A dominant provider of exchange traded funds (ETFs), Barclay’s Global Investors, has started loaning out the stocks and bonds in its iShares ETF portfolios. Tom Lauricella for The Wall Street Journal writes that the loans are highly lucrative, bringing in millions of dollars a year for Barclay’s in addition to the fees it gets for managing the funds. Securities lending isn’t new but has grown popular among ETF providers because profits can boost ETF returns and offset expenses. Another reason this trend has caught on is from the growth of hedge funds using a "short-selling" strategy. The SEC has taken notice of this action, especially when an arm of the fund management company also gets paid for helping broker the lending arrangements.
Barclay’s claims to run this program for the interest of the shareholders and to be fully in line with SEC regulations. Proceeds are a 50-50 split with the fund management company and its iShares ETFs. I’m sure this has also helped them to reduce their expense ratios over time too.
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