city wire privite clients retreat 2013 compliance approved uk
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Citywire Private Client Manager Retreat 2013
Top 5 questions we are asked about
ETFs
Ursula Marchioni, Director
iShares EMEA Investment Strategies & Insights team
FOR PROFESSIONAL AND INSTITUTIONAL INVESTOR USE ONLY
May 2013
Four Seasons Hotel, Dogmersfield Park, Hampshire
1. How do I describe an ETF to my clients & why do investors use them?
2. How big is the industry and who are the buyers of ETFs?
3. What things should I consider when investing in an ETF?
4. How do I assess the cost of an ETF?
5. Which asset classes / markets have been most popular recently?
6. Which themes shall I consider with my clients moving into H2 2013?
2
Top questions we are asked about ETFs
Top question # 1:
How do I describe an ETF to my clients & why do
investors use them?
4
How to describe ETFs & why investors use them
• ETFs are index funds, i.e. funds aimed at delivering a benchmark index’s returns, minus fees.
• ETFs are listed and traded like a stock on major stock exchanges, globally.
Therefore, they occupy a valuable position in the investment landscape:
the intersection between an index fund and a flow product
4
Index Fund
• Simplicity
• Transparency
• Risk control
• Cost control
• Consistency of returns
• Diversification
• Mutual Fund
• Open-End Fund
Flow Product (Single Stock /
Future)
• Trading flexibility on
exchange
• Intraday pricing
• Listed options
• Ability to borrow / short
• Any transaction size
• Variety of trading
strategies
Transparency • Investors can generally see the ETF composition at any given time
Liquidity
• ETFs offer two sources of liquidity
Liquidity measured by secondary market trading volume
The liquidity of the underlying assets via the creation and redemption
process
Diversification
• ETFs offer immediate exposure to a basket or group of securities for
diversification through a single trade
• Broad range of asset classes, including equities, bonds, commodities,
investment themes, etc.
Flexibility
• ETFs are listed on exchanges and can be traded at any time the
market is open
• Pricing is continuous throughout the day
Securities
Lending
• ETF units and underlying assets can be lent out to potentially offset
holding costs
Cost
Effectiveness • ETFs offer a cost-effective route to diversified market exposure
ETFs
For illustrative purposes only.
Top question # 2:
How big is the industry and who are the buyers of ETFs?
Global ETP Multi-Year Asset Growth and Top 10 Providers
6
At the end of April 2013, the global Exchange
Traded Products (ETPs) industry (ETFs + ETCs +
ETNs +ETI) comprises*:
• 4,852 products
• From 185 providers
• Listed on 55 regulated exchanges around the
world
• Assets of $2.11tn, of which:
• $1.49tn in US-domiciled ETP (71% of global
AUM)
• $377bn in Europe-domiciled ETP (18% of
global AUM)
Source: BlackRock ETP Research, ETP Landscape. 1: Data is as of April 29, 2013 for Europe and April 30, 2013 for the US, Canada, Latin
America, Israel, and some Asia ETPs. Some Asia ETP data is as of March 31, 2013. Global
ETP flows and assets are sourced using shares outstanding and net asset values from
Bloomberg for the US, Canada, Europe, Latin America and some ETPs in Asia. Middle East
ETP assets are sourced from the Bank of Israel. ETP flows and assets in China are sourced
from Wind. Inflows for years prior to 2010 are sourced from Strategic Insights Simfund. Asset
classifications are assigned by the BlackRock based on product definitions from provider
websites and product prospectuses. Other static product information is obtained from
provider websites, product prospectuses, provider press releases, and provider surveys.
