Most fund managers believe equities are fairly valued, and 85% think the economy will improve over the next 12 months, Merrill Lynch's monthly survey of fund managers shows. Their cash positions of 4% of assets this month remain at the same levels from the month before, and many are moving into general industrial and energy stocks.

However, they expect companies to begin to drive earnings not through continued cost-cutting but through top-line sales growth. Roughly half would also like to see companies use cash flow to rebuild their balance sheets rather than invest in capital expenditures.

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