Gain insights into the securities lending landscape and learn how Vanguard utilizes this practice to benefit investors.
Understanding the benefits of securities lending

Securities lending is a widespread practice among asset managers, including Vanguard. While the approach to and motivation for the practice varies by firm, at Vanguard, we've used it over the last 4 decades to help enhance investment returns for our clients.
Recently, Vanguard democratized access to this extra revenue source by enabling Personal Investor clients to make their individual securities available for borrowing through Vanguard’s Fully Paid Lending program. Here's how Vanguard uses securities lending to benefit investors.
What is securities lending?
Securities lending is a well-established practice that enables borrowers (typically hedge funds, broker-dealers, banks, and other financial institutions) to borrow securities from institutional investors, such as pension funds, mutual funds, and insurance companies, in exchange for collateral and a fee based on the type of security, the duration of the loan, and market conditions.
For security owners, using the securities lending market can mean receiving additional income in the form of a fee from the borrower without losing the economic benefits attached to those securities, such as dividends or market appreciation. From a market perspective, securities lending helps make financial markets function more efficiently by creating liquidity and ensuring that trades clear.
Vanguard's approach to securities lending
Since it began the practice more than 40 years ago, Vanguard's approach to securities lending in its funds has been designed to benefit its investors.
The program's conservative lending approach, an industry-leading percentage of revenue returned to shareholders,1 and focus on risk mitigation resonate with clients and help maximize risk-adjusted performance for Vanguard investors.
While securities lending can generate additional income, it's not without risks. However, we emphasize a conservative, risk-conscious approach to safeguard clients from potential pitfalls.
By maintaining a conservative collateral investment strategy that requires borrowers to provide cash collateral of at least 102% of the daily market value of the loaned securities, Vanguard aims to minimize exposure and ensure liquidity. In addition, Vanguard only lends equities, because lending of fixed income securities presents unique risks and offers very low returns.
As a result of this approach, Vanguard fund shareholders haven't incurred losses from our securities lending practices.
Lowering the cost of investing
The additional revenue generated from securities lending can meaningfully reduce a client's cost of investing, making it a valuable differentiator.
Vanguard funds and ETFs have used securities lending to offset a significant portion of their expense ratios—between 23% and 90% on average—which helps reduce the effective cost of fund ownership and helps give our investors the best chance for investment success.
These results highlight how our efficient and investor-focused securities lending practices can lead to lower costs and better returns for fund investors. And the same principles and practices were used to create Vanguard's Fully Paid Lending program for Personal Investor clients.
Vanguard's Fully Paid Lending program
Vanguard's conservative, client-first philosophy is the foundation of our Fully Paid Lending program for Personal Investor clients, through which individual investors can further enhance their investment returns.
While securities lending is typically reserved for institutional investors, the Fully Paid Lending program allows Vanguard Brokerage to borrow in-demand securities from enrolled clients, potentially generating additional income for them.
Overall, the Fully Paid Lending program provides a way to potentially generate additional income for longer-term investors who are looking to increase their returns.
As with any investment, there are considerations and risks involved, so you should explore the program before deciding whether to enroll. There is no guarantee that your shares will be borrowed or you'll earn money while enrolled in the program. If your loaned security pays a dividend, you'll receive a substitute payment with potentially different tax consequences.