Investor strategy is slowly returning to a "normal level" of risk-taking as 35% of fund managers now see the global economy strengthening next year. Only 15% reported the same sentiment last month, according to the latest Bank of America Merrill Lynch Survey of Fund Managers. The fund managers remain bearish on sovereign debt, especially in Europe, and mortgage-backed bond trading, preferring to focus on corporate debt, commodities and equities. This tactic is the result of recent quantitative easing by the Federal Reserve, the survey conducted last week among a total of 218 fund managers, who manage $634 billion in investments. Recently within the securitization space, a survey by technology provider Principia Partners found that three out of five asset-backed and mortgage-backed securities investors plan to increase their activity within the next 12 months. The fund managers BofA talked to don't feel the same way. Their investments are also trending toward going short, with concerns of cash holdings rising along with expectations of inflation. According to the survey, 30% of respondents say their investment time horizon is shorter than normal, up from 25% a month ago. "Following QE2, we have witnessed a capitulation into risk assets to a degree that history suggests should prompt concern. Cash holdings, especially, are dangerously low at 3.5% of portfolios," said Gary Baker, head of European Equities strategy at BofA Merrill Lynch. Commodities offer a hedge against inflation, which nearly half of those surveyed are expecting over the next 12 months. Allocations to bonds slipped further with a net 36% of the participants' investments were underweight in bonds in November, up from a net 24% in October. "It's possible that the year-end rally has already happened, leaving investors vulnerable to event risk such as a deepening European sovereign debt crisis or a dollar rally," said Michael Hartnett, chief Global Equity strategist at BofA Merrill Lynch. Write to Jacob Gaffney. The author holds no relevant investments.