We show that active mutual funds play an important role in setting lendable supply and a decrease in lendable supply positively predicts stock returns in the cross-section. Moreover, the return predictability of the change in the lendable supply is stronger among the underpriced stocks and is unlikely to be caused by the relaxation of short-sale constraints. Finally, we provide evidence that the return spread tends to be higher following low sentiment, suggesting that a zero-cost strategy offers a great hedge to other sentiment-driven anomalies. Overall, our results suggest that securities lenders are informed.