What are we looking for?
Canadian exchange-traded funds and mutual funds exposed to U.S. regional banks such as Silicon Valley Bank.
One would have to purposely look away to avoid reading about the collapse of Silicon Valley Bank in this week’s news. It seems some analysts fear the effects of contagion, while others might believe that this is isolated specifically to SVB, citing poor risk management. Whatever your stance as an investor may be, volatility among regional bank stock might spell opportunity – either to trim back if you believe risks are abundant, or to buy more if you believe the risks are overstated. To help in this search, and to add additional colour, I looked at the world of ETFs and funds to understand which funds have the most exposure to U.S. regional banks. To find these funds, I used Morningstar Direct to screen for ETFs from Canadian-domiciled fund managers, or are mutual funds sold through discount brokerages (also known as D-class, which do not include a bundled fee for advice). I then ranked this list of roughly 2,000 funds on their exposure to U.S. regional banks (noting that this involves a look at both U.S. equity exposure, and regional bank industry exposure).
What we found
The top 20 ETFs and DIY mutual funds that met the above requirements are listed in the accompanying table, alongside their fees, categories, trailing performance, ratings, inception dates and portfolio dates. The list is sorted by a multiple of the regional bank and U.S. stock exposure columns, which indicates weightings exposure for each fund. Also noted on the table is whether each fund is actively managed (where buy and sell decisions are at the discretion of the portfolio manager), passively managed (where the portfolio follows a predetermined traditional stock index), or strategic beta (also known as smart beta, which is a hybrid between active and passive, leveraging rules-based investment rules to grant consistent exposure to an investment factor, like value, growth, dividends, and so on). Interestingly, very few of these funds are passively managed.
This article does not constitute financial advice. Investors are encouraged to conduct their own independent research before purchasing any of the investments listed here.
Ian Tam, CFA, is director of investment research for Morningstar Canada.
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