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ETF asterisk clause meaning

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3

I'm choosing an ETF, and reading this KII document, I'm not sure what this sentence means.

1. Can anybody expand this language with an example?


2. Is this typical for an ETF?

To the extent the Fund undertakes securities lending to reduce costs,
the Fund will receive 62.5% of the associated revenue generated and
the remaining
37.5% will be received by BlackRock as the securities lending agent. As securities lending revenue sharing does not increase the costs of
running the Fund, this has been excluded from the ongoing charges.

Source

investing etf index-fund lending documents

share|improve this question

edited 13 hours ago

Ben Miller

80.5k20220288

asked 14 hours ago

sscarduziosscarduzio

1162

New contributor

sscarduzio is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.

add a comment | 

3

I'm choosing an ETF, and reading this KII document, I'm not sure what this sentence means.

1. Can anybody expand this language with an example?


2. Is this typical for an ETF?

To the extent the Fund undertakes securities lending to reduce costs,
the Fund will receive 62.5% of the associated revenue generated and
the remaining
37.5% will be received by BlackRock as the securities lending agent. As securities lending revenue sharing does not increase the costs of
running the Fund, this has been excluded from the ongoing charges.

Source

investing etf index-fund lending documents

share|improve this question

edited 13 hours ago

Ben Miller

80.5k20220288

asked 14 hours ago

sscarduziosscarduzio

1162

New contributor

sscarduzio is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.

add a comment | 

I'm choosing an ETF, and reading this KII document, I'm not sure what this sentence means.

1. Can anybody expand this language with an example?


2. Is this typical for an ETF?

To the extent the Fund undertakes securities lending to reduce costs,
the Fund will receive 62.5% of the associated revenue generated and
the remaining
37.5% will be received by BlackRock as the securities lending agent. As securities lending revenue sharing does not increase the costs of
running the Fund, this has been excluded from the ongoing charges.

Source

investing etf index-fund lending documents

share|improve this question

edited 13 hours ago

Ben Miller

80.5k20220288

asked 14 hours ago

sscarduziosscarduzio

1162

New contributor

sscarduzio is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.

share|improve this question

edited 13 hours ago

Ben Miller

80.5k20220288

asked 14 hours ago

sscarduziosscarduzio

1162

New contributor

sscarduzio is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.

share|improve this question

edited 13 hours ago

Ben Miller

80.5k20220288

asked 14 hours ago

sscarduziosscarduzio

1162

New contributor

sscarduzio is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.

edited 13 hours ago

Ben Miller

80.5k20220288

edited 13 hours ago

Ben Miller

80.5k20220288

asked 14 hours ago

sscarduziosscarduzio

1162

New contributor

sscarduzio is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.

asked 14 hours ago

sscarduziosscarduzio

1162

2 Answers
2

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oldest

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5

The quote you are asking about is a footnote to the fund expenses/fees, which is listed as 0.26%. I’m not completely sure, but I believe that this note is saying that the fund sometimes lends out its assets (as you might do for someone who is shorting stock), and the revenue generated by that activity might lower the expenses beyond the percentage listed. As a result, the expense number shown is a maximum.

share|improve this answer

answered 13 hours ago

Ben MillerBen Miller

80.5k20220288

add a comment | 

3

When shares are borrowed for the purpose of shorting, a borrow is fee charged by the brokerage firm to a client who borrows the shares. If the broker does not have lendable shares in house, it will have to borrow the shares from another broker to effect this and the brokers will share the fee. Some brokers share a portion of this fee with the lender (owner) of the securities.

Further down the page in your link it says:

The Fund may also engage in short-term secured lending of its investments to certain eligible third parties. This is used as a means of generating additional income and to off-set the costs of the Fund.

Per the two links, if this ETF lends the shares, the Fund will receive 62.5% borrow fee, lowering operational costs.

share|improve this answer

answered 12 hours ago

Bob BaerkerBob Baerker

17.7k12653

• 
  
  
  

  
  

  
  
  
  
  
  

  
  
  Thank you for your explanation! However, isn't shorting done using derivative instruments (i.e. futures)? How comes these become part of an ETF portfolio? I thought ETFs would just make sure their portfolio mirrors the top N capitalised stocks in an index at all times. 🤔
  
  – sscarduzio
  10 hours ago
  

  
  
  
  


• 
  
  
  

  
  2
  

  
  
  
  
  
  

  
  
  You can short using derivatives, but you can "just" short the old fashioned way. Sell stocks you don't have at today's price, in order to buy them back again (and complete the order) within the next 30 days. Used to be you could do this without any stock - a naked short - but this caused really big problems when a lot of people did it - and more stock was 'shorted' than actually existed. So now you have to borrow instead.
  
