Borrow rates for most large, liquid, diversified ETFs are quite low.
As of the writing of this post and per iborrowdesk.com,
SPY (S&P 500), EFA (MSCI EAFE), EEM (MSCI Emerging Markets), QQQ (Nasdaq 100) borrow rates are all below 1%.
ETFs tracking certain asset classes that are harder to short for retail investors/investors who can't trade OTC have moderately higher borrow fees, like JNK (HY bonds) at 3%.
However, many factor ETFs, especially multifactor funds, have extraordinarily high borrow rates, especially vs their relatively modest tracking errors. Examples include LRGF (MSCI USA Multifactor) at 21%, VFMF (Vanguard US Multifactor fund) at 31% and SMLF (MSCI USA Small Cap Multifactor) at a whopping 122%. Other factor funds, particularly value, also have relatively high borrow rates (DFAT, AVUV, IVAL for example). Many active funds are expensive to short too ie FMAG (Fidelity Magellan) at 11%.
What gives? This doesn't seem to be a particularly new phenomenon, and even though borrow fees aren't fully passed on to longs + not all units can be lent out, wouldn't it be attractive to hold many of these ETFs simply to receive (a portion of) the borrow fees?
Exact same story using borrow rates from fintel.io , which doesn't seem to use IBKR, so this strangeness seems pretty robust.
Submitted April 10, 2022 at 02:16AM by throwaway474673637 https://ift.tt/mI39JS4