European ETP Multi-Year Asset Growth and Top 10 Providers
7
At the end of April 2013, the European Exchange
Traded Products (ETPs) industry (ETFs + ETCs +
ETNs +ETI) comprises*:
• 2,142 products
• From 43 providers
• Listed on 24 regulated exchanges around the
world
• Assets of $376.8bn, of which:
• $239.1bn in Equity ETPs (64% of total
European AUM)
• $74.8bn in Fixed Income ETPs (20% of total
European AUM)
• $60.9bn in Commodity ETPs (16% of total
European AUM)
Source: BlackRock ETP Research, ETP Landscape. 1: Data is as of April 29, 2013 for Europe and April 30, 2013 for the US, Canada, Latin
America, Israel, and some Asia ETPs. Some Asia ETP data is as of March 31, 2013. Global
ETP flows and assets are sourced using shares outstanding and net asset values from
Bloomberg for the US, Canada, Europe, Latin America and some ETPs in Asia. Middle East
ETP assets are sourced from the Bank of Israel. ETP flows and assets in China are sourced
from Wind. Inflows for years prior to 2010 are sourced from Strategic Insights Simfund. Asset
classifications are assigned by the BlackRock based on product definitions from provider
websites and product prospectuses. Other static product information is obtained from
provider websites, product prospectuses, provider press releases, and provider surveys.
Greenwich Associates 2012 ETF Survey
• 80 US institutional investors that currently use exchange-
traded funds (ETFs): 62 institutional funds — corporate
funds, public funds, endowments, and foundations — and 18
asset managers with discretion for institutional assets;
• 57% of institutional ETF users employ ETFs to achieve
strategic allocation ranges;
• Institutions are often first drawn to ETFs for help with two
basic functions: manager transitions and cash
equitization/interim beta;
• Rebalancing, tactical adjustments and portfolio completions
also proved to be very popular uses of ETFs in 2012
Source: Greenwich Associates, 2012
8
Who are the buyers of ETFs? Both institutional investors (the US case) …
9
EMEA ETF AUM by segment
$220B
$100B
$20B
$10B
$350B
Direct Retail
Intermediary
Wealth Managers
Institutional
Note: Data as of June 30, 2012. AUM by client segment is estimated, source: BlackRock.
• European ETF clients are primarily Institutional; Retail
adoption has been much slower
• Institutional segment continues to be driven by asset
managers; regulatory review of the Insurance industry
(Solvency II) may require a tailored approach to drive
sub-segment growth
• Retail increasingly important in the next phase of ETF
growth
• Retail distribution dynamics dominated by banks, except
in the UK
• Many of the larger Private Banks have their own ETF
offering (UBS, Credit Suisse, HSBC etc.) and are both
clients and competitors
European client trends
Rising
investor
appetite for
ETFs
• Governments in Europe are moving
towards increased regulation to
protect investors and increase
transparency; RDR & MiFID II
• Scrutiny on investment fees has
grown and as a result, regulations on
pricing are driving a transition to
fee-based advisory
• Trend towards fee-based advisory
models and transparency, are
resulting in a focus on low-cost
products, such as ETFs
• ETFs have delivered impressive
growth despite still relatively low
awareness and adoption among
investors, advisors and institutional –
implies that significant growth
potential remains
• DB and DC plan sponsors,
endowments and foundations are just
starting to show meaningful interest
in ETFs
• Rising awareness of ETFs for Fixed
Income and with non-traditional users
Shift towards
fee-based
advisory &
transparency
ETFs
Who are the buyers of ETFs? … and an expanding retail client basis (the European case)
Top question # 3:
What things should I consider when investing in an ETF?
Key areas of consideration for ETP selection
Performance
Trading & Valuation
Total Cost of Ownership
Other (Dist’n, FX)
Domiciled / Registration / Listing
Tax
Structure and Risk
Index
Tax
11
North America ($ 1,548.1 bn)
AUM iShares: $ 652.4 bn
Products: 383
Market share – position: #1
US Market share – percentage:
41.1%
EMEA ($ 376.8 bn)
AUM iShares: $ 151.2 bn
Products: 206
Market share – position: #1
Market share – percentage: 40.1%
Latin America ($ 13.8 bn)
AUM iShares: $ 12.3 bn
Products: 20
Market share – position: #1
Market share – percentage: 89.4%
Asia Pacific ($ 147.1 bn)
AUM iShares: $ 9.4 bn
Products: 27
Market share – position: #5
Market share – percentage: 6.4%
ETP Provider’s commitment to the business iShares presence across different platforms and jurisdictions
• iShares is the world’s largest Exchange Traded Products (ETPs) provider globally, having championed these
products for the past 15 years
12
Source: BlackRock ETP Research, ETP Landscape. Data as of end April 2013.
