introduction to ishares fixed income etfs
DESCRIPTION
La industria de ETPs de renta fija continua creciendo a un ritmo elevado. En concreto en el primer trimestre de 2012 los ETPs de renta fija alcanzaron un nuevo record con entradas netas de $19.500 millones, superando el record previo obtenido en el cuarto trimestre del 2011, con $14.700 entradas netas.TRANSCRIPT
Introduction to iShares Fixed Income ETFs
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
Fixed Income ETF Market Overview
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
Global ETP assets by type of exposure
Exposure as at end Jan 2012 (US$bn) AUM
%marketshare
Monthly NNA
2012 YTD NNA
2012 YTD change
AUM %
AUM
% AUMmarket share
Equity 1,155 70.0 22.6 22.6 92.1 8.7 0.2
North America – equity 611 37.0 14.6 14.6 42.2 7.4 (0.3)
Emerging markets – equity 222 13.4 6.6 6.6 27.8 14.3 0.7
Europe – equity 119 7.2 (0.1) (0.1) 8.1 7.3 (0.1)
Asia Pacific – equity 83 5.1 0.3 0.3 5.6 7.1 (0.1)
Global (ex-US) – equity 69 4.2 0.7 0.7 4.4 6.8 (0.1)
Global – equity 50 3.0 0.5 0.5 4.0 8.6 0.01
Fixed income 271 16.4 9.1 9.1 13.2 5.1 (0.5)
Commodities 195 11.8 2.1 2.1 20.8 12.0 0.4
Alternative 5 0.3 0.8 0.8 0.6 14.1 0.01
Currency 8 0.5 (0.5) (0.5) (0.5) (5.6) (0.1)
Mixed 2 0.1 (0.0) (0.0) 0.01 0.4 (0.01)
ETPs listed in Israel 15 0.9 - - 0.2 1.1 (0.1)
Total 1,650.8 100.0 34.1 34.1 126.4 8.3
AUM % market share as at end Jan 2012
Developed Equity 56.5%
Emerging markets equity 13.4%
Fixed Income 16.4%
Commodities 11.8%
Others 1.8%
NNA = Net New Assets. AUM = Assets Under Management. Global ETP NNA (or flows) are approximated by combining the United States, Europe, Canada, Asia Pacific and Latin America . In 2011, global flows are re-stated with Asia Pacific flows. From January 2012, Asia Pacific flows will be reported on an one-month lag basis. Note: Data as at end January 2012 or the most recent period available. Source: BlackRock Investment Institute, Bloomberg, National Stock Exchange (NSX), Bank of Israel, Strategic Insight Simfund
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
Assets 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Feb-12
ETF/ETP Assets $0.1 $0.1 $4.0 $5.9 $11.1 $21.7 $40.8 $65.9 $110.3 $173.3 $207.5 $258.0 $278.0
# ETFs/ETPs 2 2 6 17 22 31 51 122 173 295 409 607 646
Source: BlackRock and Bloomberg as of 02/29/2012
Government Bond
Government BondCorporate Bond
Emerging Debt, High Yield
Emerging Debt local,Tresuries
Corporate BondHigh Yield
Fixed Income ETFs: growing industry
Where do FI assets sit and where are they going?
Rates 33%
Credit31%
Agg16%
Inflation12%
Other4%
EM4%
Global FI ETFs AUM (%)
Source: Global ETF Research and Implementation Strategy Team, BlackRock, Bloomberg. Data as at end of February 2012. *NNA stands for net new assets
$US Mn
-3,307
351
495
1,260
1,784
12,903
Rates
Inflation
Other
Emergingmarkets
Aggregate
Credit
YTD 2012 Global FI ETFs NNA
FOR PROFESSIONAL INVESTORS ONLY 66
Top Global ETFs
Source: Global ETF Research and Implementation Strategy Team, BlackRock, Bloomberg. As of 29th of February 2012.
