Should the recent US bank failures be of concern for my investment portfolio?

The short answer is no.

You need not to be concerned about single company failures.  In a well-diversified investment portfolio that is actively managed the recent bank failures will have little or no impact.

What happened?

Silicon Valley Bank (SVB) was a large, and very unusual bank dealing almost exclusively with tech startups. SVB share price showed an incredible rise during 2020 and 2021. The stock returned investors around 180% in that two year period. During 2022 the market changed rapidly for banks; interest rates increased faster than anticipated. This caused bond values to decrease. US banking laws require banks to report these unrealized losses on their bonds in their financial information. Once the market was aware of these losses, depositors lost confidence in the bank and started withdrawing their funds. This run on the bank became a self-fulfilling prophecy. The run on Credit Suisse was a similar story.

Governments and regulators in the United States and Switzerland reacted swiftly to guarantee depositor funds, i.e., the depositors of these banks will get all their money back. This has avoided any spread of panic in the financial services sector and potential issues for other banks. This was similar to what the New Zealand government did during the global financial crisis in 2008 and guaranteed the New Zealand registered banks deposits.

Some of the fund managers that we use did previously invest in Silicon Vally Bank prior to the issues, but had already sold out well before the failure hit the headlines. Nikko Asset Management, for example, sold their holding from their Global Share Fund in September 2022.

Even if fund managers still had some exposure to SVB, it would have been very minor. For example, if you had 5% of your portfolio in one fund, and that fund had a 5% holding in one company that came into trouble, your total exposure would be 0.25%. Portfolios fluctuate by a quarter of a percent from day to day.

If you do have any further questions or want more information please get in touch, we are only a phone call away.