After listening to the much-recommended latest bogleheads podcast episode, featuring Vanguard Total Market Fund manager, I went digging a touch deeper into the securities lending practices of the two giants ETF providers.. I have a few points I would like people's opinion about:
- iShares lists extremely transparently on the ETF webpage its securities lending practices (avg % on loan, max % on loan, collateral, returns, etc..). Having said that, it does show that IWDA has over 10% on average out on loan.. iShares gives 62.5% of its securities lending income to the fund and keeps 37.5% (again, very explicit and clear on the website). Blackrock also provides an indemnity to the fund, should the collateral fall below the value of the securities on loan and they failed to be returned. They state that in 40 years, only 3 times a borrower defaulted and never there has been a loss to the fund.
Q2: does anyone know how if and how much of these returns offset the TER and/or provide an above market return?
- Vanguard does not seem equally transparent. I could not find hard numbers on the website, but in the podcast and other web sources I read they limit their securities lending to a few % points. They also claim to give over 90% of the proceeds back to the fund.
Q4: Lastly, if we engage in securities lending indirectly, would it make sense to enable IBKR Stock Yield Enhancement Program? I have so far stayed clear to avoid taking that risk, but wonder if I am instead just leaving money on the table.
Thanks all for your input and a couple of link (US-based, so not 100% accurate for non-US funds) for those interested.
Financial Times piece on ETF Securities Lending boom (2021)
iShares PDF explaining their practice