A number of Canadian mutual funds and institutional investors have taken a hit on U.S. bank stocks, particularly Silicon Valley Bank and Signature Bank, the two institutions that failed last weekend.
The government seizure of the two banks likely means their shares will fall to zero when they resume trading. And the shares of a number of other regional banks, previously believed to be healthy, tumbled by 30 per cent to 50 per cent this week as U.S. regulators tried to halt the contagion.
SVB, Signature and a number of the banks are members of the S&P 500, which will trim returns on many broad U.S.-based equity funds held by Canadians. But the shocking drops in the bank stocks will have a bigger impact on bank-sector funds. And in the case of Silicon Valley Bank, another fund category is feeling the pain: ESG and other socially responsible funds.
To analyze the impact, The Globe and Mail obtained fund-specific data from Morningstar Direct. The Globe also reviewed data from S&P Global Market Intelligence, based on institutional investors’ U.S. securities filings.
Silicon Valley Bank collapse: What’s next for banks and investors?
All of the holdings disclosures date back months, as the funds and institutions are only required to list positions quarterly or semi-annually. So some funds or institutional holders may have sold shares before the stunning collapses. SVB hit a 52-week high of US$597.16 a little over a year ago and traded at nearly US$350 in early February. Signature also hit a 52-week high of US$328.88 in March, 2022, and traded at nearly US$150 in early February.
According to Morningstar data, three funds had at least 2 per cent of their portfolios in Silicon Valley Bank as of their most recent holdings report: the BMO SDG Engagement Global Equity Fund (2.37 per cent, in late August); the Franklin Global Growth Fund (2.31 per cent, in late January) and the Scotia Wealth Global Equity Pool Fund (2.08 per cent, also in late January).
Those weightings are more than triple the concentration of SVB compared with the stock’s 0.64-per-cent share of market capitalization of a group of U.S. and Canadian bank stocks that trade on major exchanges as of Dec. 31, according to Globe research based on S&P Global Market Intelligence.
SVB was a significant lender to green-energy and cleantech companies, and trumpeted the business. Its website tells potential clients, “Let us help you drive positive change with our powerful energy banking and lending solutions, expert insights and advice, and unmatched industry connections.”
SVB’s climate-change focus, coupled with its past donations to left-leaning causes, has made the bank failure a political football in the United States, with right-leaning commenters claiming it failed because it was “woke.”
Asked for comment on the holdings, Bank of Montreal spokesperson Jeff Roman pointed to public disclosures to note that the SVB position, as of Sept. 30, made up $41,000 of a $1.868-million fund. Asked if BMO has trimmed the position, Mr. Roman would only note that SVB was not included in its disclosure of its top-25 holdings as of Dec. 31.
Franklin Templeton Canada spokesperson Sarah Kingdon said that as of March 9 – when SVB had dropped to US$106.04 from its highs – the SVB weighting in its Global Growth Fund was 0.84 per cent. “Franklin Templeton has negligible exposure to Silicon Valley Bank and Signature Bank at a firm level, including as it relates to the firm’s banking relationships.”
Bank of Nova Scotia spokesperson Heather Armstrong declined to comment.
Six other Canadian funds had between 1 per cent and 2 per cent of their holdings in SVB as of their most recent reporting dates, including the BMO Sustainable Opportunities Global Equity Fund, the RBC Vision Fossil Fuel Free Global Equity Fund and the Mackenzie Betterworld Global Equity Fund.
Royal Bank of Canada spokesperson Chris Dotson said, “Our exposure to SVB equity is negligible across our asset base. It is currently held in two funds where it comprises 0.05 per cent or less of portfolio holdings.” Mackenzie did not return requests for comment.
New York-based Signature Bank was smaller than SVB – its market capitalization at Dec. 31 was US$7.2-billion versus SVB’s US$13.6-billion – and was known better for its emerging crypto business than any connection to environmental, social and corporate governance matters.
There were 10 Canadian funds with between 1 per cent and 1.28 per cent of their portfolios in Signature Bank as of their most recent holdings report, led by the Mackenzie US Mid Cap Opportunities Fund. Including currency-hedged versions of their funds, seven of the 10 funds with Signature positions were Mackenzie funds.
While no mutual funds managed by Canadian Imperial Bank of Commerce had high levels of either banks, three Canadian Imperial Bank of Commerce subsidiaries owned 534,304 shares of SVB as of Dec. 31. That represented about one-third of the total holdings of all Canadian institutional investors disclosed in the S&P Global Market Intelligence database.
Nearly all were held by CIBC Private Wealth Advisors Inc., a U.S.-based subadviser for Canadian funds. CIBC spokesperson Tom Wallis said “less than half” of those shares were held by Canadian investors. Across CIBC’s asset-management portfolios in Canada, he said, SVB and Signature Bank shares composed about 0.38 per cent of certain U.S. stock funds, including index products, at Dec. 31, 2022. “The majority of the shares were held in actively managed mandates and have been divested since that time.”
Canada’s big pension funds reported little to no SVB holdings as of Dec. 31. Caisse de dépôt et placement du Québec, which lists the U.S. stocks it holds through indexing strategies, had the largest amount: 19,448 shares, worth less than US$4.5-million, at Dec. 31. That’s slightly more than one-one-thousandth of 1 per cent of the Caisse’s $400-billion in assets on Dec. 31.
The SVB and Signature collapses have launched a broader contagion, with shares of multiple U.S. regional banks dropping sharply. Among the biggest decliners – and the most widely held in Canadian funds – is San Francisco-based First Republic Bank.
There were 17 Canadian funds with at least 2 per cent of their portfolios in First Republic Bank as of their most recent holdings report, according to Morningstar data.
Clare O’Hara
David Milstead