Tracing The True Impact Of Securities Lending

by: Vanguard

Summary

Securities lending can be difficult to analyze due to a lack of data, but Vanguard researchers have put together a snapshot of the securities lending landscape and its effects.

Securities lending transactions total roughly $1.8 trillion globally and $900 billion in the U.S. Regulated funds account for a small portion (5.3% globally and 11.6% in the U.S.).

Average proportion of a fund's portfolio on loan, fiscal year, and asset class category affect lending impact. In general, securities lending has a positive effect on a fund's return.

Securities-lending data can be hard to come by, making the entire topic rather opaque. However, regulated funds are required to disclose information on their lending activity in their annual reports. In this research paper, our authors used publicly available data to help describe the impact of lending-whether securities lending contributes to or detracts from fund returns-across index funds and ETFs.

Use this paper to:

  • Get an overview of the securities-lending landscape.
  • Review an analysis of an eight-year sample of data (from 2007 to 2014) of 1,193 index funds and ETFs to explain the differences across funds in the impact of lending.
  • See how different fund variables such as expense ratio, asset class, and asset manager help to explain the cross-sectional differences across funds in the impact of lending.

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