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How Securities Lending Can Offset Expense Ratios and Boost Returns

Securities lending can boost fund performance by offsetting costs and generating extra income while managing risks strategically.

While securities lending income can offset a significant portion of a fund's expense ratio, the primary drivers of investment performance are fund fees and portfolio construction, surpassing the impact of securities lending income. Vanguard leads in fee reduction, leveraging securities loans to offset approximately 16% of its funds' fees from 2018 to 2022, demonstrating the strategic value of securities lending for fund sponsors.


Riskier approaches typically yield higher securities lending income, highlighting the importance of aligning lending programs with fund objectives and risk tolerance levels to maximize returns and manage risks effectively.


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What's Inside:

  • Insights on the critical role of securities lending in enhancing fund performance. 
  • Analysis of how regulatory improvements impact risks and benefits in securities lending. 

  • Examination of fund sponsors' strategies and risk management approaches in generating lending revenue. 

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