IHS Markit has launched monthly performance benchmarking reports that measure securities lending returns in six MSCI global equity indices: World, USA, Europe, Japan, Asia Pacific ex Japan, and Emerging Markets. The reports use IHS Markit securities finance analytics to track the current and five-year historical lending returns on constituents of each index, provided on monthly, quarterly and annual returns, index short interest levels, contribution by securities lending fee categories and top performing sectors by revenue and nation.
Key findings from the first set of reports include:
- All six indices show a lower level of securities lending return for Q1 2020 compared to Q1 2019, however global equity utilization increased sharply in March which could set the stage for higher returns to lendable going forward.
- The MSCI World Index returned 1.3bps to 2.3bps over the 12 months ending March 2020, with US contributing 43% of the total revenue.
Securities Lending Returns in MSCI World
- From April 2019 to March 2020, the MSCI Emerging Markets Index produced the highest securities lending return with a range of 6.9 bps to 12.9 bps, more than 75% contributed by special stocks. Year-to-Date returns in 2020 have declined in comparison to the same period last year.
- The MSCI USA Index produced the lowest return, 0.5bps to 0.8bps, with general collateral stocks contributing 67% of the return.
- Short term peaks in returns for the MSCI World and MSCI USA indices relate to exchange offers, which generate significant revenues for shareholders who agree to forgo the offer to lend shares.
- Health Care Equipment & Services was the top-performing sector in the MSCI World index for the month of March 2020, contributing 24% of securities lending revenue. It was also the top-performing sector in MSCI USA where it contributed around 50% of the securities lending revenue for the month.
This intelligence can help securities lenders – particularly asset managers and pension funds – better analyze the value of their lending portfolio across markets and assets. Paul Wilson, managing director and global head of Securities Finance at IHS Markit, said in a statement: “These pioneering monthly reports bring high-level performance metrics to the securities lending community, enabling firms to identify new opportunities and optimize returns. Readers will gain innovative, index-based reference points powered from our comprehensive universe of securities finance data, which covers more than $25 trillion of lendable inventory and $2.5 trillion of loan balances.”
Andy Dyson, CEO of the International Securities Lending Association (ISLA), said in a statement: “ISLA welcomes the public availability of broad returns data which helps bring greater visibility to the role securities lending plays in financial markets. It also helps bridge the understanding between the securities lending market and investor communities.”
IHS Markit’s Wilson is spearheading an ISLA industry working group tasked with establishing global standards around securities lending performance measurement, and both he and Dyson have spoken to SFM about the importance of the initiative to the industry. These latest monthly benchmarking reports are a separate initiative that complement the ISLA collaboration, a spokesman noted.