ETF TRENDS AND

INVESTMENT IDEAS

TM

INVESTMENT IDEAS

Growth and Institutional Usage of ETFs

� ETF rapid growth continues due to evolving demand during both bull and bear markets.

� Global ETF assets have hit an all time high of US$1,032 billion at the end of 2009.

� Global ETF assets grew at 27% per year between 2004 and 2009, led by iShares at 31% per year.

� Canadian ETF assets grew at a rate of 30% per year between 2004 and 2009 and surpassed $30 billion in 2009

2

surpassed $30 billion in 2009

� Over half of the largest institutional investors (those with assets over US$10 billion) report using one or more ETFs.

� Institutional investors represent approximately 40% of total AUM invested in iShares’ Canadian ETF family.

Sources: BlackRock Asset Management Canada Limited; ETF Research and Implementation Strategy Team, BlackRock Advisors (UK) Limited, as of 12/31/09.

Growth of Exchange Traded Funds

1200

1400

1600

1800

2000

2200ETF Commodity AssetsETF Fixed Income AssetsETF Equity Assets

# of ETFs

3

Source: ETF Research and Implementation Strategy Team, BlackRock Advisors (UK) Limited; Bloomberg

0

200

400

600

800

1000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2011-F

ETF Assets Total ($M) 0.8 1 2 5 8 18 40 74 105 142 212 310 412 566 797 710 1,032 2,000

3000

4000

5000

6000

Canada’s Fixed Income ETF landscapeFixed Income AUM

(C$ Millions)

4

0

1000

2000

3000

2004 2005 2006 2007 2008 2009

Other

iShares

Source: Barclays Asset Management Canada Limited. 12/31/09

iShares Funds represent 82% of the total Fixed Income ETF assets

ETF vs Mutual Funds vs Money Market Sales

-5

0

5

10

15

20

Money Market Funds

Mutual Funds

Other ETFs iShares ETFs

Canadian iShares ETFs had the most total net new assets of all mutual fund complexes in 2009.

5

Source: IFIC; BlackRock Asset Management Canada Limited

iShares ETFs raised $4.5 billion in net new assets in 2008, when the S&P/TSX Composite Index fell by 35.03% (its worst-ever year)

iShares ETFs raised $4.9 billion in net new assets in 2009, when the S&P/TSX Composite Index rose by 30.69% (its best year since 1979).

-20

-15

-10

2008 2009

Transparency

Diversification

Liquidity

� ETFs provide immediate exposure to a basket or group of securities for instant diversification

� Broad range of asset classes including equities, bonds, commodities, etc

� ETFs offer two sources of liquidity− Traditional liquidity measured by secondary market trading volume − The liquidity of the underlying via the creation and redemption process

Why have ETFs become popular?

� Investors know the ETF composition at any given time

6

Flexibility

Cost Effectiveness

� ETFs offer a cost-effective route to diversified market exposure

� ETF units and underlying assets can be lent out to potentially offset holding costs

� ETFs are listed on exchanges and can be traded at any time the market is open� Pricing is continuous throughout the day

Securities Lending

Source: Morningstar (March 2009)

ETFs Represent a Significant Portion of all Equity Trading: U.S.

17

25

39

25

1415

20

25

30

35

40

45

Percent of ETF Trading Relative to All Equity Trading (U.S.)

Pe

rce

nt

7

December 2009 - US-Listed Equities Symbol Average Daily Volume ($)

SPDR SPY $16,287,488,207

Apple Inc. AAPL $ 4,063,158,348

Bank of America Corp. BAC $ 4,019,116,985

iShares Russell 2000 Index Fund IWM $ 3,507,122,527

PowerShares QQQ Trust, Series 1 QQQQ $ 3,407,429,245

14

0

5

10

15

2005 2006 2007 2008 2009

ETFs Represent a Significant Portion of all Equity Trading: Canada

11

16

8

10

12

14

16

18

Percent of ETF Trading Relative to All Equity Trading (Canada)P

erc

en

t

8

Canadian-Listed Equities – December 2009 Symbol Average Daily Volume ($)

