Opinion – From Grain to Grain: What’s the point and how much do you earn by renting a share on the Stock Exchange?

In the past, leasing a share was exclusive to large investors. However, the increase in the number of individual investors on the exchange encouraged brokerages to invest in areas to deal only with this activity. But, why would anyone rent a share and how much do you get on that rent?

When we think about investing in stocks, we only imagine an attitude. Usually, an investor buys a stock, waits for it to appreciate and then sells it at a higher price. Thus, he makes a profit from the positive price change.

However, everyone who has invested in stocks knows that the movement is not just upward. Often, the action drops and quite a lot.

For example, several stocks in the Brazilian retail sector have suffered strong devaluation in the last 12 months.

If you own a stock and sell it, you no longer have exposure to any price movement, whether up or down.

So, how can an investor make money from the price drop?

To do this, he must perform the following steps:
1 – Taking a lease on the stock that the investor believes can be devalued;
2 – Once the share is in possession, sell it;
3 – Wait for the price to fall and buy back the share;
4 – Return the share to the owner, along with the rent.

The share rental rate fluctuates greatly with the demand and supply of shares to be rented.

There are shares whose rental rate is only 0.05% per year, as in the case of EMBR3 (Embraer), as well as up to 63.65% per year, as in the case of IRBR3 (IRB Brasil RE).

See an example.

Consider an investor who believes that the Ibovespa is an investment to be kept in the long term. He could buy the BOVA11 ETF (Exchange Traded Fund), rent out his position and earn an additional income equivalent to 3.89% per annum, which is the BOVA11 rental rate.

The BOVA11 price ended today at R$ 109.45. If you have 1000 shares of this ETF, you have a value of BRL 109,450.00 invested. Thus, you would receive an income of R$ 3,890.00 per year, equivalent to R$ 324 per month.

This income is greater than many dividends paid for stocks in the market.

Imagine that another investor believes that the Ibovespa should depreciate. He can rent BOVA11 from the first investor and sell.

Consider that he sold and in one month the BOVA11 dropped 10%, that is, to R$99.5. Thus, he gained BRL 9.95/sold quota, which represents the difference between 109.45 and 99.5.

However, this is not your net gain as you have to pay the rental fee. Therefore, he returns the asset to the owner and pays the rent for the month.

As it was only rented for a month, this rental rate will be close to 0.3%. Therefore, the profit will be close to 9.7%, excluding brokerage costs.

Despite the development of this market, it is necessary to understand that not everyone who offers shares for rent is able to rent. There are many stocks that have low demand and high supply.

In any case, the possibility of leasing an asset favors the investor who wants to keep the shares for the long term, as he can earn additional income. It also contributes to increasing market liquidity, as it allows investors to sell without owning an asset.

Michael Viriato is an investment advisor and founding partner of Investor’s House

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