ETP Provider’s commitment to the business EMEA iShares Product Overview: 206 Products
Source: Blackrock/iShares, range of Irish and German domiciled products as of Q1 2013.
13
Equities ($87.45Bn) Fixed Income ($39.91Bn) Alternatives ($5.25Bn)
Developed
$65,977 m
(Number of funds: 80)
Global
$5,743 m
((Number of funds: 9)
Emerging Markets
$14,874 m
((Number of funds: 23)
Alternative weighted / Thematic
$864 m
((Number of funds: 17)
Commodity Indices
$791 m
((Number of funds: 5)
Physical Precious Metals
$354 m
((Number of funds: 4)
Real Estate – REITS
$3,893 m
((Number of funds: 8)
Listed Private Equity
$212 m
((Number of funds: 1)
Credit (IG & HY)
$21,509 m
((Number of funds: 17)
Government Bonds
$12,334 m
((Number of funds: 34)
Inflation-Linked
$3,066 m
((Number of funds: 4)
Emerging Markets
$3,005 m
((Number of funds: 4)
Top question # 4:
How do I assess the cost of an ETF?
Total Cost of Ownership
• In our view, assessing the cost of an ETF requires investors to look beyond the headline TER and take an
approach we call the Total Cost of Ownership (TCO).
• While the TER is the most often quoted ETF expense indicator, there are additional components which influence
the overall performance of an investment in ETFs – such as, but not limited to, the bid/offer spreads paid to trade
the product on the stock exchange; revenues from securities lending activities; swap spreads linked to
synthetically replicated funds, and taxation. The concept of TCO captures them all.
• At iShares, we perceive the TCO as a combination of factors internal and external to the ETF instrument. While
some of these factors are disclosed by ETF Providers, others are not public.
15
Source: BlackRock. Please note that the tax (External Factors) is a cost additional to the spreads and fees.
Total Cost of Ownership
• At iShares, we pride ourselves to provide full transparency of all the components of TCO. When comparing our
products to competitors’ ETFs, we though acknowledge that some of the TCO components can be missing for the
peer products.
• Hence, we recommend clients to think about a Proxy TCO (pTCO), which allows the assessment of an
approximate Total Cost of Ownership of an ETF, when traded on an exchange (secondary market).
16
Source: BlackRock. Please note that the tax (External Factors) is a cost additional to the spreads and fees.
Cost of purchasing Cost of holding Cost of selling
Assuming the ETF is
bought on exchange, this
will be approximately
equal to ½ of the
Bid/Offer spread of the
ETF
To estimate the total cost of this
phase, we recommend using the
Tracking Difference (TD) – i.e. the
difference in the fund and
benchmark returns over the holding
period. The TD includes:
TER
Securities lending revenues
Swap spreads*
Rebalancing costs*
Assuming the ETF is
bought on exchange, this
will be approximately
equal to ½ of the
Bid/Offer spread of the
ETF
Proxy
TCO
*Please note that both swap spreads and rebalancing costs will be affected by the withholding tax difference between the ETF and the index.
TCO vs. TER – iShares S&P500 (IUSA)
Source: BlackRock, Bloomberg.
Data as at end of March 2012. TCO calculated over the 12 months period: 1 March 2012 – 28 February 2013.
17
• The Irish domiciled iShares S&P 500 (IUSA) has a TER of 40bps.
• Its TCO is noticeably lower and equal to TD + spreads = 5bps + 6.8bps = 11.8bps.
Top question # 5:
Which asset classes / markets have been most popular
recently?
April 2013 – YTD flows
Global ETP Cumulative Net Flows/ $Bn Europe ETP Cumulative Net Flows/ $Bn
19
Global ETP inflows of $79.9bn YTD continue to outpace the $66.3bn
from last year
• Equity funds lead with $74.1bn YTD.
• Developed Markets exposures accounted for nearly all of the flows (99%);
• Investors have also increasingly turned to non-market capitalisation
weighted over traditional Equity funds, - as these funds captured 42% of
YTD Equity flows despite representing just 16% of the asset base.;
• Yield remains the other noteworthy Equity theme this year, through strong
flows into Dividend Income ETPs;
• Japanese Equity exposure has been consistently in demand all year with
YTD flows are $12.8bn.
