Why Some SVB Investors Could Dodge a Bullet

The federal government has assured that depositors of Silicon Valley Bank and Signature Bank, which were shut down and seized by regulators last week, would get all their money back whether they’re insured by the Federal Deposit Insurance Corporation or not. But investors of the troubled banks—and many of their peers—are not out of the woods just yet.

Take Silicon Valley Bank. By the end of 2022, nearly half of SVB shares were held by investment advisors, about 30% in mutual funds, 10% in hedge funds, and 8% in pension funds, according to data from
FactSet.
Trading in the stock was halted on Friday after share prices fell by 60% the day before.

A lot of SVB shares are held through investment funds from major asset managers. Vanguard alone held more than 10% of the stock, mostly in large index funds such as the
Vanguard Total Stock Market Index Fund
(VTSMX), the
Vanguard Mid-Cap Index Fund
(VIMSX), and the
Vanguard 500 Index Fund
(VFINX).
State Street
(STT) and
BlackRock
(BLK) funds each hold about 5% of SVB stocks, followed by Alecta Pension Insurance Mutual,
JPMorgan Chase
(JPM), and
Artisan Partners.

But investors in these funds won’t see a significant impact from SVB’s fallout. Thanks to the funds’ large size and diversified portfolios, SVB only makes up a fraction—usually between 0.01% and 0.05%—of their holdings. According to the latest filings compiled by FactSet, no U.S.-listed fund has more than 1% of their portfolio invested in SVB.

Things are more concerning for
Signature Bank
(SBNY), one of the main banks for cryptocurrency companies and a popular bet for funds focusing on blockchain and digital payments. Trading in Signature Bank shares was also halted after the stock plunged 23% last Friday.

The Europe-listed
Wisdomtree Blockchain UCITS
exchange-traded fund (Italy.WBLK), for example, had 9% of its portfolio in Signature shares at the end of February. The Taiwan-listed
Cathay Global Digital Payment Services
ETF (Taiwan.00909) had about 3% exposure.

Likewise, the U.S.-listed
Grayscale Future of Finance
ETF (GFOF) and
First Trust Skybridge Crypto Industry & Digital Economy
ETF (CRPT) had 4.4% and 2.8% of their assets invested in Signature, respectively, by the end of February. The First Trust fund has sold all its shares in the bank as of last Friday, according to the asset manager’s website. It’s unclear whether the transaction took place before or after the crush.

The damage is not limited to the two banks that were recently closed down. Shares of other regional banks continued to drop on Monday as well. Investors are concerned that the smaller lenders might not be able to meet any surge in redemption requests, even after the Federal Reserve said it would make funding available for banks that require them.

San Francisco-based
First Republic Bank
(FRC), for example, saw its shares falling 62% on Monday after declining 33% last week. The bank caters mostly to wealthy clients, which means most of its deposits are beyond the FDIC’s insurance limits of $250,000. Investors are worried about First Republic’s liquidity in the event of a bank run like the one SVB saw last week.

U.S. funds with large exposure to the First Republic stock include the
Ensemble Fund
(ENSBX), the
iShares U.S. Regional Banks
ETF (IAT), and the
Saratoga Large Capitalization Growth Portfolio Fund
(SLCGX), according to latest filings.

Still, funds focused on regional banks in general bore the most brunt in the recent selloff. The
SPDR S&P Regional Banking
ETF (KRE) tumbled 12.3% on Monday; the
iShares U.S. Regional Banks
ETF (IAT) plunged 14.4%; the three-time leveraged
Direxion Daily Regional Banks Bull 3X Shares
ETF (DPST) suffered even more, as expected, losing more than one third of its value on Monday alone.

Write to Evie Liu at evie.liu@barrons.com

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