Barron’s: ETFs’ hidden source of return is securities lending

How can an index ETF beat the index? By earning some money on the side to offset its annual fees. Securities has found new life in the world of ETFs. Index funds play a game of inches. Because fees are so low and funds often track identical or very similar benchmarks, winning funds often beat their peers by mere decimal points. Never has this been truer than with exchange-traded funds, with expense ratios now as low as 0.03%.

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