Securities lending in ETF, what the?

[Deleted User]

So I was looking at ETFs and found a well recognised, Fully Replicated/Physical (non synthetic one) via Blackrock iShares.

However when I look at the holdings, there is a section to the right of it called "Securities Lending"

https://www.ishares.com/uk/professional/en/products/253716/ishares-ftse-100-ucits-etf-acc-fund


Not sure if I understand it all but seems a bit strange/off putting.Thoughts?

AnotherJoe

Just a guess, they are getting revenue by lending shares to shorters.

[Deleted User]

I found this article which was helpful
https://media.morningstar.com/uk/media/ETF/SecuritiesLendinginPhysicalETFs.pdf


Personally it has put me right off ETFs (even physical).

[Deleted User]

AnotherJoe wrote: »

Just a guess, they are getting revenue by lending shares to shorters.

So are you investing in the FTSE or Blackrock's ability to strike loan deals with god knows who. Not comfortable with this.

[Deleted User]

Another article I found
https://citywire.co.uk/new-model-adviser/news/should-investors-beware-of-collateral-damage-from-etfs/a1093682

tin586

Even the apparently saintly Vanguard indulge in this.

Borrowers of securities have to post collateral, so it’s not like a totally free lunch for them.

Of course, it is quite possible that in a worst case scenario that the collateral will be inadequate to make up the losses.

It is up to each individual investor to decide if this risk is acceptable.

I am comfortable holding iShares and Vanguards ETFs.

[Deleted User]

I think it is also a practice in OEICs too.

Brian65

Not as risky as it sounds - ETF Providers like iShares and Vanguard get collateral before they lend out shares.

masonic

IIRC, this has been going on with Blackrock ETFs for a long time and they've had a couple of instances where they suffered losses due to stock lending and on both occasions took the hit themselves. It would be a problem if they became insolvent, though that's not very likely.

[Deleted User]

Some of the funds I was looking at ,for example IShares MSCI Japan IMI ETF seem to have around 20% of the AUM as loans, my gut is saying to avoid these for now.

aberlyfid_2000

although the exact proportion varies between providers, the majority of the earnings from securities lending goes back to the fund.

The loans themselves are over-collateralised and short term, so should not be a major source of risk.