While active traders are feeling more optimistic about market conditions than they did six months ago, few are confident that their portfolios are properly hedged against risk
According to a Charles Schwab survey of 524 individuals that make at least 36 trades annually, 38% had a bullish outlook for for the market in the next six months; up from 28% when the survey was published in April. Only 16% are bearish compared to 21% in April.
As traders grow more bullish, they continue to invest more. According to the survey, which was released Tuesday, 36% of traders recently changed their portfolio allocation to include more cash, down from 43% in April.
The survey indicated that 71% of traders currently consider market volatility a friend, compared to 29% who view volatility as a foe.
Despite the optimism, only 14% said that they are very confident that their portfolios are properly hedged against risk.
“It is clear that we have an opportunity to help our clients learn more and take action to help protect their portfolios,” said Kelli Keough, vice president of active trading at Charles Schwab. “Experienced traders often seek opportunities in all market environments. One key to successfully weathering the market’s ups and downs is including risk management as a core element of any trading strategy.”
The Schwab survey also indicated that active traders are taking small, but important, steps in trading more than just domestic equities.
Nearly half (46%) now report they are regularly trading options as a potential method of generating extra income. Ownership of foreign equities is also becoming more common. Fifty-six percent of active traders said they are exposed to foreign equities, predominantly through exchange-traded funds or American Depository Receipts of non-U.S. based companies.
Traders participating in the Schwab survey also show a clear preference toward technology stocks. Thirty-eight percent said they are now the most bullish on the technology sector, followed distantly by materials (17%), financials (12%), industrials (10%) and consumer discretionary (6%).