Schwab stock index funds earn additional income by lending securities to qualified institutional borrowers.
A fund’s expenses are paid out of fund earnings. Given that the US tax code gives a tax preference to dividends that qualify for lower tax rates, it is prudent for fund managers to allocate non-qualified income to fund expenses. The table below shows the amount of security lending income earned by each fund in fiscal year 2017 and calculates its percentage ratio to total annual fund expenses.
|Fund||Security lending income||Fund expenses||Pct.|
|US total market||1,274,468||2,829,007||45.05%|
|US large cap||343,658||8,869,650||3.87%|
|US small cap||5,439,371||3,027,665||179.66%|
|US broad market||992,387||2,471,323||40.16%|
|US large cap||462,663||2,357,940||19.62%|
|US large growth||275,188||1,683,695||16.34%|
|US large value||147,849||1,395,851||10.59%|
|US mid cap||647,729||1,684,736||38.45%|
|US small cap||4,469,388||2,669,341||167.43%|
- Table data is derived from fund annual reports for fiscal year 2018. The computations are derived from the linked spreadsheet: Schwab index fund security lending.
- The Schwab US large cap growth, US large cap value, and US mid cap index funds were created during the 2017 fiscal year and thus do not yet have reported yearly data.