Some 36 percent of the 214 panelists surveyed for the bank's monthly fund manager poll, who are collectively running $604 billion, now view oil as undervalued following its recent price crash.
This reading is up over 20 percentage points since October and reflects oil's lowest level since 2009. Meanwhile, investors have bolstered their positions in European equities.
Read MoreBrent slumps to $59, WTI at $54 on oversupply
"We are seeing capitulation out of energy and materials to the benefit of the dollar, cash, euro zone stocks and global tech and discretionary stocks," said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Research.
"The prospect of European Central Bank (ECB) quantitative easing (QE) has brought growing consensus on European equities, but the weakening business cycle and falling commodity prices are working against true earnings recovery," said European equity and quantitative strategist at the bank, Manish Kabra.
Brent crude fell below $59 a barrel and U.S. oil prices briefly dipped below $54 a barrel on Tuesday, extending a six-month selloff as slowing Chinese factory activity and weakening emerging-market currencies added to concerns about demand.
Read MoreGross: US structural growth rate to be about 2% or less
Star bond fund manager Bill Gross said he anticipates economic growth in the U.S. to fall to 2 percent next year as a result of the decline in the oil price and expects it will be "very difficult" for oil prices to stabilize.
"Oil determines currency movements; currency movements determine spread markets, risk markets, high yield markets, the potential for bankruptcy or solvency for not only companies but countries," Gross said in an exclusive interview with CNBC on Monday.
"There are oil producers in South America, such as Venezuela that certainly have that potential (of bankruptcy)," he added.
Read MoreGreece can't afford another crisis: Former PM
Investors see deflation as the big risk in 2015 according to some 69 percent of fund managers polled by BofA ML, as inflation expectations have now fallen to their lowest level since August 2012.
European economist at Capital Economics, Jennifer McKeown said the falling oil price adds to the already significant risk of deflation in the euro-zone, which ultimately strengthens the case for a full-blown bond-buying program from the ECB.
This, coupled with the recent resurgence of the economic crisis in Greece, increases the risk of deflation, supporting the view that "the ECB will announce sovereign debt purchases next month," she said.