Fully paid lending

Hi Jeremy - have you done any research on fully paid lending? If the goal is to buy and hold for the long term, it seems like earning extra money by lending out the shares you own would be a good idea but am curious to hear your thoughts

Hi @Mike_B!

Some platforms have begun offering this recently. It is most applicable to people who own individual stocks (and certain ETFs), especially the ones that are heavily shorted. If you owned something like BBBY or SNAP, the lending revenue is decent. But still, the incremental yield you get is relatively small. If you own something like AAPL, the lending revenue is incredibly small (practically non-existent). Why? Because supply is high (it is owned by almost every index fund, almost all of which are waiting and ready to lend it out) and the demand to short a security like AAPL is relatively low.

The vast majority of ETFs and Mutual Funds lend the securities inside the fund already and give a large portion of the revenue earned from lending (“securities lending revenue”) back to the fund, which helps the fund’s performance. You can see all the details in the fund’s prospectus. So, don’t think that lending yield is something you miss out on by owning index funds / ETFs.

It’s relatively low risk and low reward. The only notable instance of risk with securities lending had to do with State Street during the 2008 financial crisis when they “gated” some of their investors. If you Google this, you will see a number of articles on this topic.

I hope this was helpful. Keep us posted with any questions!