Barrick Gold ABX $ 265,282,043

iShares CDN S&P/TSX 60 Index Fund XIU $ 245,050,783

Suncor Energy Inc SU $ 218,137,435

Royal Bank of Canada RY $ 211,469,087

Horizons BetaPro NYMEX® Natural Gas Bull Plus ETF HNU $ 197,028,609

3

5

2

0

2

4

6

2005 2006 2007 2008 2009

Pe

rce

nt

ETFs Offer Price Improvement

10,000

12,000

14,000

16,000

An

nu

al S

ha

res

Tra

de

d (

mln

s)

$0.20

$0.25

$0.30

Sp

rea

d (

$)

iShares MSCI Emerging Markets (EEM)

20,000

25,000

30,000

An

nu

al S

hare

s T

rad

ed

(m

lns

)

$0.03

$0.04

$0.05

Sp

rea

d ($

)

iShares Russell 2000 (IWM)

9

0

2,000

4,000

6,000

8,000

2003 2004 2005 2006 2007 2008

An

nu

al S

ha

res

Tra

de

d (

mln

s)

$0.00

$0.05

$0.10

$0.15

Sp

rea

d (

$)

0

5,000

10,000

15,000

2003 2004 2005 2006 2007 2008A

nn

ua

l S

hare

s T

rad

ed

(m

lns

)$0.00

$0.01

$0.02 Sp

rea

d ($

)

EEM Trading Volume

EEM ETF Spread ($)

EEM Underlying Portfolio Spread ($)

IWM Trading Volume

IWM ETF Spread ($)

IWM Underlying Portfolio Spread ($)

Sources: NYSE Arca, Stock Facts Pro, as of 12/08.

Practical uses of Exchange-Traded Funds

� How are institutions using ETFs?

� Core Satellite

� Cash equitization and transition management

� ETF Overlay

Tactical adjustments

10

� Tactical adjustments

Core/Satellite approachObjective Get exposure to a reliable source of beta while adding value through active management

Benefits of using ETFs

– Wide range of benchmarks available for beta exposure to almost every investment need

11

investment need

– Trading efficiency

– Frees up time for the institution to focus on areas where they are most likely to add value

Cash Equitization/Transition Management

Objective

– Maintain liquidity while remaining fully invested

Benefits of using ETFs

– Operational efficiency

– Low tracking error

– Trading flexibility and continuous intraday pricing

12

– Trading flexibility and continuous intraday pricing

Overlay Strategies

Objective:

– Adjust asset class exposures

Benefits of ETF implementation

– ETFs provide liquidity and transparency for immediate adjustments to a portfolio

– Reduce implementation time and costs to change exposures in asset

13

– Reduce implementation time and costs to change exposures in asset classes

– Take short/long positions to quickly adjust asset class exposure

– Ensure minimal benchmark risk while maintaining alpha objectives

Tactical Adjustments

Objective

– Over- or underweight certain styles, regions or countries on the basis of short-term views

Benefits of implementing with ETFs

– Reduce implementation time

– Reduce implementation costs

14

– Reduce implementation costs

– Reduce disruption in long-term holdings

– Ability to invest long or short

Taking advantage of tactical themes with ETFsVIEW ASSET CLASSES THAT

MAY DO WELLTHE iSHARES SOLUTION

Inflation/commodities Real Return Bonds Commodity-producing countries

iShares CDN Real Return Bond Index Fund (XRB)iShares MSCI Australia Index Fund (EWA)iShares MSCI Brazil Index Fund (XBZ)iShares CDN Composite Index Fund (XIC)

Infrastructure spending Emerging economies like Brazil, China and India that have seen a constant increase in Infrastructure spending and Foreign Direct Investment

iShares FTSE/Xinhua China 25 Index Fund (XCH)

iShares S&P India Nifty 50 Index Fund (XID)

iShares S&P Global Infrastructure Index Fund

15

Foreign Direct Investment iShares S&P Global Infrastructure Index Fund

(IGF)

iShares S&P Emerging Markets Infrastructure

Index Fund (EMIF)

