Skip to main content

A Free Lunch?

Cook food kitchen eat 54455 1

It is useful to remember that Fidelity is a full-service company that offers a wide range of services such as advisory, insurance, credit card and trading. In fact, Fidelity derives a substantial share of their revenues from non-index funds. The asset manager may very well not aim for the new index funds to be profitable. Instead, they could use these products to attract investors and then cross-sell other more profitable lines. Following this logic, the losses generated by the new products can be thought of as marketing expenses incurred to enable the asset manager to raise revenues from other (more lucrative) existing products.

Recent research by Evans et al (2017) shows that a growing number of mutual funds engage in security lending. Briefly, mutual funds that own securities, e.g. a stock, lend the securities to short-sellers who, in return, pay a lending fee to the asset owner. If done on a large scale, a mutual fund can, in theory, reap potentially large benefits from this activity. While security lending make a positive contribution to the income of a hypothetical mutual fund, it involves a trade-off. On the one hand, the fund can boost its income. On the other, it is helping out short-sellers who are betting against the fund investors. This may not be an ethically desirable outcome or something that an investor would be expecting as a side effect.

Evans, R., Ferreira, M.A. and Porras Prado, M., 2017. Fund Performance and Equity Lending: Why Lend What You Can Sell?. Review of Finance, 21(3), pp.1093-1121. Find out more about Dr Chardin Wese Simen's research.

Visit profile Find out more about Dr Chao Yin's research here.

Visit Profile

Dr Chao Yin

visiting fellow
Published 29 August 2018

You might also like

Major International Finance Conference at the ICMA Centre - Henley Business School

14 May 2013
The ICMA Centre – Henley Business School will be hosting the 2013 European Financial Management Association (EFMA) annual meeting on 26-29 June. The conference program includes 252 research papers that will be presented by authors from 36 countries and 5 continents. Among the 84 parallel sessions that will take place over the 4 days of the conference, 4 will be completely dedicated to the financial crisis, 5 on bank management and regulation, 4 on risk management and related issues and 12 on corporate governance and management compensation. Other topics that will be discussed at the meetings, which span all areas of finance, are portfolio management and asset allocation, mergers and acquisitions, real estate, commodities, behavioural finance, currency markets and exchange rates, derivative securities pricing and hedging and law, ethics and finance.
Press releases

"What Makes the Market Jump?" awarded CFA Institute Paper Prize

29 November 2017
The paper entitled “What Makes the Market Jump?” written by Dr Chardin Wese Simen, in collaboration with Professor Marcel Prokopczuk, has been awarded the CFA Institute Paper Prize at the 2017 Financial Research Network Conference.

Student Wins Scholarship to New York ARPM Bootcamp

30 March 2017
MSc Financial Risk Management student Ran Tao has been awarded a scholarship to attend Attilio Meucci's Advanced Risk and Portfolio Management (ARPM) Bootcamp at New York University (NYU) this Summer.