One of those sectors is financial services, particularly banks. However, we should also want our bank stocks to offer some sort of sustainable growth.
With that in mind, here’s one bank stock in the US that can offer investors both growth and positive exposure to rising interest rates.
Banking for tech companies
One lesser-known bank in the US is a mid-sized bank named Silicon Valley Bank (SVB), with its parent being the listed SVB Financial Group (NASDAQ: SIVB).
As the name suggest, SVB actually has a thriving lending business that services the burgeoning entrepreneurial market in the US, including venture capital (VC), start-ups, and private equity (PE).
Given the explosion in the popularity of private markets, this is an increasingly lucrative space to be operating in.
According to PitchBook, a data provider, global VC investment was set to hit US$580 billion in 2021 – up nearly 20-fold from the number in 2002.
That’s because, as public markets become more expensive and efficient, institutions and accredited investors are looking to access opportunities earlier in the lifecycle of companies.
That’s where SVB comes in. It provides a range of banking services to this cohort of companies, from private wealth management, lending, credit card fees and investment banking.
SVB is currently the bank of choice for 50% of US venture-backed technology and life science companies while it was also involved in 60% of venture-backed technology and healthcare IPOs in the first nine months of 2021.
Not only that but SVB also has some solid fundamentals. This has supported its consistent performance which has seen its stock outperform the Nasdaq-100, clocking in over 310% in share price returns over the past five years.
That’s mainly down to a strategy of increased focus of its core market and smart bolt-on acquisitions that has grown its total addressable market (TAM).
The result has been some phenomenal operating metrics, including a Return on Equity (ROE) figure of 12.5% in its latest quarter, as well as net interest income (NII) of US$859 million in the third quarter – up an impressive 17% quarter-on-quarter.
Its consistency has been helped by a supportive growth backdrop and a sustainable increase in its commercial client count as well as above-average ROE (see below).
Source: SVB Q3 2021 earnings presentation
Hedging growth in your portfolio
For investors who continue to want to play both sides of growth stocks and more “stable” names such as banks, then SVB Financial fits the bill.
That’s because the bank is already profitable and will continue to benefit from rising interest rates with its NII set to increase through this year.
With more professional money flowing into private markets looking for attractive returns, this is a bank that also has growth on the agenda and is one stock investors can buy and hold until this decade is out.
Disclaimer: ProsperUs Head of Content & Investment Tim Phillips doesn’t own shares of any companies mentioned.
Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.
He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.
In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.