Investors in Australia have grown a little more cautious following double digit returns for equities since mid-2012, despite having only sparingly participated in the rally.

The May results of the Australian Investor Sentiment Survey by the Australian Investors' Association (AIA) and FNArena even suggests some money has been taken out of the share market prior to the mid-May sell-off.

Average cash levels for investment portfolios have risen slightly since the previous Survey in March, while the allocation to equities, despite ongoing gains, seems to have dropped slightly.

The flipside is that numerous respondents indicated they are looking to allocate more funds into equities, should opportunities arise.

Overall confidence levels remain elevated compared to the lows seen through 2011 and into mid-2012, but they have started to come off from the highs booked earlier this year.

There were numerous factors cited by survey respondents as to why they are growing increasingly uncertain about investment markets. The primary issues most often mentioned were the upcoming Federal Election, an unpredictable US economic recovery, economic softness in China, continued economic deterioration in Europe and a market that simply isn't perceived as trading on traditional fundamentals.

One un-named respondent summed up the general feeling quite well, saying: "I am cautiously optimistic for the future of the stock market. The recent gains have been very pleasing, but how long will they last? Obviously in the long term the market should push forward, but along the way there is always some worldwide calamity to reverse the forward trend."

The election theme also played out prominently in survey responses, with one investor predicting: "A slight rise over the next 3-4 months, then once the election is over, a really quick rise for 3 months to January 2014."

John said: "One could imagine that the majority of large companies, indeed all companies, will not be making important investment decisions in the lead-up to the Federal Elections. Sure, the outcome could well be predicted, but I would expect conservatism will prevail until the way forward is clearly established - after which time a return of confidence for both business and households will be experienced."

This uncertainty also carried over to the longer term sentiments of Australian investors. Fewer see the market higher in six months time, but then fewer see it down in six months time as well. Subsequently, there was a significant increase in those who see a flat market outlook for the next six to twelve months.

Another anonymous survey respondent said: "The market is running ahead of earnings, most high yield stocks are overpriced and a correction is overdue. Mining and mining services companies have corrected already, but will remain flat for the next 6-12 months."

A more upbeat survey respondent said: "I feel that markets and reality are disconnected at the moment (how unusual). But I'm happy to ride the bull cautiously at the moment."

Catherine said: "Low interest rates appear to be the only thing driving equities higher. The money, particularly, institutional funds, has to go somewhere."

The cash holdings component of the individual portfolio has increased since the last survey, but the average of 20% is still lower than the numbers seen over 2011-2012. This supports the widely held view there is still plenty of cash on the sidelines looking for the opportune time to enter equities.

The uncertainty that has crept into the Australian market over the past few months has slightly dented overall Investor Confidence. The current read of 58.4% is below the 60%+ reads from the past two reports, but remains high compared to past outcomes.

The Investor Sentiment Survey asked members at AIA and FNArena how they felt about the market and how they were invested. The Survey will be repeated in two months (July 2013). 319 respondents participated through the AIA and 214 through FNArena.