  – Sobrique
  10 hours ago
  

  
  
  
  


• 
  
  
  

  
  

  
  
  
  
  
  

  
  
  @sscarduzio - An ETF is a security that is comprised of equities, bonds, etc., depending on the nature of the ETF. In the US, it can be shorted as long as it is borrowable. I don't know UK regulatory rules. LOL. Notification with a @ in front of your handle changes the tone of things :->)
  
  – Bob Baerker
  10 hours ago
  
  

  
  
  
  


• 
  
  
  

  
  

  
  
  
  
  
  

  
  
  @Sobrique - Is the requirement that you cover within 30 days a UK regulatory rule?
  
  – Bob Baerker
  10 hours ago
  

  
  
  
  


• 
  
  
  

  
  

  
  
  
  
  
  

  
  
  @sscarduzio The ETF isn't the one shorting anything here. Somebody else wants to short something the ETF owns, and the ETF is getting paid for lending them the stock. For something like an ETF that expects to hold something long term, this is a fairly reasonable way to make extra money at the expense of liquidity.
  
  – mbrig
  8 hours ago
  

  
  
  
  

add a comment | 

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5

The quote you are asking about is a footnote to the fund expenses/fees, which is listed as 0.26%. I’m not completely sure, but I believe that this note is saying that the fund sometimes lends out its assets (as you might do for someone who is shorting stock), and the revenue generated by that activity might lower the expenses beyond the percentage listed. As a result, the expense number shown is a maximum.

share|improve this answer

answered 13 hours ago

Ben MillerBen Miller

80.5k20220288

add a comment | 

5

The quote you are asking about is a footnote to the fund expenses/fees, which is listed as 0.26%. I’m not completely sure, but I believe that this note is saying that the fund sometimes lends out its assets (as you might do for someone who is shorting stock), and the revenue generated by that activity might lower the expenses beyond the percentage listed. As a result, the expense number shown is a maximum.

share|improve this answer

answered 13 hours ago

Ben MillerBen Miller

80.5k20220288

add a comment | 

The quote you are asking about is a footnote to the fund expenses/fees, which is listed as 0.26%. I’m not completely sure, but I believe that this note is saying that the fund sometimes lends out its assets (as you might do for someone who is shorting stock), and the revenue generated by that activity might lower the expenses beyond the percentage listed. As a result, the expense number shown is a maximum.

share|improve this answer

answered 13 hours ago

Ben MillerBen Miller

80.5k20220288

share|improve this answer

answered 13 hours ago

Ben MillerBen Miller

80.5k20220288

answered 13 hours ago

Ben MillerBen Miller

80.5k20220288

answered 13 hours ago

Ben MillerBen Miller

80.5k20220288

3

When shares are borrowed for the purpose of shorting, a borrow is fee charged by the brokerage firm to a client who borrows the shares. If the broker does not have lendable shares in house, it will have to borrow the shares from another broker to effect this and the brokers will share the fee. Some brokers share a portion of this fee with the lender (owner) of the securities.

Further down the page in your link it says:

The Fund may also engage in short-term secured lending of its investments to certain eligible third parties. This is used as a means of generating additional income and to off-set the costs of the Fund.

Per the two links, if this ETF lends the shares, the Fund will receive 62.5% borrow fee, lowering operational costs.

share|improve this answer

answered 12 hours ago

Bob BaerkerBob Baerker

17.7k12653

• 
  
  
  

  
  

  
  
  
  
  
  

  
  
  Thank you for your explanation! However, isn't shorting done using derivative instruments (i.e. futures)? How comes these become part of an ETF portfolio? I thought ETFs would just make sure their portfolio mirrors the top N capitalised stocks in an index at all times. 🤔
  
  – sscarduzio
  10 hours ago
  

  
  
  
  


• 
  
  
  

  
  2
  

  
  
  
  
  
  

  
  
  You can short using derivatives, but you can "just" short the old fashioned way. Sell stocks you don't have at today's price, in order to buy them back again (and complete the order) within the next 30 days. Used to be you could do this without any stock - a naked short - but this caused really big problems when a lot of people did it - and more stock was 'shorted' than actually existed. So now you have to borrow instead.
  
