Lending the Underlying Securities

Capital at risk. The value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.

Lending of the assets held by the ETF is conducted by BlackRock’s specialist Securities Lending team. We have built a robust infrastructure so that lending activity is aimed to be executed in our clients' best interests and with prudent risk management by BlackRock's Risk and Quantitative Analysis (RQA) group. 

How do ETF shareholders benefit from securities lending?

ETF investors may benefit from securities lending in the form of better performance. How? The fund may generate additional income through the fee that it charges for loaning securities that are in demand to borrow. This may help offset some of the management fees of owning the ETF. How much do iShares ETFs benefit from securities lending?

For all European-domiciled iShares ETFs that participate in the programme, the securities lending income generated had, for example, the equivalent effect of offsetting management fees up to 146%, or an average of 11% in the 12 months ending 31 December 20181.

We periodically benchmark our 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.

1 Source: BlackRock, unaudited figures. 1 January 2018 to 31 December 2018

Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

How much securities lending proceeds are returned to iShares ETF shareholders?

The funds receive 62.5% of the income from securities lending for ETFs domiciled in Europe. A BlackRock affiliate manages the securities lending programme as an agent for the funds and retains 37.5% of the income. All costs of running the programme are paid from the lending agent's portion of the income.

We encourage investors to ask ETF providers for detail on their securities lending programme, and most importantly, the net returns to shareholders. While some fund providers may report paying out a higher percentage of the net proceeds from securities lending, they may not clearly disclose the portion of the gross proceeds they pay to their lending agents. BlackRock believes the net returns to shareholders, balanced with appropriate risk and fee disclosure, form the best gauge of investor benefits from securities lending.

Some lenders might be able to generate more return from a given basket of securities due to their scale and skill. Read More on what makes BlackRock securities lending – and iShares ETFs – different.

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 as many other investment managers do. To that end, we have built a robust infrastructure so that lending activity is aimed to be executed in our clients' best interests and with prudent risk management by BlackRock's Risk and Quantitative Analytics (RQA) group. Since 1981*, BlackRock has delivered positive lending income for every fund that participates in securities lending. Read More on what makes BlackRock securities lending – and iShares ETFs – different.

 *Includes time before BlackRock was founded.

Risks of securities lending

With securities lending there is the risk of loss should the borrower go out of business before the securities are returned, and due to market movements the value of collateral held has fallen and/or the value of the securities on loan has risen.

While every investment bears some risk, BlackRock takes a rigorous, hands-on approach and has delivered positive lending income for every fund that has participated in lending since 1981*, including all iShares ETFs.

The primary risk of securities lending is borrower default risk.

Borrower default risk

Since the process involves lending securities, there is a risk that a borrower fails to return a borrowed stock or bond. In this case, the fund company would use collateral to purchase replacement securities. To minimise risk to investors, it is important that any collateral received be of a high quality and liquidity.

First, we determine whether firms can be approved borrowers; then, we monitor borrowers over time. An internal risk unit – separate from the securities lending team – performs regular borrower reviews. New transactions are systematically prevented if a borrower reaches its credit limits.

As an additional safeguard, BlackRock provides an indemnity for its ETFs in the event of a borrower default – if a shortfall existed between the collateral and the cost to repurchase a loaned security, BlackRock would reimburse the fund in full.

Where can I find more information on securities lending practices for iShares ETFs?

BlackRock's risk management capabilities, proprietary technology, and stringent management processes set its securities lending practices apart.

Read more on what makes Blackrock securities lending – and iShares ETFs different


Important Information

Risk Warnings
Investment in the products mentioned in this document may not be suitable for all investors. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. You may not get back the amount originally invested. The value of investments involving exposure to foreign currencies can be affected by exchange rate movements. We remind you that the levels and bases of, and reliefs from, taxation can change. BlackRock has not considered the suitability of this investment against your individual needs and risk tolerance. The data displayed provides summary information. Investment should be made on the basis of the relevant Prospectus which is available from the manager.

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