• Finally, nearly all of the Emerging Markets Equity inflows from January
have reversed in the past three months. YTD flows are now just $0.6bn
Unless otherwise specified, all information is sourced from BlackRock ETP Landscape. Data as at end of
April 2013.
-50
0
50
100
150
200
250
300
Start J F M A M J J A S O N D
2011
2010
0
10
20
30
40
50
60
Start J F M A M J J A S O N D
2010
2011
2012
2013
• Fixed Income funds have gathered $21.1bn YTD including more
than $7bn in each of the past two months. Short Maturity funds
have been the engine for Fixed Income growth this year
accumulating $15.1bn.
• Gold ETP outflows continued in April, to reach ($17.9bn) YTD.
The European ETP Industry recorded a more mixed result over the
first 4 months of 2013, with flows of $6.7bn.
• Flows remained above the $2.2bn level recorded at the end of
April 2012 – but feel short of both 2011 and 2010 levels.
ETP flow monthly rolling net flows and snapshot across exposures ($bn)
April YTD Monthly flow comparison – Global
Global ETP flows slowed in April to $10.3bn, although YTD
flows $79.9bn remained well ahead of last year’s record pace of
$66.3bn
April Equity flows accounted for $9.6bn, with investors
preferring US equities and non-market capitalisation weighted
funds. “New-beta” strategies captured 42% of Equity ETP flows
– with dividend income and minimum volatility ETPs recording
monthly inflows of $3.4bn and $2.5bn, respectively
Japan equities accumulated $4.8bn in April, as the
government's commitment to stimulus policies continued to
support investors’ appetite. Conversely, EM equity ETPs
continued the negative trend recorded over the previous
months
Fixed income flows were impressive in April, reaching $9.5bn –
the best month since May 2012. The trend was led by inflows
into US treasuries
Gold ETP outflows hit a monthly record in April at ($8.7bn)
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
Apr-2013 Flows
Mar-2013 Flows
Unless otherwise specified, all information is sourced from BlackRock ETP Landscape. Data as at end of April 2013. 20
ETP flow monthly flows and snapshot across exposures ($bn)
April YTD Monthly flow comparison – Europe
European domiciled ETPs continued to experience mixed
results, ending the month of April in negative territory with
outflows of ($893.5mn). Nevertheless, YTD flows of $6.7bn
remained above the $2.2bn level recorded at the end of April
2012
2013 YTD result was primarily driven by outflows from
commodity and equity ETPs, with European equity exposures
continuing to be shunned by investors
European Fixed income ETPs remained in the bright spot, with
April flows at $1.9bn and YTD balance of $4.5bn. The positive
trend was led by inflows into developed countries sovereign
bond ETPs. EM debt equally recorded inflows, an interesting
contrast to the result posted by EM equity ETPs
Gold ETPs continued to experience the heaviest outflows
within commodity ETPs. Conversely, other precious metals
ETPs, such as Silver trackers, recorded moderate inflows
-$6 -$4 -$2 $0 $2 $4 $6 $8
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
Equity Fixed Income Commodity / Other
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
Apr-2013 Flows
Mar-2013 Flows
-0.8
-0.3
1.3
6.5
5.8
2.5
4.7
4.4
4.2
3.6
2.2
3.1
-5.0
2.0
1.9
Unless otherwise specified, all information is sourced from BlackRock ETP Landscape. Data as at end of April 2013. 21
The Beta Continuum keeps expanding …
Corporate
Asset Backed
Securities
Baskets Property Short –Term
Treasuries
Developed
Markets
Global Global
Government
Index Linked Infrastructure Emerging
Markets
Large, Mid,
Small - Cap
Growth, Value,
Dividend
Sectors /
Industry Groups
Domestic
Government
Equities Fixed Income Alternatives Commodities Cash
Equivalents
Maturity
Buckets
Single
Regional,
Country
Investors can expand their portfolios beyond traditional investments with
ETFs aiming to track several areas of the market cap weighted space …
Private Equity
For illustrative purposes only.
