I know this is a fairly esoteric topic but I do think it's something investors should pay attention to. I'm very happy to see that Mr. Zweig at the WSJ has written about it. Without going into the details, many people in the investment world, like hedge funds, need to borrow stocks to make bets on the direction of the price of the shares. They typically look to long term investors like pensions and mutual funds as a source of shares to borrow.
Now, do these funds loan the shares for free? No. They charge interest to the borrowers that the owners of the stocks, you, should recieve as additional return. Unfortunately, many fund companies keep the income for themselves and never tell their investors about it. This is no small amount of money, especially for small company stocks which are hard to find because they have fewer shares outstanding.
Find out your mutual fund company or advisor's policy regarding these fees.
Christopher
Is Your Fund Pawning Shares at Your Expense?
Imagine you hire a real-estate agent to sublet your house. Now imagine he keeps 30% to 50% of the rent for himself. Finally, imagine that the real-estate agent makes you pay for the damages that resulted when the tenants he brought in trashed your house.
If you think that sounds unfair, get a load of how the mutual-fund industry has milked investors through the arcane practice of securities lending. Like subletting your house, securities lending is sensible and beneficial in the right hands -- but can wreak havoc when it is done wrong.
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