SVB Financial Corp: US Fund Closures Hinted at Trouble Ahead
- Steve Holden
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Long-Term Trends & Short-Term Fund Activity
SVB Financial Corp had enjoyed strong ownership growth among active US Equity Funds over the last decade. Moving from a relative unknown in 2008, fund ownership peaked with 12.2% of managers holding a position in early 2022. Since that peak though, our data shows a significant u-turn in sentiment, with average weights plummeting (ch1) and the percentage of funds invested in SVB falling heavily (ch3). In essence, active US investors raised the alarm bells well before SVB’s troubles came to light.
Since the most recent peak in July of last year, the declines in SVB Financial Corp ownership were the largest among US Banking peers, as the below charts show. The drop in average weights (ch1) and the percentage of funds invested (ch2) were the largest of all the US Banks, and highlighted a distinct reversal in sentiment. US managers instead raised allocations in the large cap Banks of JP Morgan, Wells Fargo and Bank of America.
Fund Activity & US Banks Latest Positioning
The decline in exposure was driven by US Growth funds, led by closures from Columbia Large Cap Growth (-2.47%) and Threadneedle American Fund (-1.65%). Whilst closures outnumbered openings over the period by a factor of 2, new positions were not uncommon, with Hermes Large Cap Value (+1.6%) and Invesco Charter (+0.95%) among the larger openings.
As of the end of February 2023, SVB Financial Corp was the 12th mostly widely held US Bank and the 15th largest average weight among US active investment funds. With just 8.5% of funds holding a position, SVB’s collapse does not represent a significant risk to the vast majority of the 295 active US funds in our analysis.
Conclusions and Latest Fund Positions
Those potentially most at risk are listed in the chart opposite, which shows the largest holders as at the end of February 2023. It should be noted that with delays in fund reporting, these funds could have closed out before the main share price collapse last week.
It’s also worth considering that given the decline in SVB Financial Corp ownership in recent months, should such a move have created a red flag for investors? Are moves like this precursors to a bigger event? Obviously, not in all cases, but we would say that any big move in ownership represents something of a signal, that active managers have assessed the investment case and have decided to cut exposure i.e something has changed. This doesn’t mean the company is about to go bankrupt, but it does mean that the investment case has taken a turn for the worse, relative to other companies.
We would group stocks seeing large negative moves together with stocks that are lightly owned compared to their benchmark weight, such as with the Adani Group of companies in Asia. At the very least, managers should reasses the investment case in all stocks with these attributes, in my view. After all, our research simply groups together the investment convictions of hundreds of experienced active managers – we’d like to think there was some alpha in that information.
To end this blog, check out the below chart dashboards. The first shows stocks with the largest falls in ownership per sector across our US Fund universe, over the last 7-months. The second a list of stocks that are in the SPDRs S&P 500 ETF that are owned by less than 5% of the US funds in our analysis. Tread with caution.
For more analysis, data or information on active investor positioning in your market, please get in touch with me on steven.holden@copleyfundresearch.com