… or moving in the “alternative”
weighting passive space
22
Top question # 6:
Which themes shall I consider with my clients moving
into H2 2013?
Our 2013 Spring Outlook
• As in recent years, the first quarter of 2013 delivered plenty of rally headlines and positive sentiment. However,
unlike previous years, this year’s performance across asset classes has been very mixed – with the rally and ETP
flows highly concentrated in developed equities, led by the US.
• Already in Q2, softening global economic data portends a more difficult time for markets. Divergence between the
outlooks for the US and Europe economies remains while emerging markets may continue to under-deliver on
expectations. Against this, central bank actions remain key. While focus is on the BoJ’s headline-grabbing steps
and the Fed’s QE ‘exit or not’ plans, the ECB continues to be the main pillar of confidence for markets amidst the
minicrises in the Eurozone. We highlight four investment themes for a more uncertain Q2:
24
1. Broad equity valuations remain attractive
compared to other asset classes, although risk
metrics are pointing to a receding investor
appetite. Dividend income and minimum volatility
strategies provide broad equity exposure with a
tilt to defensives.
2. As emerging market equities continue to struggle,
similar to developed equities, consider the
risk-reward characteristics of minimum volatility
EM equities, and dividends within the income
theme. Selective DM large cap indices, DAX and
FTSE, provide a way to play indirect EM exposure.
3. Japanese equities, currency-hedged, should
continue to outperform other markets driven by
the BoJ’s reflation attempt.
4. In fixed income, the search for income continues
amidst rising concerns over duration risk and the
volatility of core rates markets, favouring interest
rate hedged corporates. Local EM debt offers
better value than USD EM debt.
Source: EMEA Investment Strategy and Insights Looking Glass series – Spring Outlook April 2013.
Theme 1: Developed equities through a softer Q2
While equity valuation remains attractive to cash and bonds, risk metrics which historically correlate with risk asset
performance are pointing to a receding investor appetite (Figure 8). Investors should consider more defensive ways
to maintain developed market equity exposure: dividend income and minimum volatility equity indices
25 Source: EMEA Investment Strategy and Insights Looking Glass series – Spring Outlook April 2013.
Theme 2: Alternative approaches for EM
Year-to-date, EM equities have underperformed their DM counterparts by 10%, cheapening their relative valuations on a
price-to-book basis by 20%. Poor performance is also echoed in the ETP market, where outflows from EM equity ETPs gathered
pace in February and March. Still, while lowering expectations, emerging economies do remain a source of growth relative to
developed economies (forecast to grow 3% above DM in 2013). With broad EM equities not delivering so far in 2013, investors
can look at alternative strategies such as minimum volatility and dividends. Additionally, investors who wish to stay within DM
equities, but are searching for higher growth given the lack of domestic demand in Europe, can access selective large cap DM
equities with large shares of EM revenue.
26 Source: EMEA Investment Strategy and Insights Looking Glass series – Spring Outlook April 2013.
Theme 3: Japanese equities and QQE
Under the leadership of the new governor Kuroda-san, the BoJ has announced a series of easing measures that have
surpassed market expectations. The ‘Qualitative and Quantitative Monetary Easing’ programme includes major
expansion of the JGB (Japanese Government Bond) buying along with ETF/J-Reit purchases. It aims to double the
monetary base – referring to the BoJ balance sheet size – in order to achieve the 2% inflation target within two years.
The impact on the Japanese market has been two-fold. Equities have already rallied more than 40% since November
