Institutional investors are almost unanimous is expecting a Greek default, yet there are signs sentiment is improving, according to the latest survey of fund managers from BofA Merrill Lynch Survey.

The October survey found that 92% of respondents believe that Greece cannot avoid default. Additionally, seven out of 10 respondents are predicting a default by April 2012.

Despite this overwhelming consensus, investors are less worried about sovereign risk than a month ago and less pessimistic about global growth, the survey also found. Sovereign debt funding in the European Union remains the biggest tail risk in investors’ minds, with 61% citing it as their number one concern, but this is down from 68% last month.

Additionally, the proportion of the panel expecting a global recession in the coming 12 months has fallen to a net 25% from a net 40% in September. And, a net 15% believes growth will weaken in the coming year, down from 17% in September.

“The survey shows investor consensus has priced in, or hopes for, an orderly default by Greece,” said Michael Hartnett, chief global equities strategist at BofA Merrill Lynch Research.

“Europe appears back from the brink. But it seems investors are waiting for the all clear from both Europe and emerging markets before committing cash,” added Gary Baker, head of European equities strategy at BofA Merrill Lynch Research.

Still, negativity towards the region has eased, it says. A net 7% of the panel now says that the eurozone is the region they would most like to underweight in the coming 12 months, down from a net 40% in September. More investors (a net 8%) would underweight Japan in the coming year.

Currently, a net 29% of asset allocators are currently underweight eurozone equities, down from a net 38% in September. Sentiment towards the UK has also improved, it reports, with 12% now underweight UK equities, compared with 26% a month ago.

Despite these signs of improving sentiment, risk aversion remains close to September’s highs, Merrill notes. Average cash balances have increased slightly to 5% of portfolios, up from 4.9% in September. And, a net 39% of asset allocators are now overweight cash (up from 36% last month).

Also, a net 7% of asset allocators are underweight equities, up from 5% in September. Only a net 9% of asset allocators say they are overweight emerging market equities in October, compared with a net 30% in September. The panel has also moved slightly underweight on commodities, after having been slightly overweight in September.

With emerging markets and commodities losing favor this month, only one cyclical investment remains popular, Merrill says, with technology retaining its position as the world’s favourite sector. Pharmaceuticals and staples, more defensive investments, rank second and third, respectively. A net 34% the global panel remains underweight banks this month, down from a net 47% in September.

An overall total 286 panelists with US$739 billion of assets under management participated in the survey from October 7 to 13.