Small caps offer revenue through Russell 2000 ETFs
01 December 2016 New York
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Savvy investors are leveraging exchange-traded funds (ETFs) that track the Russell 2000 Index to access juicy revenue available in the US small cap equities market through securities lending programs.
In environments of slower economic growth small cap stocks, as measured by the Russell 2000 Index, have historically tended to outperform large cap stocks, as measured by the Russell 1000 Index, according a new FTSE Russell research paper.
Extensive FTSE Russell research highlighted that “the exceptional high liquidity” of Russell 2000 ETFs “continue to see strong demand for securities lending. For example, the historical gross lending yield on the iShares Russell 2000 ETF (IWM) averaged 63 basis points from 1 January 2010 through 1 March 2016.”
Markit Securities Finance estimated that the value of equities in securities lending programs reached approximately $9.7 trillion at the end of Q1 2016
As a consequence, FTSE Russell declared in its paper that “securities lending has been shown to benefit financial markets by providing increased liquidity and to benefit market participants by providing a way to offset management fees and potentially enhance returns”.
In addition, the Federal Reserve Bank of New York stated that “the markets for repos and securities lending are crucial for the trading of fixed-income securities and equities” in a recent report.
The FTSE Russell also paper studied some of the largest US institutional investors that have established lending programs, citing the California Public Employees’ Retirement System, which had securities on loan with a fair value of approximately $14.9 billion as of 30 June 2015, and earned approximately $2 million in securities lending income for the 2014–2015 fiscal year.
In environments of slower economic growth small cap stocks, as measured by the Russell 2000 Index, have historically tended to outperform large cap stocks, as measured by the Russell 1000 Index, according a new FTSE Russell research paper.
Extensive FTSE Russell research highlighted that “the exceptional high liquidity” of Russell 2000 ETFs “continue to see strong demand for securities lending. For example, the historical gross lending yield on the iShares Russell 2000 ETF (IWM) averaged 63 basis points from 1 January 2010 through 1 March 2016.”
Markit Securities Finance estimated that the value of equities in securities lending programs reached approximately $9.7 trillion at the end of Q1 2016
As a consequence, FTSE Russell declared in its paper that “securities lending has been shown to benefit financial markets by providing increased liquidity and to benefit market participants by providing a way to offset management fees and potentially enhance returns”.
In addition, the Federal Reserve Bank of New York stated that “the markets for repos and securities lending are crucial for the trading of fixed-income securities and equities” in a recent report.
The FTSE Russell also paper studied some of the largest US institutional investors that have established lending programs, citing the California Public Employees’ Retirement System, which had securities on loan with a fair value of approximately $14.9 billion as of 30 June 2015, and earned approximately $2 million in securities lending income for the 2014–2015 fiscal year.
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