last year on expectations that the BoJ
27 Source: EMEA Investment Strategy and Insights Looking Glass series – Spring Outlook April 2013.
Theme 4: Fixed income and risk mitigation
As highlighted in the BlackRock® Investment Institute piece, ‘Forget Rotation: Think Risk Mitigation’, bond portfolios carry
more risks than in the past and more risks than many investors realise. As an example, consider the rise in rate volatility in core
government bond markets. In Europe, rate volatility is near multiyear highs compared to equity and credit spread volatility still
down near pre-crisis lows (Figure 17). So far in 2013, rate movement has accounted for a very high percentage of monthly
investment grade index returns – both good and bad – in the US and Europe. Market participants face a skewed profile of
investing. After the recent safe-haven rally, core government yield levels are unattractive and elevated rate volatility and rising
duration skews the risk-return profile. While the rate portion of investment grade credit remains volatile, the credit spread
component, even if not cheap, remains technically supported – in particular by the low level of net issuance YTD. The iShares
Barclays Euro Corporate Bond Interest Rate Hedged [IRCP] aims to deliver exposure to European credit while hedging out the
rate risk of the broad index. As central banks keep yield curves anchored and flat, the search for yield goes on. One area that
continues to benefit is emerging market debt where local currency debt (iShares Barclays Emerging Markets Local Govt Bond
[IEML]) offers better value than external debt, especially given the duration risk of USD debt.
28 Source: EMEA Investment Strategy and Insights Looking Glass series – Spring Outlook April 2013.
Summary of our Investment Themes
29 Source: EMEA Investment Strategy and Insights Looking Glass series – Spring Outlook April 2013.
THANK YOU!
How can we help?
ETP Implementation
Risk/return and replication methodology analysis of our ETFs
Fund comparison reports
Analysis comparing ETFs following the same benchmark
ETP Portfolio Implementation
How to combine our ETFs to create a portfolio with a specific risk/return profile
How to add our ETFs to a pre-existing portfolio to modify its risk/return profile
ETF Research
ETP Landscape market trends: AUM growth and flows
ETF thought leadership: Due diligence framework; ETFs vs. futures etc.
Tax information
E.g. “Tax Implications of iShares”
Implementing asset class themes using ETFs
Investment strategy
Facilitating due diligence
Holdings, Fund fact sheets, Trading data
31
iShares Contacts
iShares EMEA Investment Strategy and Insights
Stephen Cohen
Managing Director, Head of
Investment Strategy and Insights, EMEA
+44 20 7743 5283
stephen.cohen@blackrock.com
Ursula Marchioni
Investment Strategist
+44 20 7743 1456
ursula.marchioni@blackrock.com
Sofia Antropova
Investment Strategist
+44 20 7743 4078
sofia.antropova@blackrock.com
Wei Li
Investment Strategist
+44 20 7743 1456
wei.li2@blackrock.com
Vasiliki Pachatouridi
Investment Strategist
+44 20 7743 1431
vasiliki.pachatouridi@blackrock.com
Paula Niall
Investment Strategist
+44 20 7743 2586
Paula.Niall@blackrock.com
Dr. Stephanie Lang
Investment Strategist
+49 89 42729 5841
stephanie.lang@blackrock.com
Karim Chedid
Investment Strategist
+44 20 7743 1370
karim.chedid@blackrock.com
Regina Zalilova
Investment Strategist
+44 20 7743 3139
regina.zalilova@blackrock.com
For iShares execution related queries please contact the following:
iSharesMarkets@blackrock.com / iSharesmkts@bloomberg.net / +44 20 7743 4050
For further information please e-mail insights@ishares.co.uk
iShares UK Sales contacts
Claire Perryman
Director
Head of iShares UK Wealth
+44 20 7743 1667
claire.perryman@blackrock.com
Amanda Rebello
Vice President
iShares UK
+44 20 7743 1620
amanda.rebello@blackrock.com
Appendix
ETFs: replication methodologies
34
Indexing Strategies
• All securities within an index are
purchased according to their
weightings
• Ensures a minimal tracking error
(deviations) of the portfolio
• The full replication method may
result in many positions depending
on the index and requires a
portfolio construction tool
• It is used mostly for liquid and/or
narrow defined indexes and for
fixed income indexes without tax
implications.
• A limited number of securities are
considered. The number of
securities determines the tracking
error which can be forecasted. A
minimum risk optimization is
conducted by the use of a risk
optimization tool
• Ensures a controlled and low
expected tracking error (deviations)
of the portfolio eliminating
economical unattractive
investments.
