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Over the past several decades, securities lending has evolved into a vital component of the financial markets and an important benefit for mutual fund shareholders.
- What is securities lending?
- How does it work?
- How do mutual fund shareholders benefit from securities lending?
- How much do BlackRock mutual funds benefit from securities lending?
- How much securities lending proceeds are returned to BlackRock mutual fund shareholders?
- What makes BlackRock's securities lending different?
- Where can I find more information on securities lending practices for BlackRock mutual funds?
What is securities lending?
Securities lending is when mutual funds make short-term loans of stocks or bonds to incrementally increase returns for mutual fund shareholders.
How does it work?
First, a large financial institution asks to temporarily borrow a stock or bond from a mutual fund. In order to borrow the stock or bond, the financial company must pay a fee and provide collateral to the mutual fund. The mutual fund keeps the collateral to secure repayment in case the borrower fails to return the loaned stock or bond. The value of the collateral must exceed the value of the loaned stock or bond, to provide the mutual fund with a "safety cushion" to prevent loss if the borrower doesn't return the security.
How do mutual fund shareholders benefit from securities lending?
Mutual fund investors can benefit from securities lending in the form of better fund performance. How? The fund can generate additional income through the rate that it charges for loaning securities, and income on the reinvestment of the collateral that the borrower provides in exchange for the loan.
How much do BlackRock mutual funds benefit from securities lending?
Of the BlackRock mutual funds that participated in securities lending during the 12-months ending June 30, 2013, 58% of the funds earned less than 0.01%, 22% of the funds earned between 0.01% and 0.05%, 15% of the funds earned between 0.05% and 0.10%, and 5% of the funds earned greater than 0.10%. For more information, please read more here.
We periodically benchmark our securities lending performance versus competitors using data from independent third-party providers. Over three decades, BlackRock has focused on delivering competitive returns while balancing return, risk and cost.
How much securities lending proceeds are returned to BlackRock mutual fund shareholders?
BlackRock mutual fund shareholders receive 65% of the gross revenue from securities lending. A BlackRock affiliate serves as the lending agent and retains 35% of the gross revenues. All costs of running the program are paid from the lending agent's portion of the gross revenue.
We encourage investors to ask their mutual fund providers for detail on their securities lending program. BlackRock believes investors should evaluate the benefits from securities lending by considering the net returns in light of the associated risks.
What makes BlackRock's securities lending different?
We believe in managing our securities lending operations on our proprietary platforms, rather than outsourcing this important function to a third party. To that end, we have built a proprietary securities lending infrastructure so that every element of our lending activity is executed in our clients' best interest and with prudent risk management. Since 1981, BlackRock has delivered positive lending income for every fund that has participated in securities lending, including all BlackRock mutual funds.
Where can I find more information on securities lending practices for BlackRock mutual funds?
BlackRock's extensive risk management capabilities, proprietary technology, and stringent management processes set its securities lending practices apart. Read more here on what makes BlackRock securities lending — and BlackRock mutual funds — different.
This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Investment involves risk. There may be less information available on the financial condition of issuers of municipal securities than for public corporations. The market for municipal bonds may be less liquid than for taxable bonds. A portion of the income may be taxable. Some investors may be subject to Alternative Minimum Tax (AMT). Capital gains distributions, if any, are taxable. A fund concentrating in a single state is subject to greater risk of adverse economic conditions and regulatory changes than a fund with broader geographical diversification.
Please consider the investment objectives, risks, charges and expenses of each fund carefully before investing. The funds' prospectuses and, if available, the summary prospectuses contain this and other information about the funds and are available, along with information on other BlackRock funds, by calling 800-882-0052 or from your financial professional. The prospectuses should be read carefully before investing.
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