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Vanguard returns 94% of the securities lending business of the fund, back to the fund. Fidelity is around 40%, iShares is 50%. Meaning even with fees, Vanguard

Vanguard returns 94% of the securities lending business of the fund, back to the fund. Fidelity is around 40%, iShares is 50%. Meaning even with fees, Vanguard is a better deal as you get more money back on the money that you own. It's more complex than just simply measuring fees. These are some additional factors to consider: Tracking Error Capital Gains Securities lending Mutual Ownership Structure https://personal.vanguard.com/pdf/ISGSL.pdf https://personal.vanguard.com/pdf/ISGSL.pdf https://www.ishares.com/us/literature/brochure/securities-lending-unlocking-portfolios-en-us.pdf https://www.ishares.com/us/literature/brochure/securities-le...

xur17 8y ago
If I'm understanding correctly, if I compare the performance of my VTSAX fund vs all of the stocks that make it up, VTSAX would show better performance because it includes money made from lending out securities? This seems like a major spot for consumer confusion - how do these funds decide what percentage to return back to the fund vs keep? Why wouldn't Fidelity keep 100% of these fees, and then charge a negative fee?
- jorblumesea 8y ago
  > VTSAX would show better performance because it includes money made from lending out securities Correct, VTSAX would probably perform better by a small margin, but it's also hard to compare given that everyone rolls their own "Total Market Index" with slightly different stock composition. At the very least, you're getting more of your money back to you. > how do these funds decide what percentage to return back to the fund vs keep? Depending on how much money they want to make :) vanguard is actually a mutually owned firmed, the only one. So they have little incentive to tax themselves. When you buy vanguard funds, you are also buying ownership of vanguard. > Why wouldn't Fidelity keep 100% of these fees, and then charge a negative fee? Because people have no idea how any of this works and "0% expense" rings out. They can make more money this way.
tanderson92 8y ago
It's also more complex than simply measuring how much of the securities lending revenue ends up back in the fund. Most of that 60% for Fidelity's funds don't end up back in Fidelity's pockets either, but instead in the pockets of the people who borrowed stock from Fidelity investors in the form of rebates. You can understand this like: the borrower puts up 100-105% of the collateral and so should get some portion of the short-term rate on that cash. It's not clear why the disparity exists between Vanguard and Fidelity though. iShares is truly different where they actually take 15-30% of profits for themselves.
- jorblumesea 8y ago
  The disparity to me is obvious; vanguard is a mutually owned company, whereas the others are for-profit. When you buy vanguard, you're buying vanguard itself, not just a product from them.
  - tanderson92 8y ago
    I already explained that while 60% of the revenue doesn't go to the fund investors, it doesn't go to Fidelity either. If you look at the Statement of Additional Informtaion for the fund, 56.7% goes back to the borrower (not Fidelity, the security borrower) in the form of a rebate. The profit motive doesn't explain this, at least not in the simple framing you've made of the issue.

xur17 8y ago

If I'm understanding correctly, if I compare the performance of my VTSAX fund vs all of the stocks that make it up, VTSAX would show better performance because it includes money made from lending out securities? This seems like a major spot for consumer confusion - how do these funds decide what percentage to return back to the fund vs keep? Why wouldn't Fidelity keep 100% of these fees, and then charge a negative fee?

jorblumesea 8y ago
> VTSAX would show better performance because it includes money made from lending out securities Correct, VTSAX would probably perform better by a small margin, but it's also hard to compare given that everyone rolls their own "Total Market Index" with slightly different stock composition. At the very least, you're getting more of your money back to you. > how do these funds decide what percentage to return back to the fund vs keep? Depending on how much money they want to make :) vanguard is actually a mutually owned firmed, the only one. So they have little incentive to tax themselves. When you buy vanguard funds, you are also buying ownership of vanguard. > Why wouldn't Fidelity keep 100% of these fees, and then charge a negative fee? Because people have no idea how any of this works and "0% expense" rings out. They can make more money this way.

tanderson92 8y ago

It's also more complex than simply measuring how much of the securities lending revenue ends up back in the fund. Most of that 60% for Fidelity's funds don't end up back in Fidelity's pockets either, but instead in the pockets of the people who borrowed stock from Fidelity investors in the form of rebates. You can understand this like: the borrower puts up 100-105% of the collateral and so should get some portion of the short-term rate on that cash. It's not clear why the disparity exists between Vanguard and Fidelity though. iShares is truly different where they actually take 15-30% of profits for themselves.

jorblumesea 8y ago
The disparity to me is obvious; vanguard is a mutually owned company, whereas the others are for-profit. When you buy vanguard, you're buying vanguard itself, not just a product from them.
- tanderson92 8y ago
  I already explained that while 60% of the revenue doesn't go to the fund investors, it doesn't go to Fidelity either. If you look at the Statement of Additional Informtaion for the fund, 56.7% goes back to the borrower (not Fidelity, the security borrower) in the form of a rebate. The profit motive doesn't explain this, at least not in the simple framing you've made of the issue.