An Analysis of the Impact of Securities Lending on the Performance of ETFs
Journal of Wealth Management, Volume 17, Number 4, p. 75-84, 2015
Posted: 20 May 2019
Date Written: November 1, 2014
Abstract
Securities lending has been a lucrative business for mutual funds and ETFs over the past decade. We examine the impact of securities lending activities on the return performance of U.S. equity ETFs. We find that income from securities lending has surged in recent years and was at extreme levels during the financial crisis years of 2008 and 2009. We document that income from securities lending activities has been used by these ETFs as a means of considerably reducing tracking errors over time. Our findings have important implications for investors who use tracking error to evaluate the performance of ETFs.
Keywords: Securities Lending, ETFs, Tracking Error
JEL Classification: G11, G14
Suggested Citation: Suggested Citation