Interactive Investor

Silicon Valley Bank collapse sends Scottish Mortgage shares toward three-year low

13th March 2023 14:15

by Sam Benstead from interactive investor

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A US regional bank run has spooked the tech and financials sectors, which has negatively impacted sentiment around tech-focused portfolios, including Scottish Mortgage. 

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Scottish Mortgage Ord (LSE:SMT) shareholders have suffered another blow, as fallout from the collapse of technology lender Silicon Valley Bank, or SVB, has spread to the growth-focused investment trust.

Shares now trade at around 670p, their lowest level since May 2020, putting the Super 60-rated trust on a 16% discount to its net asset value (NAV).

Silicon Valley Bank provided banking services to some 10,000 small businesses, mainly in the US, as well as venture capital investment funds. Many of these were promising start-ups, such as Beyond Meat and UK group Trustpilot.

Scottish Mortgage, managed by Edinburgh-based fund manager Baillie Gifford, is one of the leading technology investors in the UK and has a portfolio of 52 private companies, worth nearly 30% of its £14 billion in assets. 

Its connection to Silicon Valley has hurt sentiment towards its shares, sending them 7% lower over the past five trading days. They have fallen 7% this year compared with a 2% gain for a global tracker fund.

Last week, SVB customers raced to withdraw $42 billion (£35 billion) of assets – a quarter of its total deposits – in a classic “bank run” after signs that the banks was insolvent due to a steep devaluation of its bond portfolio that had not been updated to current market prices.

The Bank of England mediated a bidding process for the UK arm of SVB, with HSBC agreeing to buy its assets and liabilities, while in the US the government and central bank stepped in to guarantee customer deposits at its US arm.

A number of Baillie Gifford funds, including Baillie Gifford US Growth , have positions in First Republic Bank, another California bank being targeted by investors. Its shares have fallen 75% in the past five trading days on fears around liquidity.

Baillie Gifford declined to comment on SVB or First Republic Bank.

According to Numis, the stockbroker, several other investment trusts have been impacted. Healthcare investor Syncona had 0.2% of its NAV in companies that bank with SVB. However, indirect exposure via investments of its portfolio companies, takes the figure to 6% of its NAV, according to Numis.

Of Augmentum Fintech’s 25 portfolio companies, two have balances with SVB UK, representing 2.6% of its NAV, according to Numis. The companies have sufficient funds at other UK Tier 1 banks to continue trading while a resolution is sought, Numis adds.

The broker understands that HgCapital Trust’s portfolio had no borrowing relationships with SVB, but did have some small deposits that are covered by the US Federal Reserve guarantee.

    Numis reckons the most direct exposure for any investment trust is Polar Capital Global Financials, which has around half its portfolio in banks and has seen its shares fall around 8% since mid-last week.

    Numis adds: “It is useful for companies to confirm their exposure to SVB Bank, and useful in some cases to clarify a lack of exposure if the fund operates in relevant sectors. It will clearly take time for some companies to establish their exposure, therefore there may be more announcements to follow, although it appears that government actions may limit the impact.”

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