Securities Lending
The practice of lending out a fund's holdings to short-sellers in exchange for a fee, typically split between the fund and the lending agent. For broad-market ETFs this generates 1-5 basis points per year of additional income, returned to fund shareholders, which partially offsets the expense ratio. For funds holding hard-to-borrow names (specialty small-caps, EM) the income can reach 20-30 bps. Securities lending is the main reason some major-index ETFs run tracking differences SMALLER than their stated expense ratio.
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Related terms
Active Management · Active Share · AI Revenue · Anchoring Bias · Cost of Capital · Creation Unit
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