Investor confidence levels turned positive last month, but despite improved sentiment investors remain cautious about re-entering the investment markets, according to data from the UK’s Investment Management Association.

The IMA’s Investor Confidence Index, for which 100 is neutral, reached 106 in May 2009, showing a marked 35-point upswing from last November’s level of 71. Furthermore, last month’s score shows a significant improvement from a year before, when confidence stood at a level of 78.

Investors may be rediscovering their optimism on investment markets, but the IMA’s data would suggest that has yet to fully translate into action. In May 2009, the IMA Investor Intentions Index reached 99, showing that investors are broadly neutral about putting money into new investments. Last month’s score was however a 10-point increase on that of November 2008 and a slight 1-point rise compared to May 2008.

"These findings suggest that investors are feeling more optimistic about the investment market than they did six months ago although they are still cautious about re-entering it. This improved mood is consistent with IMA sales statistics which show modest net retail inflows into equity funds over the last two months, but much healthier ones into corporate bond funds over the last six months, with April's overall retail sales being the highest in three years," said Richard Saunders, chief executive of the IMA.

Among the other initial findings of its Great British Investor Report, the IMA also found that less than half (47 per cent) think the economic slowdown will last 12 to 24 months - an improvement since November when 58 per cent of investors thought it would last that long.

Having surveyed nearly 4,000 UK investors, the IMA reports that among those who are likely to increase their investments over the coming 12 months, equities are the most popular investment option, gaining favour from 51 per cent of respondents. But investors are not expecting the UK stock market to recover soon: over half – 53 per cent – of those surveyed by the IMA think it will take over two years for the FTSE 100 to return to 6000.

The IMA, which is the trade body for the UK's asset management industry, will publish the full findings of its Great British Investor Report later in June.