How Are My Funds Affected by the Banking Crisis?

Key Takeaways

• Losses were pretty muted because not many funds held the troubled banks, and most of those that did had positions under 2% of assets.
• There were some funds with direct exposure to the hardest-hit bank stocks that took double-digit losses, but they’re not in extreme pain.

Russ Kinnel: It’s been a stressful week on Wall Street as a run on Silicon Valley Bank SIVB spurred big selloffs in shares of firms considered to be vulnerable and milder declines in the broader financials sector. But at this point, it’s really a ripple not a wave for fund investors. Through March 15, the one-week loss of small value on average is 8.1%, for mid-value it’s 7.4%, and the average small-blend fund lost 7.0%.

It’s the lower left corner of the style box that’s been hit hardest because that’s where regional banks live. Over in large growth, which is almost completely devoid of bank stocks, the category is down only 2%.

Bond funds are also an interesting story as a flight to quality and fears of a recession led to a rally in government bonds. Long government bond funds gained more than 4%, and even short-term government funds gained nearly 2%. Fears of credit risk, though, dropped high-yield bond funds about 1%.

There were some funds with direct exposure to the hardest-hit bank stocks, and those funds took double-digit losses, but they’re not in extreme pain. For example, Diamond Hill Mid Cap DHPAX lost about 13% on the week in part because of a 3.5% weighting in Silicon Valley Bank. Hotchkis & Wiley Mid-Cap Value HWMAX dropped 11%; although it didn’t have Silicon Valley Bank, it did have a lot of financials and other real estate plays that have been hurt.

For the most part, losses were pretty muted because not many funds held the troubled banks, and even those that did held positions of less than 2%. Diversification in fund portfolios has really helped here because only a few names have blown up.