Sustainable funds haven't been spared in the implosion of Silicon Valley Bank, as more than 12% of the products with exposure to the stock have sustainable or ESG mandates, according to data released Tuesday by Morningstar.
Seventy of the 570 U.S. mutual funds and ETFs holding SVB Financial Group stock claimed to be sustainable or ESG in nature. However, only a small proportion of most funds’ assets — ESG or otherwise — were exposed to SVB. For conventional funds, the average allocation was 0.29%, and for sustainable funds it was 0.33%, according to Morningstar.
“The impact of SIVB’s fallout was muted for broadly diversified portfolios,” Bryan Armour, Morningstar's director of passive strategies research for North America, said in an announcement. “Actively managed mutual funds with concentrated portfolios tended to be the ones caught with the largest stakes in SIVB. Managers of these funds may have sold some of their stake before the stock dropped too far — performance should be telling.”
The fund with the highest level of exposure to SVB, as of the end of 2022, was the Cromwell Tran Sustainable Focus Fund, at 4.39% of its net assets. Behind that was the Morgan Stanley Institutional Fund Global Concentrated Portfolio, at 4.09%. Other sustainability-themed funds with higher levels of exposure to SVB were the Mirova Global Sustainable Equity Fund (2.7%), Mirova US Sustainable Equity (2.19%), the abrdn US Sustainable Leaders Fund (1.43%) and abrdn US Sustainable Leaders Smaller Companies Fund (1.3%), the AB Sustainable US Thematic Fund (1.21%) and the AB Sustainable Global Thematic Fund (1.19%), according to the data from Morningstar.
The only U.S. target-date mutual fund family with exposure to SVB was the Natixis Sustainable Future series, although its allocations to the stock were near zero, ranging from 0.01% to 0.03%, depending on the fund vintage.
Actively managed sustainable funds had higher allocations to the stock than did active conventional funds, at 0.57% versus 0.46%, according to Morningstar. However, the opposite was the case for passive funds, as those with sustainability mandates had 0.06% exposure, versus 0.09% for conventional funds.
“Reasons that ESG fund managers might invest in banks vary by style and approach. Some sustainable funds might look to invest in banks for the solutions they fund, such as improving access to housing for low-income populations (by way of access to affordable mortgages),” Alyssa Stankiewicz, associate director of sustainability research at Morningstar, said in the firm’s announcement. “ESG funds might also invest in banks that they view as funding disruptive technologies for the renewable energy transition. While I can't speak to specific fund manager theses for investing in SVB, part of their business was geared toward financing innovative climate technology, which is often a focus for ESG funds."
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