Renewed worries about Europe are causing investors to scale back both their risk-taking, and their expectations for global growth, according to the BofA Merrill Lynch Survey of Fund Managers for April.

The latest version of the survey reports that investors have increased cash positions significantly since March, with a net 24% of global asset allocators now overweight cash, up from 6% last month. Average cash balances rose to 4.7% of global portfolios from 4.2% in March, it says.

Similarly, the proportion of asset allocators that are overweight equities is down to a net 26% from 33% in March. And, the survey finds that investors have increased their allocations to pharmaceuticals, a counter-cyclical sector, while reducing positions in cyclical sector, materials.

Merrill Lynch says that these shifts in asset allocation are coming as concerns over European state finances have risen sharply, with 54% citing EU sovereign debt funding as the number one tail risk, up from 38% in March. Spain is named as the European sovereign most likely to provide a negative surprise in 2012, followed by France.

“Investors have moved to a more neutral position after positive shifts in sentiment and risk taking in the first quarter. We believe investors will retain a sense of caution throughout the second quarter,” said Michael Hartnett, chief global equity strategist at BofA Merrill Lynch Global Research.

“The survey highlights that while investors’ primary concern in the EU is Spain’s economy, the outcome of and uncertainty around France’s elections is also figuring high in their decision making,” said Gary Baker, head of European equities strategy.

Additionally, the survey reports that the prospect of further bad news about EU sovereign funding has ended four successive months of increasing optimism over global growth and reawakened interest in quantitative easing. Now, a net 20% of the panel predicts that the global economy will strengthen in the coming year, down from 28% in March. And, a net 3% of investors expects corporate profits will worsen in the next 12 months, compared with a net 6% predicting an improvement in profits last month.

Amid this reduced optimism, investors are predicting more QE from both the U.S. Federal Reserve and the European Central Bank. Only 36% of the global panel expects no further QE from the Fed, down from 47% in March. And, 44% of investors are expecting ECB to engage in more direct large scale QE before the end of the third quarter, up from 34% a month ago.

On a geographical basis, the survey reports that many global investors have increased allocations to U.S. equities. A net 27% of global asset allocators are overweight U.S. equities in April, up from 14% in March. The U.S. is also the region that a net 18% of the panel would like to overweight, up from just 2% last month.

An overall total of 256 panelists with US$706 billion of assets under management participated in the survey from April 5 to 12.