rose 9.6 points to 85.1, its highest reading in six months. The European ICI fell 11.3 points to 99.8, its lowest in six months. Asia jumped to 101.1 in May from 89.3 in April, a six-month high.

"Generally stronger than expected global growth since the start of the year resulted in a slightly less defensive tone amongst institutional investors as the global ICI reading rose to 89.8 in May," State Street Global Markets said.

"Further stability in the U.S. banking sector contributed to a rebound in the North America ICI to 85.1, its highest reading in six months, although it remains the weakest regional reading," State Street said.

The State Street Investor Confidence Index measures confidence by looking at actual levels of risk in investment portfolios. This is not an attitude survey. The State Street Investor Confidence Index measures confidence directly by assessing the changes in investor holdings of equities. The more of their portfolio that institutional investors are willing to invest in equities, the greater their confidence. The report's main index is global and is based on activity in 45 countries. The report tracks more than 22 million transactions annually. There are three published components: North America, Europe and Asia-Pacific. The separate weightings of the three components vary month to month based on investment activity and are not published. Also included in the global index, but also not published, is activity in South America and the Middle East.

Conventional wisdom suggests investors are confident when stocks are rising and pessimistic when falling. But in fact, the State Street group notes prices tend to be higher when economic fundamentals are strong; i.e., when economic indicators are growing at a healthy clip. But a good investor confidence measure"should indicate whether, for a given set of fundamentals, investors are bullish or bearish on risky assets." State Street believes direct measurement, rather than a survey of portfolio managers who often don't have time to fill out monthly questionnaires, is a more reliable approach to sentiment assessment. The investor confidence index is compiled with techniques based on modern portfolio theory. According to State Street,"the more of their portfolios that professional investors are willing to devote to riskier as opposed to safer investments, the greater their risk appetite or confidence." So when investors choose to increase their holdings of risky assets, this confirms their confidence has increased. Incidentally, State Street believes investor confidence can exist in a bear market as well as a bull market. Since market players have become so enamored with consumer attitude surveys, it probably would be useful for both professional portfolio managers and amateur investors to consider investor attitudes.