• It is used mostly for indexes with
illiquid investments and/or broad
based equity and fixed income
indexes. It is also used for fixed
income indices with tax
implications
Physical, Full Replication Physical, Optimized Sampling
• Synthetic replication involves the
use of derivatives (e.g. Equity-
Linked Swaps “ELS”)
• The manager receives benchmark
performance in exchange of the
substitute basket return from the
counterparty (i.e. the ELS issuer)
• Through the ELS, the fund is
subject to counterparty risk. Should
the counterparty default, the
investment objective may not be
achieved
Synthetic Replication
Source: BlackRock
Replication methodologies: physical replication
The traditional replication methodology with physical index constituents requires sophisticated
indexing-know-how and state of the art portfolio management and optimization tools for trading and risk
management
Replication of the underlying index:
Handling of index changes
Handling of corporate actions ( e.g. stock splits)
Handling of coupon and dividend reinvestments
Withholding tax reclaims (double tax treaties)
Management of inventory (Securities Lending, etc.)
Optimization of transactions costs through order pooling, etc.
35
Source: BlackRock
Physically replicated ETF
Replication methodologies: synthetic replication
Synthetically replicated ETFs allow exposure to a broader investment universe
Counterparty risk of max. 10% of ETF NAV (under UCITS structures)
Due diligence needed for performance figures and swap structure (frequency of P&L clearing, # of
counterparts, swap costs, etc.)
36
Source: BlackRock
Synthetically replicated ETF – unfunded
Synthetically replicated ETF – fully funded
Regulatory Information
BlackRock Advisors (UK) Limited, which is authorised and regulated by the Financial Conduct Authority ('FCA'), having its registered office at 12 Throgmorton Avenue, London, EC2N 2DL,
England, Tel +44 (0)20 7743 3000, has issued this document for access by Professional Clients only and no other person should rely upon the information contained within it. iShares plc,
iShares II plc, iShares III plc, iShares IV plc, iShares V plc and iShares VI plc (together 'the Companies') are open-ended investment companies with variable capital having segregated
liability between their funds organised under the laws of Ireland and authorised by the Financial Regulator. The German domiciled funds are "undertakings for collective investment in
conformity with the directives" within the meaning of the German Law on the investments. These funds are managed by BlackRock Asset Management Deutschland AG which is authorised
and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht.
For investors in the UK
This document is directed at 'Professional Clients' only within the meaning of the rules of the FSA. Certain of the funds mentioned in this document are not registered for public distribution
in the UK. In respect of these funds, this document is intended for information purposes only and does not constitute investment advice or an offer to sell or a solicitation of an offer to buy
the funds described within and no steps may be taken which would constitute or result in a public offering of the funds in the UK. This document is strictly confidential and may not be
distributed without authorisation from BlackRock Advisors (UK) Limited. With respect to the funds that are registered for public distribution in the UK, most of the protections provided by the
UK regulatory system do not apply to the operation of the Companies, and compensation will not be available under the UK Financial Services Compensation Scheme on its default. The
Companies are recognised schemes for the purposes of the Financial Services and Markets Act 2000. Any decision to invest must be based solely on the information contained in the
Company’s Prospectus, Key Investor Information Document and the latest half-yearly report and unaudited accounts and/or annual report and audited accounts. Investors should read the
fund specific risks in the Key Investor Information Document and the Company’s Prospectus.
Restricted Investors
This document is not, and under no circumstances is to be construed as an advertisement or any other step in furtherance of a public offering of shares in the United States or Canada.
This document is not aimed at persons who are resident in the United States, Canada or any province or territory thereof, where the companies/securities are not authorised or registered
for distribution and where no prospectus has been filed with any securities commission or regulatory authority. The companies/securities may not be acquired or owned by, or acquired with
the assets of, an ERISA Plan.
Risk Warnings
Investment in the products mentioned in this document may not be suitable for all investors. Past performance is not a guide to future performance and should not be the sole factor of
consideration when selecting a product. The price of the investments may go up or down and the investor may not get back the amount invested. Your income is not fixed and may
fluctuate. The value of investments involving exposure to foreign currencies can be affected by exchange rate movements. We remind you that the levels and bases of, and reliefs from,
taxation can change.
BlackRock has not considered the suitability of this investment against your individual needs and risk tolerance. The data displayed provides summary information, investment should be
made on the basis of the relevant Prospectus which is available from BlackRock Advisors (UK) Limited.
