NEW YORK, March 29 (Reuters) - A majority of market dealers report that clients have increased their amount of credit leverage in equity markets, pointing to an increased appetite for risk, according to a U.S. Federal Reserve survey.
In the March Senior Credit Officer Opinion Survey, released on Thursday, half the market dealers polled saw their hedge fund clients increase the amount of credit extended through margin accounts since the beginning of 2016. About 20 percent of dealers reported the same for clients at mutual funds, ETFs, pension plans and endowments.
“The most cited reason for the increase was greater willingness on clients’ parts to take risk due to either lower expected future volatility or higher risk appetite,” the survey release stated.
Half of survey respondents listed the technology sector and half listed the financial sector as having the highest or second highest amount of leverage extended to them. A third of survey respondents listed energy investments as receiving the highest or second highest amounts of credit among sectors.
Apart from a greater risk appetite, many investors increased leverage because they expected lower volatility or higher future returns, survey respondents said.
The S&P 500 index climbed 19.4 percent in 2017. The CBOE Volatility Index stayed below its 20-year average through the end of that year but spiked in February amid a broad selloff in U.S. stocks.
Meanwhile, the S&P 500 is on track to post a loss in the first quarter of 2018. (Reporting by April Joyner Editing by Leslie Adler)