Index fund net security lending income (2018)

Index fund investors can select low cost index funds from large, well-known firms such as Fidelity, Schwab, and Vanguard. One aspect of index fund investing involves the income generated by a fund lending its securities to institutional borrowers. A fund’s Statement of Additional Information to a fund prospectus itemizes security lending income and expenses so that the net percentage of gross security lending can be determined. In aggregate, Schwab and Vanguard delivered a larger percentage of security lending income than Fidelity in the 2018 fiscal year. Note that the reported fiscal year can differ somewhat between an annual report and a prospectus.

A summary of aggregate security lending income for the three firms is provided below.

FirmGrossExpensesNet Net Pct.
Schwab 26,641,774 3,505,471 23,136,303 86.84%
Vanguard 816,543,338 141,311,627 675,231,711 82.69%
Fidelity 146,753,323 88,608,558 58,144,765 39.62%

Fidelity security lending

Fidelity provides index funds for investors. During the 2018 fiscal year Fidelity incurred security lending expenses fees paid to lending agents from revenue splits, fees for collateral services, and rebates to borrowers. In aggregate, Fidelity index fund security lending returned 39.62% of gross security lending income to the funds.The percentage return ranged from a low of 17.35% for the Fidelity 500 Index Fund to a high of 72.30% for the Fidelity International Index Fund.

Fidelity index fund security lending (2018)

FundGrossExpensesNetNet Pct.
500 index16,689,14413,793,9812,895,16317.35%
Extended 72,688,18341,728,56530,959,61842.59%
Large Growth 165,297112,93152,36631.68%
Large Value 86,19262,11024,08227.94%
Mid cap 5,027,1214,125,624901,49717.93%
Small cap 15,430,3487,643,5957,786,75350.46%
Total market30,527,45518,649,44511,878,01038.91%
Emerging857,763663,865193,89822.61%
Global ex-us 1,055,996601,085454,91143.08%
International4,029,2701,116,2562,913,01472.30%
Total international 196,554111,10185,45343.48%
Aggregate 146,753,32388,608,55858,144,76539.62%

Schwab security lending

Schwab provides both index funds and exchange-traded index funds. During the 2018 fiscal year the dominant security lending expenses incurred were rebates to borrowers. In aggregate, Schwab index fund security lending returned 86.84% of gross security lending income to the funds. The percentage return ranged from a low of 81.62% for the Schwab US Large Growth ETF to a high of 88.39% for the Schwab US Small Cap ETF.

Schwab index fund security lending (2018)

Fund Gross ExpenseNet Net Pct.
Total market1,339,729200,0901,139,63985.06%
S&P 500554,05195,936458,11582.68%
Large cap0000
Small cap6,418,172807,8395,610,33387.41%
International1,805,115247,0511,558,06486.31%
ETF Gross Expense Net Net Pct.
Broad market1,640,306214,7661,425,54086.91%
Large cap577,60384,104493,49985.44%
Large growth378,73469,620309,11481.62%
Large value110,50014,51395,98786.87%
Mid cap1,070,860144,492926,36886.51%
Small cap7,131,642828,2726,303,37088.39%
International2,428,369361,8822,066,48785.10%
International small2,453,750327,5922,126,15886.65%
Emerging market732,943109,314623,62985.09%
Aggregate26,641,7743,505,47123,136,30386.84%

Vanguard security lending

Vanguard has a policy of returning 100% of after expense security lending income to its mutual funds that lend securities.

The following table provides 2018 fiscal year gross income, aggregate expenses, net income and the percentage of income figures for the security lending income earned by  Vanguard index funds.

For US stock index funds, the dominant expense items are administrative fees and rebates to borrowers. For international funds the dominant expense items are revenue split fees to the security lending agent, administrative fees and rebates to borrowers. In aggregate, Vanguard index fund security lending returned 82.69% of gross security lending income to the funds. The percentage return ranged from a low of 48.55% for the S&P 500 Fund to a high of 89.70% for the Pacific Market Index Fund.

Vanguard index fund security lending (2018)

Fund Gross Expenses NetNet Pct.
Total Market147,279,86220,610,366126,669,49686.01%
S&P 5007,411,3433,813,3583,597,98548.55%
Extended72,800,7597,756,39565,044,36489.35%
Large cap869,319214,142655,17775.37%
Growth6,506,0541,289,4675,216,58780.18%
Value760,492321,480439,01257.73%
Mid cap5,234,1051,817,8683,416,23765.27%
Mid growth839,458285,696553,76265.97%
Mid value434,539217,225217,31450.01%
Small cap42,333,3807,947,95734,385,42381.23%
Small growth12,596,5612,383,84910,212,71281.08%
Small value10,688,3141,226,2319,462,08388.53%
Total International280,182,20652,362,497227,819,70981.31%
Developed markets99,254,81321,247,38778,007,42678.59%
European19,740,7624,409,49515,331,26777.66%
Pacific7,684,403791,4366,892,96789.70%
Emerging49,806,7956,511,48943,295,30686.93%
FTSE all ex US20,116,3583,997,07516,119,28380.13%
FTSE all ex US small6,029,660924,8385,104,82284.66%
Total World18,642,3052,059,51816,582,78788.95%
Global ex US real estate7,331,8501,123,8586,207,99284.67%
Aggregate 816,543,338141,311,627675,231,71182.69%

Notes

Fidelity

Fidelity data derived from Statement of Additional information segments of 2018 fiscal year fund prospectuses.

Schwab

Schwab data derived from Statement of Additional information segments of 2018 fiscal year fund prospectuses.

Vanguard

Vanguard data derived from Statement of Additional Information segments of 2018 fiscal year fund prospectuses.

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