In respect of the products mentioned this document is intended for information purposes only and does not constitute investment advice or an offer to sell or a solicitation of an offer to buy
the securities described within. This document may not be distributed without authorisation from BlackRock Advisors (UK) Limited.
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Disclaimer
Index Disclaimers
"Barclays Capital Inc." and 'Barclays Emerging Markets Local Govt Bond' and 'iShares Barclays Euro Corporate Bond Interest Rate Hedged' are trademarks of Barclays Bank PLC and
have been licensed for use for certain purposes by BlackRock Fund Advisors or its affiliates. iShares® is a registered trademark of BlackRock Fund Advisors or its affiliates.The Underlying
Indices are maintained by Barclays Capital. Barclays Capital is not affiliated with the Funds, BFA, State Street, the Distributor or any of their respective affiliates.
BFA has entered into a license agreement with the Index Provider to use the Underlying Indices. BFA, or its affiliates, sublicenses rights in the Underlying Indices to the Company at no
charge.
DAX® is a registered trademark of Deutsche Börse AG.
'STOXX', 'EURO STOXX® Select Dividend 30' are proprietary and copyrighted material and trade marks and/or service marks of STOXX Limited and have been licensed for use for
certain purposes by BlackRock Advisors (UK) Limited. iShares EURO STOXX Select Dividend 30 is not sponsored, endorsed, sold or promoted by STOXX, and STOXX makes no
representation regarding the advisability of investing in such a fund.
S&P® is a registered trademark of Standard & Poor’s Financial Services LLC (“S&P”) and “Dow Jones®” is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”)
and have been licensed for use by S&P Dow Jones Indices LLC and its affiliates and sublicensed for certain purposes by BlackRock Fund Advisors or its affiliates (“BlackRock”). The Dow
Jones Emerging Markets Select Dividend is a product of S&P Dow Jones Indices LLC or its affiliates, and has been licensed for use by BlackRock. The iShares Dow Jones Emerging
Markets Select Dividend (the “Fund”) is not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices LLC, Dow Jones, S&P, their respective affiliates, and none of S&P Dow
Jones Indices LLC, Dow Jones, S&P nor their respective affiliates makes any representation regarding the advisability of investing in the Fund. BlackRock is not affiliated with the
companies listed above. Index data source: S&P Dow Jones Indices LLC.
'FTSE®' is a trade mark jointly owned by the London Stock Exchange plc and the Financial Times Limited (the 'FT') and is used by FTSE International Limited ('FTSE') under licence. The
FTSE 100 Index and FTSE UK Dividend + Index are calculated by or on behalf of FTSE International Limited ('FTSE'). None of the Exchange, the FT nor FTSE sponsors, endorses or
promotes iShares FTSE 100 and iShares FTSE UK Dividend Plus nor is in any way connected to the funds or accepts any liability in relation to their issue, operation and trading. All
copyright and database rights within the index values and constituent list vest in FTSE. BlackRock Advisors (UK) Limited has obtained full licence from FTSE to use such copyright and
database rights in the creation of these products.
iShares funds are not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to any such funds or any index on which such funds are
based. The Prospectus contains a more detailed description of the limited relationship that MSCI has with BlackRock Advisors (UK) Limited and any related funds.
Standard & Poor’s®', 'S&P®', are registered trademarks and 'S&P 500' and 'S&P 500 Minimum Volatility' are trademarks of Standard & Poor’s Financial Services LLC and have been
licensed for use for certain purposes by BlackRock Fund Advisors or its affiliates. iShares® is a registered trademark of BlackRock Fund Advisors or its affiliates. iShares S&P 500 and
iShares S&P 500 Minimum Volatilityare not sponsored, endorsed, sold or promoted by S&P and S&P makes no representation regarding the advisability of investing in these products.
© 2013 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, ALADDIN, iSHARES, LIFEPATH, SO WHAT DO I DO WITH MY MONEY, INVESTING FOR A
NEW WORLD, and BUILT FOR THESE TIMES are registered and unregistered trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks
are those of their respective owners.
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Disclaimer
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