Investors flee stocks, corporate bonds ahead of U.S. election: Lipper

November 3, 2016 5:53 PM EDT

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By Trevor Hunnicutt

NEW YORK (Reuters) - Investors fled U.S.-based stock and bond funds in the latest week, finding refuge in cash ahead of the U.S. presidential election, Lipper data showed on Thursday.

Nearly $7.7 billion fled taxable bond funds in the seven days through Nov. 2, the largest weekly withdrawals this year by a wide margin.

The retreat came just days before Election Day. Some polls showed a tightening race between Democrat Hillary Clinton and her Republican rival Donald Trump, roiling markets.

Meanwhile, Federal Reserve policymakers, widely expected to hike U.S. interest rates in December, said in a statement on Wednesday they see inflation quickening. Rising rates and inflation could be a toxic combination, eroding bond prices.

"In a time like this, between the Fed and the election, everyone's looking for safe havens," said Pat Keon, research analyst for Thomson Reuters Lipper. "Everyone's just looking for safety."

U.S.-based equity funds recorded $3.4 billion in withdrawals during the latest week, the data showed, adding to a poor run for sales of many stock funds.

The U.S. bond fund outflows were a striking turnabout for investments which have largely been in favor with investors since February. The funds have took in $193 billion this year through September, according to the Investment Company Institute, a fund industry trade group.

Yet the $4.1 billion redemption for products invested in riskier, high-yield debt, during the latest week amounts to the largest outflows since a August 2014 market rout, Lipper data showed. The funds' average -1.2 percent return during the latest period is its worst showing since February.

And the $2.5 billion pulled from investment-grade corporate bond funds was the most pulled since December 2015, when sinking oil prices pushed some energy firms to the brink of collapse.

Concern about oil prices has also returned, with U.S. crude sinking 13 percent from $51.60 about two weeks ago to settle at $44.69 on Thursday.

Emerging markets stock and bond funds also fell out of favor, Lipper said, recording withdrawals of $397 million and $346 million, respectively.

Money market funds, where investors park cash, attracted $22 billion, the highest inflows since June, Lipper said.

Likewise, safe-haven Treasury bond funds took in $998 million. Bond funds designed to hold their value as inflation ticks up took in $724 million, according to the fund research service.

Financial sector funds took in $366 million in their biggest haul since August, Lipper said. Banks are expected to earn more from lending as benchmark rates rise.

(Reporting by Trevor Hunnicutt; Editing by Dan Grebler)

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