Information technology Global Information Technology asset class

Countries that have a high exposure in Information Technology

iShares S&P India Nifty 50 Index Fund (XID)

iShares Tech Sector Index Fund (XIT)

iShares S&P Global Technology Index Fund (IXN)

Healthcare reform cloud should be lifting in the USA

Global Healthcare sectors

Countries that have a high healthcare exposure

iShares S&P Global healthcare (IXJ)

iShares MSCI Switzerland Index Fund (EWL)

Direct Investments in Bonds are Inefficient When Lacking Scale

Entire asset classes are often unavailable

� High Yield Bonds, U.S. Corporate Bonds, Real-Return Bonds

Getting specific bonds & issuers is challenging

16

Getting specific bonds & issuers is challenging

� The account is not in a position to buy when the initial offering happens

� Desks make active secondary markets in only a small number of bonds

� Less of the bond is available than needed

Bond markets a structurally less liquid and less transparent than equity markets

Pricing

� Prices are negotiated and not observable

� Liquidity and spreads are not observable

� Very difficult to measure transaction costs

17

Execution

� No centralized trading: desk-by-desk OTC market

� Liquidity may not exist when it is needed

� Vast and idiosyncratic universe exacerbates information asymmetry

iShares Fixed Income ETFs Solve Structural Challenges

iShares ETFs leverage BlackRock’s economies of scale and scope

�Ensures breadth of liquidity

�Drives best execution

18

Trading via the exchange provides transparency around pricing, bid/ask spread, and liquidity

Significant implementation of corporate bond view through iShares in 2009

iShares CDN Corporate Bond Index Fund

Assets Under Management since 2007

800.0

1,000.0

1,200.0

1,400.0

AU

M ($C

Million)

19

-

200.0

400.0

600.0

Dec-0

7

Jan-0

8

Feb-0

8

Mar-08

Apr-08

May-0

8

Jun-0

8

Jul-08

Aug-0

8

Sep-0

8

Oct-08

Nov-0

8

Dec-0

8

Jan-0

9

Feb-0

9

Mar-09

Apr-09

May-0

9

Jun-0

9

Jul-09

Aug-0

9

Sep-0

9

Oct-09

Nov-0

9

Dec-0

9

AU

M ($C

Million)

As of December 2009, Source: BlackRock Asset Management Canada Limited

ETF usage in times of recovery iShares MSCI Emerging Markets Index Fund (EEM)

iShares MSCI EAFE SmallCap Index Fund (SCZ)

Assets under management since Dec 2007

30000

35000

40000

45000

EE

M A

UM

($U

S m

illion)

500

600

700

800

SCZ AUM ($US million)

SC

Z A

UM

($U

S m

illion)

20

10000

15000

20000

25000

Dec-0

7

Jan-0

8

Feb-0

8

Mar-08

Apr-08

May-0

8

Jun-0

8

Jul-08

Aug-0

8

Sep-0

8

Oct-08

Nov-0

8

Dec-0

8

Jan-0

9

Feb-0

9

Mar-09

Apr-09

May-0

9

Jun-0

9

Jul-09

Aug-0

9

Sep-0

9

Oct-09

Nov-0

9

Dec-0

9

EE

M A

UM

($U

S m

illion)

0

100

200

300

400

SC

Z A

UM

($U

S m

illion)

EEM (LHS) SCZ (RHS)

As of December 2009, Source: BlackRock Asset Management Canada Limited

THANK YOU

For more information, visit

www.iShares.ca

Using iShares Strategies for using iShares in your practice

Education Centre eLearning (live & on-demand webinars)

21

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Product Information Holdings, price and return information

Document Library Client presentations and materials

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This presentation is intended for accredited investors in Canada only.

iShares® Funds are managed by BlackRock Asset Management Canada Limited. Commissions, management fees and expenses all may be associated with investing in iShares Funds. Please read the relevant prospectus before investing. The funds are not guaranteed, their values change frequently and past performance may not be repeated. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional.

