Securities lending is when mutual funds, index funds and exchange traded funds (ETFs) lend securities to third-party borrowers, mostly hedge funds and investment firms. These borrowers then mainly use them for short selling. That is, after borrowing, they sell the securities with the hope of buying them back at a lower price. This is, of course, a way of speculating on a share price decline.
The lending institution or fund receives all the dividends and interest it was entitled to as an investor in the security, plus a fee for making the securities loan.
There is negligible risk of losing money on the loan, since the borrower puts up collateral of at least 102% of the borrowed securities’ value. This collateral typically consists of cash, T-bills or highly rated short-term debt instruments. The borrower is liable for any shortfall between the value of the collateral and the value of the securities. If the value of the securities rises, the borrower has to add to the collateral on a daily basis to maintain coverage at 102%.
Our view is that if a mutual fund or ETF owns high-quality investments, securities lending won’t hurt its value or performance, but it will add slightly to its total return.
For a sound long term investing strategy we recommend using our three-part Successful Investor philosophy:
Invest mainly in well-established companies;
Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; the Consumer sector; Finance; Utilities);
Downplay or avoid stocks in the broker/media limelight.
BROADRIDGE FINANCIAL SOLUTIONS $130.56 New York symbol BR; TSINetwork Rating: Average) (201-714-3000; www.broadridge.com; Shares outstanding: 116.1 million; Market cap: $15.1 billion; Dividend yield: 1.5%) has completed the acquisition of Ireland-based Rockall Technologies Ltd. for $37 million.
That firm makes securities-based lending- and collateral-management software for wealth management firms and… Read More
UNITED TECHNOLOGIES CORP., $125.30, New York symbol UTX, completed its acquisition of Rockwell Collins on November 26, 2018, for $30.6 billion in cash and stock (including that firm’s debt). Rockwell is a leading maker of aircraft components such as cabin interiors, computerized flight controls and… Read More
The Bank of Canada held its key interest rate at 0.50% this week, after dropping it from 0.75% in July 2015. That July cut came as the Canadian economy slowed along with falling prices for oil and other commodities. Even so, the long-term outlook is… Read More
Recently a member of Pat McKeough’s Inner Circle asked about exchange-traded funds (ETFs) that are “set up to move in the opposite direction of particular stock indexes”. These are ETFs that are designed to rise in value as the underlying market index falls:… Read More
Today, we look at two exchange-traded funds (ETFs) that can help investors achieve greater diversification. As well as holding as much as 25% or 30% of their portfolios in U.S. stocks, we believe Canadian investors can benefit from holding up to 10% in… Read More
Securities lending by mutual funds can add to their overall returns.
Mutual funds, index funds and exchange traded funds (ETFs) often engage in securities lending. That is, they lend securities to third-party borrowers, mostly hedge funds and investment firms. These borrowers then… Read More
Mutual funds, index funds and exchange traded funds (ETFs) often engage in securities lending. That is, they lend securities to third-party borrowers, mostly hedge funds and investment firms, that mainly use them for short selling. The borrowers then sell the securities with the hope of… Read More
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We do not collect or disclose personal information, except when it is provided to us voluntarily by the site/store visitor with their consent.
We store subscriber and password files containing personal information securely. These files are stored in secure areas that are not accessible to the general public. We are always working to ensure the security of your personal information.
What personal information do we collect?
The information we receive from customers helps us personalize and continually improve your online experience at TSI Network. TSI Network may collect personal information online for all legal purposes, which include, but are not limited to:
Information You Give Us: We receive and store any information you enter on our website or give us in any other way through sign-up forms or ordering forms for publications and services. You can choose not to provide certain information, but then you might not be able to take advantage of many of our services and features. We use the information that you provide for such purposes as responding to your requests, customizing your web browsing experience for you, improving our website, and communicating with you.
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Changes to this Policy
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TSI Network may revise this Policy from time to time.
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