Finance

Initial Public Offerings (IPOs) are currently driving significant changes in the securities lending sector. The trend over the last year and a half highlights how certain IPOs, often termed “specials,” are increasingly vital for generating lending income. Data from the market reveals that top U.S. equities like CoreWeave and Circle, both recent IPOs, were major contributors to securities lending revenue in 2025.

Securities lending is a critical component of financial markets, enabling investors to borrow shares for various strategies, including short selling and hedging. The demand for borrowing shares of newly public companies can be particularly high due to speculative interest, volatility, or the desire to establish short positions against companies perceived as overvalued. This heightened demand often translates into higher lending fees, boosting revenues for lenders.

CoreWeave's IPO, for instance, generated approximately $759 million in lending revenues over the past twelve months. This surge was primarily driven by substantial borrowing demand and elevated fees, particularly around lock-up expiration periods and when share supply was restricted. Lock-up expirations typically release a large number of shares previously restricted from trading, which can lead to increased volatility and short-selling opportunities, thus intensifying lending demand.

Looking ahead, upcoming IPOs from highly anticipated companies like SpaceX and OpenAI are expected to further impact lending markets. Given their large valuations and potentially limited free floats (the number of shares available for public trading), these listings are likely to create immense borrowing demand. Such scenarios often result in exceptionally high lending fees and significant supply-demand imbalances, benefiting securities lenders.

Moreover, the performance of the Asia-Pacific (APAC) region in equity lending revenues has recently surpassed that of North America. APAC’s specials revenues climbed by 73% year-on-year, reaching $982.6 million. This growth is largely attributed to a wave of new listings and concentrated demand for specific equities, showcasing a dynamic shift in global securities lending activity.

The consistent contribution of recent IPOs to securities lending revenues underscores their growing importance. As the market anticipates future high-profile listings, the role of these new entrants in shaping lending strategies and revenue streams is expected to expand, influencing overall market dynamics and investor approaches.

The Nationwide International Small Cap Fund's Institutional Service share class delivered an impressive performance in the first quarter of 2026, surpassing the MSCI EAFE Small Cap Index. This strong showing can be attributed to astute stock picking within the information technology, materials, and communication services sectors, which more than compensated for underperformance in industrials, consumer staples, and utilities. The fund's strategic allocation and selection have proven effective in navigating the dynamic global market landscape.

During the first quarter of 2026, the Nationwide International Small Cap Fund (IS share class) achieved a return of 1.54%, significantly outpacing the MSCI EAFE Small Cap Index, which saw a decline of 1.25%. This notable outperformance underscores the fund's successful investment strategy.

A detailed analysis of the fund's performance reveals that strong stock selection in the information technology, materials, and communication services sectors played a crucial role in its success. These gains were substantial enough to offset less favorable outcomes in the industrial, consumer staples, and utilities sectors. For instance, Unimicron Technology experienced a surge in its share price due to increasing demand for advanced circuit board components, particularly from data centers and high-performance computing clients, driven by the accelerating adoption of artificial intelligence. Conversely, SimilarWeb's stock faced headwinds, declining amidst a broader downturn in the software industry. This was influenced by investor concerns regarding AI-driven disruption, heightened investment requirements, and pressure on short-term profitability. Additionally, Arcadis shares saw a dip following the release of its fourth-quarter results, which, despite strong underlying fundamentals and clear opportunities for margin improvement, were considered disappointing by the market.

In summary, the Nationwide International Small Cap Fund's impressive first-quarter performance was largely a result of its effective stock selection, particularly in growth-oriented sectors. Despite some sector-specific weaknesses, the fund's overall strategy enabled it to achieve a positive return, demonstrating its resilience and capability to identify promising investment opportunities in a complex global market.