Because most ETFs funds track markets rather than trying to beat them, their costs are extremely low — and, with the latest iShares fee cuts, are approaching zero. Meanwhile, ETFs can generate revenue by lending their securities to short-term borrowers such as hedge funds or brokerage firms. The borrowers may need the securities to settle a trade or to sell them short in a bet that they will fall in price. The borrowers typically cover the loan with cash collateral of at least 102% of the securities’ market value, and they pay the fund a lending fee as well.
