Mutual funds Morgan Stanley and BlackRock exposed to regional bank failures
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The mutual funds managed by Morgan Stanley, Fidelity, and BlackRock have the highest exposure to the collapsed Silicon Valley Bank and Signature Bank. The US banking sector has been facing a crisis triggered by the collapse of two of the largest banks that have wiped over $100 billion worth of value from US banks.
Morgan Stanley, Fidelity, and BlackRock exposed to bank failures
According to analysts, few US funds held positions that appeared to be large enough to damage their financial positions. However, if there are more selloffs across regional bank shares, declines could be on the way and increase pressure on these banks.
Mutual funds have a reputation for portfolio diversification. Nevertheless, the strength of the portfolio depends on the other assets the fund owns. The region’s uncertainty and risks could affect the broader financial sector and present a challenge.
Morgan Stanley’s $102 million Institutional Global Concentrated Portfolio Class R6 has 4.1% of the assets held up at Silicon Valley Bank at the end of December last year. This was the second-highest allocation compared to all US mutual funds. On Friday, the fund plunged by 3.3%.
On the other hand, BlackRock’s $3.9 million Future Financial and Tech ETF had 3% of its assets held up in Signature Bank and 1.7% of the assets held at Silicon Valley Bank as of the end of December 2022. The ETF dropped by 5.87% in the last 24 hours.
Fidelity Disruptive Finance Fund, valued at $47 million, had 4.2% of its portfolio held up at Signature Bank and 2.3% at Silicon Valley Bank at the end of December 2022. The fund dropped by 4.5% on Friday after the news of SVB’s closure.
Crisis in the US banking system
The concerns around the strength of mutual funds come as regulators in the United States shut down Signature Bank on Sunday. Signature Bank was shut down shortly after the closure of Silicon Valley Bank. SVB became the second-largest bank that has collapsed in the United States.
The shareholders of both Silicon Valley Bank and Signature Bank were wiped out. However, US regulators, including the Federal Deposit Insurance Corp (FDIC), announced a raft of emergency measures to secure the customers of the two banks. The regulators said that the depositors at the two banks would be made whole.
On Monday, the shares of regional US banks dropped amid contagion fears. The First Republic Bank dropped by over 65%, while Zions Bancorp dropped by over 25%. The trading of some bank stocks was also halted on Monday because of increased volatility.
Before the collapse of SVB, financial shares had attracted much interest from US investors. There were expectations that the increased interest rates would trigger a rise in bank margins. Last week, financial stocks saw an inflow of $500 million, the third-largest compared to other sectors.
