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How does Deutsche's ETF securities lending fare against iShares?

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How does Deutsche's ETF securities lending fare against iShares?

Deutsche Bank has started lending out the securities of its new, physically replicated exchange-traded funds (ETFs), returning a greater amount of revenue to the funds than its competitor, iShares.

Db X-trackers, which launched its first range of physically-backed ETFs at the end of last year, is returning more than 60% of the revenue gained from lending out the funds’ securities, surpassing iShares’ policy.

The issuer is returning 70% of the gross lending revenues to four of its ETFs, tracking the EuroStoxx 50, EuroStoxx 50 ex Financials, Nikkei 225 and FTSE 100 indices.

It is returning 90% of the revenue to its DAX ETF. In comparison, iShares returns 60% across the board, pocketing 40%.

The level of transparency offered on db X-trackers’ lending policy is also arguably superior to iShares’.

The firm is publishing on a daily basis the percentage of assets currently out on loan in each ETF, whereas iShares only shows the average and maximum amount of securities out on loan on a quarterly basis, with a one month lag.

Db X-trackers will also publish daily the maximum percentage of assets on loan in the past year – or since the fund’s launch, as well as the average percentage of assets on loan.

It will show the current percentage level of collateralisation, the breakdown of collateral type and the securities lending return.

The collateral assets received will be shown for each ETF and the list of borrowers will also be published.

For example, on the db X-trackers Euro Stoxx 50 Direct Replication product, the current percentage on loan amounts to 5.07% of the fund, while the collateral value as a percentage of the loan is 108.47%.

The collateral comprises German government bonds and approved borrowers are largely banks, including Goldman Sachs and Barclays among others.

The ETFs will also lend out a maximum of 50% of the portfolio at any one time. iShares enforced a similar policy earlier last year, capping the maximum lent out in each ETF to 50%.

The move by iShares came after the issuer had in the past lent out as much as 95% in certain ETFs and that the relevant fund had accepted Italian and Japanese shares as collateral in case the stock was not returned.

In terms of indemnification – or the guarantee Deutsche offers in case a borrower defaults – the issuer said DB Agency Securities Lending will indemnify the ETFs for any shortfall between the proceeds of collateral liquidation and the market value of the securities on loan.

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