How Securities Lending Can Enhance Your Funds' Returns

Last Updated May 13, 2010 12:08 PM EDT

When we discussed some factors to consider for the DFA versus Vanguard debate, I mentioned that DFA has historically improved returns through securities lending.

Securities lending is a process by which mutual funds and large investors temporarily lend securities they hold to other investors seeking to borrow them. The lenders of the securities receive a fee for this service. Mutual fund companies like DFA and Vanguard lend securities to add some returns to the portfolio.

I thought the following would be a helpful illustration. Below are the revenues generated due to securities lending by DFA and Vanguard. (The improvements are measured in basis points.)

Stock Market Funds DFA US Core Equity 1 (DFEOX) -- 17.3 bps
DFA US Core Equity 2 (DFQTX) -- 19.8 bps
DFA TA US Core Equity 2 (DFTCX) -- 16.3 bps
DFA US Vector Equity (DFVEX) -- 27.3 bps
DFA Tax-Managed US Equity (DTMEX) -- 14.8 bps
Vanguard Total Stock Market Index (VTSMX) -- 7.4 bps
Vanguard Total Stock Market ETF (VTI) -- 7.4 bps

Large-Cap Funds DFA US Large Company (DFUSX) -- 12.2 bps
Vanguard 500 Index (VFINX) -- 6.8 bps
Vanguard Large Cap Index (VLACX) -- 0.7 bps

Large-Cap Value Funds
DFA US Large Cap Value (DFLVX) -- 20.3 bps
Vanguard Value Index (VIVAX) -- 10.0 bps

Small-Cap Funds DFA US Small Cap (DFSTX) -- 32.8 bps
DFA Tax-Managed US Small Cap (DFTSX) -- 37.8 bps
DFA Micro Cap (DFSCX) -- 33.8 bps
Vanguard Small Cap Index (NAESX) -- 15.3 bps
Vanguard Small Cap ETF (VB) -- 15.3 bps

Small-Cap Value Funds DFA US Small Cap Value (DFSVX) -- 20.5 bps
DFA US Targeted Value (DFFVX) -- 25.0 bps
DFA Tax-Managed US Targeted Value (DTMVX) -- 19.9 bps
Vanguard Small Cap Value Index (VISVX) -- 9.2 bps
Vanguard Small Cap Value ETF (VBR) -- 9.2 bps

Real Estate Funds DFA Real Estate Securities (DFREX) -- 24.7 bps
Vanguard REIT Index (VGSIX) -- 2.6 bps
Vanguard REIT ETF (VNQ) -- 2.6 bps

International Large-Cap or Market Funds DFA International Core Equity (DFIEX) -- 28.0 bps
DFA International Vector Equity (DFVQX) -- 22.8 bps
DFA Large Cap International (DFALX) -- 22.0 bps
Vanguard Total International Stock Index (VGTSX) -- 8.0 bps

International Large-Cap Value Funds DFA International Value (DFIVX) -- 26.0 bps
DFA Tax-Managed International Value (DTMIX) -- 10.3 bps
Vanguard International Value (VTRIX) -- 15.3 bps

International Small-Cap and Small-Cap Value Funds
DFA International Small Company (DFISX) -- 39.2 bps
DFA International Small Cap Value (DISVX) -- 26.5 bps
Vanguard International Explorer (VINEX) -- 7.5 bps

Emerging Markets Funds DFA Emerging Markets Core Equity (DFCEX) -- 22.9 bps
DFA Emerging Markets (DFEMX) -- 19.7 bps
DFA Emerging Markets Value (DFEVX) -- 23.5 bps
DFA Emerging Markets Small Cap (DEMSX) -- 27.4 bps
Vanguard Emerging Markets Stock Inv. (VEIEX) -- 13.8 bps
Vanguard Emerging Markets ETF (VWO) -- 13.8 bps

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    Larry Swedroe is director of research for The BAM Alliance. He has authored or co-authored 13 books, including his most recent, Think, Act, and Invest Like Warren Buffett. His opinions and comments expressed on this site are his own and may not accurately reflect those of the firm.