The Index of Investor Optimism, a joint effort of UBS and the Gallup Organization, found that U.S. investor optimism plunged in June to its second lowest level in history, as investors express growing concerns over the performance of the financial markets.

Currently at 72, the overall Index dropped 18 points from 90 in May. This month, just 38% of investors say they are optimistic about the prospects for the financial markets over the next 12 months, decreasing from 46% in May, and marking the lowest level of optimism about the financial markets since September. Continuing a six-month trend of month-to-month fluctuations, expectations for short-term return, over the next 12 months, rose modestly to 10.3% in June after dipping to 9.2% last month.

Notably, short-term expectations among the least experienced investors, those with less than five years in the markets, are more than double the expectations of investors with the most experience, more than 20 years in the markets. The least experienced investors now expect an average of 15.9% return on their portfolios over the next year, compared with a 7.0% return anticipated by the most experienced investors.

About 40% of investors say they find stocks less attractive now than six months ago, compared with 31% who say stocks are more attractive. Similarly, 36% believe term deposits are less attractive now than six months ago, while 27% say they are more attractive. And, 59% of those surveyed report they now view real estate as a more attractive investment than they did six months ago, compared with only 13% who find it less attractive; 35% cite bonds as more attractive, while with 22% find them less attractive; and 28% believe investing in gold is more attractive now than six months ago, while 21% think it is a less attractive investment.

Less than half of investors, 42%, report they have made trades in the financial markets this past year, holding relatively steady from January 2001, when investors were last polled on the subject. Substantial investors, those with more than $100,000 in investable assets, were much more likely to have made trades in the past year than average investors, those with less than $100,000 in investable assets. Among substantial investors, 57% report they have made trades in the financial markets in the past 12 months compared with 33% of average investors.

For those investors who report they have made trades in the past year, 35% say they increased their overall level of holdings, 47% adjusted their holdings but kept them at the same level, and only 15% decreased their overall level of holdings.

Approval for Federal Reserve policies held steady at 89% among those investors who report having an opinion. Moreover, nearly two-thirds of those surveyed, 63%, believe the Fed will hold interest rates steady over the next three months, compared with 23% who believe rates will be increased, and 10% who expect them to be cut.

In January 2002, UBS established a European counterpart to the U.S. survey covering France, Germany, Great Britain, Italy and Spain. This month, 1,000 investors across these EU markets were polled from June 1 to June 14. Overall optimism registered at 8 in June, down from 28 last month.