> "Fidelity is not receiving any revenue from the Fidelity ZERO Index funds for securities lending. Nor is Fidelity currently receiving any portion of the income that is generated from securities lent out." --Fidelity August 1, 2018
However, their securities lending practice is significantly less efficient than Vanguard: their total stock market index fund returned only 40% of securities lending revenue to the fund while Vanguard returned 94%. The difference there is in broker rebates -- how much of the interest on loan collateral posted by the borrower goes back to the borrower. For some reason Vanguard seems to be doing a much better job on this (possibly Fidelity is much more aggressive in loaning out shares so receives less benefit).
Cool, I didn't know this. Do you have a link?
It's true that if something is free you are the product... but even when you're paying you may be getting sold on the side.
This is untrue. Per iShares(https://www.ishares.com/us/literature/brochure/securities-le...):
> Q: How much of the securities lending proceeds are paid to iShares ETFs?
> A:. iShares ETFs receive 71.5-80% of the income generated from securities lending depending on the asset class held. For example, iShares ETFs that predominantly hold US equities receive 71.5% of the income from securities lending. All other funds (i.e., fund-of-funds and funds that invest predominantly in fixed income or international equities) receive 80% of the income from securities lending. Once the aggregate securities lending income exceeds a certain income threshold amount, each iShares ETF will receive an increased percentage of the income above original levels, i.e. from 71.5% to 75% for US equity iShares and from 80% to 85% for all other iShares, for the remainder of that calendar year.
By the way, Fidelity isn't making money off of securities lending on these funds, or at least has pledged not to. I still wouldn't use the funds, though.
What happens in the future if passive indexing falls out of favor, there's an exodus out of index funds, and Fidelity jacks up fees? If you're investing in a taxable account, you'd (presumably) incur a capital gain to leave the fund. At Vanguard, expenses may increase, but they won't seek to profit off of you. In a tax-advantaged account, I suppose the Fidelity funds are fine.
I'm curious to hear tanderson92's answer, though.
There is always a profit motive. The company itself may be customer owned but the employees are still trying to make money. I’m not saying that it’s wrong. It just is.
Also, Vanguard as a corporation is owned by its fund shareholders as opposed to external shareholders while Fidelity is owned by a private group. I don't trust any company enough to lock up my money with them and possibly have to pay capital gains tax to switch later, if they decide to raise fees or make the investment not align with shareholders in some respect. As whitepoplar says, they're a profit-seeking entity. Due to the inverted corporate ownership structure of Vanguard this is not a concern. This argument also applies to iShares.
Wait, what? What does this actually look like for you on your taxes? This sounds like something that would be out of your hands/tax responsibility.
tl;dr: basically they just never have to sell shares with built-in capital gains so you rarely see a capital gains distribution when you use Vanguard index funds.
Selling short calls would leave them open to the risk of shares being called away and would be an entirely different fund. You can buy ETFs that do this, some distribute the premium and others roll it into the fund's cash.