Fund managers are becoming less concerned about Europe, and more worried about the looming U.S. “fiscal cliff”, according to the BofA Merrill Lynch Fund Manager Survey for September.

The survey reports that the EU sovereign debt crisis is no longer the top tail risk identified by investors. For the first time since April 2011, concerns about Europe have been surpassed by the U.S. fiscal cliff — with 33% of investors saying they most fear EU sovereign risk, down from 48% in August, and concerns about the U.S. now worrying 35% of global investors.

“Investors now view the U.S. fiscal cliff as a greater threat than the eurozone – and the upcoming election is putting these fears into sharper focus,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.

Along with this shift in sentiment, it reports that asset allocators have taken an overweight position in eurozone equities for the first time since February 2011, with a net 1% of global asset allocators now overweight the region compared with a net 12% underweight in August.

And, a net 9% say that the eurozone is the region they most want to overweight in the coming 12 months, compared with a net 5% naming it as their top prospective underweight in August.

“We have seen a 25% rally in European stocks from the June low, but sentiment on Europe has only just turned positive. Any extension of the rally is likely to be led by sector rotation and buying of unloved, domestically exposed stocks,” said John Bilton, European investment strategist at BofA Merrill Lynch Global Research.

Conversely, the survey found that investors appear to be moderating their bullish view of U.S. equities and have turned more bearish on Japan. The proportion of asset allocators overweight U.S. equities has ticked down to a net 11% from a net 13% in August, it says. And, a net 58% identify U.S. equities as the most overvalued globally (up from 51% a month ago) while a net 43% identify the eurozone as the most undervalued. Merrill says that this represents the greatest divergence between European and U.S. valuations in the history of the survey.

Additionally, it reports that sentiment on Japanese equities is turning more bearish. A net 24% of investors say Japan is the region they most want to underweight – double the level expressing that view in August.

The survey also finds that global economic sentiment continues to rise, but profit expectations have continued to fall. A net 17% of the global panel expects the world economy to strengthen in the coming 12 months, it says, yet a net 28% believe corporate profits will deteriorate over the same period, up from a net 21% a month ago.

It says that investors are growing impatient about low levels of investment, with a net 59% saying that corporates are underinvesting, and a net 41% saying that corporates should increase capital spending.

An overall total of 253 panelists with US$681 billion of assets under management participated in the survey from Sept. 7 to 13.