* Vanguard says they require gov't securities in Canada.
Added for James: From the MRFP, XIU made $709,334 from counterparties in securities lending income in 2017, spread across about 460-540 million units
under-reported securities lending is only the tip of the iceberg. One has to ask why canada does not have the same regulations as the US, which requires that ETF vendors identify, security by security, each and every item in inventory that has been loaned out.
the real scandal is general lack of disclosure due to inadequate regulation, thus allowing ETF investors to be sold the story that their alphabet soups are holding each and every stock named in the sales literature in outright ownership ... indeed, safe & secure in professional 3rd party custodial hands! moreover such services are being rendered for free, since MERs have to be kept at zero to .15% range!
ETFs employ a variety of cost-cutting strategies, mostly involving derivatives plus representational sampling plus securities lending.
it is miraculous how the massive ETF sales industry - many of whose principals came over from the mutual fund industry some 15 or 20 years ago when they saw the too-high-fee writing on the wall - has succeeded in selling the Kool Aid that ETFs own all of the stocks they list in their sales literature, plain and simple. Furthermore, ETFs continuously buy and sell millions of their stocks with their authorized participants, every day, all day, in order to balance the ETF to its index, goes the Kool Aid.
former cmffer haroldCrump & this biscuit scribe were the first to write about lack of regulated disclosure & too-loose ETF marketing engines about 3 years ago. At the time Harold e-mailed to me that ETFs had evolved far away from what founder John Bogle had first envisioned.
in fact Bogle himself has recently begun to speak out against the more exotic new ETFs. Ditto very recently dan Bortoletti, a key ETF promoter in canada.
tiny cracks in the ETF foundation are now visible. It's all happening sooner than i would have thought. HaroldCrump's view was that it would require the total collapse of a giant money-centre bank dealing in ETF index derivatives before the ETF buying public would begin to see that the industry reposes upon shakier foundations than its promoters would care to reveal.
Harold thought that the probability of an ETF index provider/money centre bank collapse was low & therefore the industry was likely to sail on without much investigation. I agreed with his view. What i object to is the lack of regulation that would force disclosure of all the representational/synthetic positions.
when we deposit $1000 into our neighbourhood bank branch account, we don't expect the branch to place 1000 physical loonies in a vault that it keeps underground. We expect our bank's treasury floor to instantly fragmentize our deposit and lend it out all over the world, via operations that are more regulated and less opaque than ETF disclosure at the present time. On the whole, we tend to be content with our bank's disclosure.
what i would like to see is the same kind of regulation and the same level of disclosure enforced in the ETF industry. IMHO investors should not be seduced into believing that their ETF is continuously buying & selling, all day long, every day, millions of actual shares of its alleged holdings, in order to balance itself with its index.
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