“TSX”® is a registered trademark of TSX Inc. and “S&P”® is a registered trademark of The McGraw-Hill Companies, Inc. XIU, XIC, XMD, XCS, XEG, XFN, XGD, XIT, XRE, XMA, XTR and XSP are permitted to use the S&P marks, and, as applicable, the TSX marks, pursuant to a license agreement between Standard & Poor’s, a division of The McGraw-Hill Companies, Inc., and BlackRock Institutional Trust Company, N.A., an affiliate of BlackRock , which has sublicensed the use of those trademarks to BlackRock, which has further sublicensed their use to the applicable funds. XIU, XIC, XMD, XCS, XEG, XFN, XGD, XIT, XRE, XMA, XTR and XSP are not sponsored, endorsed, sold or promoted by S&P, The McGraw-Hill Companies, Inc. or the TSX and they make no representation, condition or warranty regarding the advisability of investing in units of the funds.

DEX Universe Bond Index™, DEX Short Term Bond Index™, DEX Real Return Bond Index™, DEX Long Term Bond Index™, DEX All Government Bond Index™, and DEX All Corporate Bond Index™ are trademarks of TSX Inc. and have been licensed for use for certain purposes to BlackRock by PC-Bond, a business unit of TSX Inc. XBB, XSB, XRB, XLB, XGB and XCB are not sponsored, endorsed, sold or promoted by PC-Bond, TSX Inc., its affiliates or third party data providers and they make no representation, warranty, or condition regarding the advisability of investing in the funds.

“MSCI” is a trademark of MSCI, Inc. (“MSCI”). XBZ is permitted to use the MSCI mark pursuant to a license agreement between MSCI and BlackRock

22

“MSCI” is a trademark of MSCI, Inc. (“MSCI”). XBZ is permitted to use the MSCI mark pursuant to a license agreement between MSCI and BlackRock Institutional Trust Company, N.A., relating to, among other things, the license granted to BlackRock Institutional Trust Company, N.A. to use the Indices. BlackRock Institutional Trust Company, N.A. has sublicensed the use of these trademarks to BlackRock Canada. XBZ is not sponsored, endorsed, sold or promoted by MSCI and MSCI makes no representation, condition or warranty regarding the advisability of investing in XBZ.

“FTSE™” is a trademark jointly owned by the London Stock Exchange PLC and The Financial Times Limited. “Xinhua” is a service mark and trademark of Xinhua Finance Limited. All marks are licensed for use by FTSE/Xinhua Index Limited (“FTSE”). The FTSE/Xinhua China 25 Index is calculated by or on behalf of FTSE. XCH is not sponsored, endorsed, sold or promoted by FTSE and it makes no representation, condition, warranty or recommendation regarding the advisability of investing in XCH.

“S&P®” is a registered trademark, and “S&P Latin America 40 Index™” and “S&P CNX Nifty Index” are trademarks, of Standard & Poor’s Financial Services LLC, a subsidiary of The McGraw-Hill Companies, Inc. (“S&P”). XLA is permitted to use the “S&P” and “S&P Latin America 40 Index” trademarks pursuant to a license agreement between S&P and BlackRock Institutional Trust Company, N.A., an affiliate of BlackRock Canada, which has sublicensed the use of those trademarks to BlackRock Canada. S&P has licensed the “S&P” and “S&P CNX Nifty Index” trademarks to India Index Services & Products Ltd. (“IISL”), and XID is permitted to use these trademarks pursuant to a license agreement between IISL and BlackRock, Inc. XLA and XID are not sponsored, endorsed, sold or promoted by S&P and it makes no representation, condition or warranty regarding the advisability of investing in Units of XLA and XID.© 2010 BlackRock Asset Management Canada Limited. All rights reserved. iShares is a registered trademark of BlackRock Institutional Trust Company, N.A. Used under license. All other trademarks, service marks or registered trademarks are the property of their respective owners.