State Street to Retire ICI, Publish New Investor Confidence Data
Posted by Colin Lambert. Last updated: September 5, 2023
State Street has announced the retirement of its monthly Investor Confidence Index (ICI), effective 25 October 2023, ending 20 years of publication. The bank is replacing the ICI with two other measures, Institutional Investor Holdings and Risk Appetite Indicators, which, the bank says, “bring a new level of information to the table”. The two measures were unveiled in May 2023.
The bank says the ICI has been regarded as a leading indicator since it captures investors’ present behaviour and expectations. “The Institutional Investor Indicators represent the next generation of our Investor Confidence Index,” says Will Kinlaw, head of research for State Street. “Building on what the ICI began two decades ago, these indicators will provide richer insights into how this influential block of investors is positioned and where their assets are flowing, at an aggregated and anonymised level”
As was the case with the ICI, the new indicators were developed by State Street Associates, State Street Global Markets research and advisory services business. They measure investor confidence or risk appetite quantitatively by analysing the actual buying and selling patterns of institutional investors derived from State Street’s $39.6 trillion in assets under custody and administration.
The Risk Appetite Indicator is derived from measuring investor flows in 22 different dimensions of risk across equities, FX, fixed income, commodity-linked assets and asset allocation trends. The index captures the proportion of the 22 risk elements that saw either risk seeking or risk reducing behaviour. A positive reading suggests that on balance investors are adding to their risk exposures, while a negative reading suggests risk reduction.
The Institutional Investor Holdings Indicators, meanwhile, capture the share of investor portfolios allocated toward equity, fixed income and cash going back to 1998.
Thus far in 2023, allocations have remained broadly steady, in July 52.7% of holdings were in equities, with 28.7% in fixed income ex-bills, and the balance in cash. In January, equity holdings were 50.9%, and fixed income ex-bills 30.1%.
The Risk Appetite Indicator, on the other hand, has been volatile, starting the year close to flat, before declining to a low of -63.6% in mid-May. Since then it has steadily moved higher, hitting +36.4% at the end of July. State Street says long-term investors have been sceptical of the risk rally for months, but softer US inflation data has finally broken their gloom. The Risk Appetite index gradually improved from 12 July onwards and by the end of the month was positive for the first time since February.