  – Sobrique
  10 hours ago
  

  
  
  
  


• 
  
  
  

  
  

  
  
  
  
  
  

  
  
  @sscarduzio - An ETF is a security that is comprised of equities, bonds, etc., depending on the nature of the ETF. In the US, it can be shorted as long as it is borrowable. I don't know UK regulatory rules. LOL. Notification with a @ in front of your handle changes the tone of things :->)
  
  – Bob Baerker
  10 hours ago
  
  

  
  
  
  


• 
  
  
  

  
  

  
  
  
  
  
  

  
  
  @Sobrique - Is the requirement that you cover within 30 days a UK regulatory rule?
  
  – Bob Baerker
  10 hours ago
  

  
  
  
  


• 
  
  
  

  
  

  
  
  
  
  
  

  
  
  @sscarduzio The ETF isn't the one shorting anything here. Somebody else wants to short something the ETF owns, and the ETF is getting paid for lending them the stock. For something like an ETF that expects to hold something long term, this is a fairly reasonable way to make extra money at the expense of liquidity.
  
  – mbrig
  8 hours ago
  

  
  
  
  

add a comment | 

3

When shares are borrowed for the purpose of shorting, a borrow is fee charged by the brokerage firm to a client who borrows the shares. If the broker does not have lendable shares in house, it will have to borrow the shares from another broker to effect this and the brokers will share the fee. Some brokers share a portion of this fee with the lender (owner) of the securities.

Further down the page in your link it says:

The Fund may also engage in short-term secured lending of its investments to certain eligible third parties. This is used as a means of generating additional income and to off-set the costs of the Fund.

Per the two links, if this ETF lends the shares, the Fund will receive 62.5% borrow fee, lowering operational costs.

share|improve this answer

answered 12 hours ago

Bob BaerkerBob Baerker

17.7k12653

• 
  
  
  

  
  

  
  
  
  
  
  

  
  
  Thank you for your explanation! However, isn't shorting done using derivative instruments (i.e. futures)? How comes these become part of an ETF portfolio? I thought ETFs would just make sure their portfolio mirrors the top N capitalised stocks in an index at all times. 🤔
  
  – sscarduzio
  10 hours ago
  

  
  
  
  


• 
  
  
  

  
  2
  

  
  
  
  
  
  

  
  
  You can short using derivatives, but you can "just" short the old fashioned way. Sell stocks you don't have at today's price, in order to buy them back again (and complete the order) within the next 30 days. Used to be you could do this without any stock - a naked short - but this caused really big problems when a lot of people did it - and more stock was 'shorted' than actually existed. So now you have to borrow instead.
  
  – Sobrique
  10 hours ago
  

  
  
  
  


• 
  
  
  

  
  

  
  
  
  
  
  

  
  
  @sscarduzio - An ETF is a security that is comprised of equities, bonds, etc., depending on the nature of the ETF. In the US, it can be shorted as long as it is borrowable. I don't know UK regulatory rules. LOL. Notification with a @ in front of your handle changes the tone of things :->)
  
  – Bob Baerker
  10 hours ago
  
  

  
  
  
  


• 
  
  
  

  
  

  
  
  
  
  
  

  
  
  @Sobrique - Is the requirement that you cover within 30 days a UK regulatory rule?
  
  – Bob Baerker
  10 hours ago
  

  
  
  
  


• 
  
  
  

  
  

  
  
  
  
  
  

  
  
  @sscarduzio The ETF isn't the one shorting anything here. Somebody else wants to short something the ETF owns, and the ETF is getting paid for lending them the stock. For something like an ETF that expects to hold something long term, this is a fairly reasonable way to make extra money at the expense of liquidity.
  
  – mbrig
  8 hours ago
  

  
  
  
  

add a comment | 

When shares are borrowed for the purpose of shorting, a borrow is fee charged by the brokerage firm to a client who borrows the shares. If the broker does not have lendable shares in house, it will have to borrow the shares from another broker to effect this and the brokers will share the fee. Some brokers share a portion of this fee with the lender (owner) of the securities.

Further down the page in your link it says:

The Fund may also engage in short-term secured lending of its investments to certain eligible third parties. This is used as a means of generating additional income and to off-set the costs of the Fund.

Per the two links, if this ETF lends the shares, the Fund will receive 62.5% borrow fee, lowering operational costs.

share|improve this answer

answered 12 hours ago

Bob BaerkerBob Baerker

17.7k12653

share|improve this answer

answered 12 hours ago

Bob BaerkerBob Baerker

17.7k12653

answered 12 hours ago

Bob BaerkerBob Baerker

17.7k12653

answered 12 hours ago

Bob BaerkerBob Baerker

17.7k12653