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Bloomberg Intelligence calls SVB ‘the next Russia’ as USD6.5 bn is wiped off passive funds

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New research from Bloomberg Intelligence has found that at least USD6.5 billion has been wiped off the market in the form of losses in mutual funds and ETFs in the wake of Silicon Valley Bank’s (SVB) collapse, as investment advisers account for 71 per cent of the lender’s ownership, thanks to passive funds. ETFs that hold SVB will still trade even as the stock’s weighting drops to zero. The sell-off may continue as contagion fears ripple across markets, the firm says.

The failed lender’s largest owners are Vanguard, BlackRock and State Street, with their holdings largely in passive ETFs and mutual funds. These three issuers account for 75 per cent of the total US ETF AUM. MSCI announced on March 13 that as of the next day, SVB Financial Group will be deleted from its indexes, not wasting any time. Other index providers may follow suit, but any impact may be minimal as the shares are already worthless and any fund holding SVB would have already seen a drop in value.

Rebecca Sin, BI Senior ETF Analyst, comments: “ETF holdings of SVB total USD1.3 billion, with the top categories being equity large cap with USD306 million, followed by US equity with USD173 million and financial-stock ETFs with USD163 million. We observe that contagion is starting to spread to these sectors as investors become increasingly nervous.  

“ETFs holding SVB face the same fate as most Russia-linked ETFs as the weighting of the failed lender turns into zero, identical to Russian stocks’ and benchmarks’ weighting in global indexes after the country invaded Ukraine in February 2022.”

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