"Investors are, on balance, nervous about the current level of markets and over the next few months are likely to take up the opportunity to build up their cash positions," said Bryan Allworthy, a Merrill Lynch strategist.
The latest survey of continental fund managers also points to diminishing concern over instability in the Asian economies, although European fund managers are still reducing their positions in Japanese equities.
Fund managers' brief flirtation with pharmaceutical and financial stocks appears to be drawing to a close, with more cyclical stocks such as chemicals and engineering coming to the fore again.
Mr Allworthy said: "Industrial companies have been reporting better than expected earnings ... in this environment growth companies are less exciting than they were."
Continental fund managers were, on balance, broadly neutral towards UK equities, with buyers and sellers roughly equally matched.
But when it came to continental European equities, buyers outnumbered sellers by 12 per cent. More than three-quarters of respondents believe European companies will undertake significant restructuring as a response to EMU, Merrills said.Reuse content