ETF name Bloomberg Region listed AUM (US$Mill)ADV (US$
Mill)
SPDR S&P 500 SPY US US 99665.9 18182.5
SPDR Gold Trust GLD US US ETPs 70298.0 2006.9
Vanguard MSCI Emerging Markets ETF VWO US US 55034.1 905.5
iShares MSCI Emerging Markets Index Fund EEM US US 40914.4 2049.6
iShares MSCI EAFE Index Fund EFA US US 39158.4 947.2
PowerShares QQQ Trust QQQ US US 33264.5 2932.4
iShares S&P 500 Index Fund IVV US US 28459.6 484.8
iShares Barclays TIPS Bond Fund TIP US US 22879.6 130.5
Vanguard Total Stock Market ETF VTI US US 20755.1 165.2
iShares iBoxx $ Investment Grade Corporate Bond Fund LQD US US 19703.0 208.3
iShares DAX (DE) DAXEX GY Europe 16212.7 109.3
iShares Russell 1000 Growth Index Fund IWF US US 16029.7 131.1
iShares Russell 2000 Index Fund IWM US US 16023.6 3668.6
Vanguard Total Bond Market ETF BND US US 15051.7 107.8
iShares Barclays Aggregate Bond Fund AGG US US 14797.5 118.3
iShares iBoxx $ High Yield Corporate Bond Fund HYG US US 14371.7 219.7
iShares S&P/TSX 60 Index Fund XIU CN Canada 12067.3 183.9
SPDR Barclays Capital High Yield Bond ETF JNK US US 11983.9 184.2
iShares Russell 1000 Value Index Fund IWD US US 11937.2 100.1
SPDR Dow Jones Industrial Average ETF DIA US US 11822.6 765.1
6 fixed income ETFs within the top 20
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
Fixed Income ETFs Providers
iShares represent 60% of global fixed income ETF assets
iShares 124,063
Vanguard 32,653
State Street 22,315
Powershares 5,214
ProShares 5,093
PIMCO 4,072
Wisdom Tree 2,615
Van Eck 1,808
Guggenheim 1,212
Schwab 919
Direxion 488
FlexShares 379
AdvisorShares 99
Colum bia 11
Total 200,941
Fixed Income ETF Provider AUM (US$mn) Feb 2012
Fixed Income ETF Provider AUM (US$mn) Feb 2012
iShares 32,292
db x-trackers 9,350
Lyxor Asset Managem ent 7,171
ETFlab Investm ent 2,755
Comm erzbank 2,117
Credit Suisse Asset Managem ent 1,746
Amundi ETF 1,566
EasyETF 618
State Street Global Advisors 501
Source Markets 160
UBS Global Asset Management 160
XACT Fonder 121
BBVA Asset Managem ent 89
JP Morgan Mansart Inves tm ents 76
PowerShares 76
Finans Portfoy Yonetim i 30
ThinkCapital 19
Is Inves tm ent 6
RBS 0
Total 58,852
Ranking: US Providers Ranking: European Providers
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
Fixed Income ETFs benefits
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
What are Fixed Income ETFs?
Fixed income ETFs share many of the features of equity ETFs, making them ideal vehicles to provide liquid, transparent exposure to the different fixed income asset classes
• Funds that are listed in an exchange andtraded like equities
• Provide exposure to multiple bondsthrough a single trade
• Potential to reduce capital gains throughthe ETF creation / redemption process
• 2 sources of liquidity: ETF liquidity andunderlying bond liquidity
• Provide price discovery of usually OTC,difficult to price assets
Exchange Traded
• Managed to track an index and providebroad or narrow exposure to the differentsegments of the fixed income market
• Optimized to efficiently replicate largeindex portfolios with less instruments inorder to minimize transaction costs
• Generally make monthly distributions toshareholders from the income generatedby the underlying bonds in the ETF
Designed to Track a Fixed Income Index
Low cost, efficient way of accessing the fixed income market
FOR PROFESSIONAL INVESTORS ONLY
Fixed Income ETFs: benefits
Why should I invest in fixed income ETFs?
Transparency
• Fixed Income ETFs offer transparency as underlying securities are available daily. All of the underlyingholdings are available daily on iShares.com
• Given the recent volatility and liquidity issues in the bonds markets, it is more important than ever to havefull transparency into portfolios
Liquidity• Fixed income ETFs offer intraday liquity, while most bonds trade over-the-counter.• Direct bond trading is often inaccesible due to large trading minimums.
Diversification
• Fixed income ETFs provide diversification across bonds with just one trade.• ETFs offer investors the posibility to create more diversified portfolios only with ETFs: government,
aggregate, corporate, covered, emerging, high yield, inflation, mortgage bonds.
Flexibility • Fixed income ETFs provide the flexibility to trade throughout the day with continuous price.
Duration• Fixed income ETFs offer a fix duration while single bond duration is continually decreasing as time to the
maturity decreases.
Cost
• Transaction costs in the bond market can be significant, and often difficult to identify. iShares ETFs offerclarity in terms of the costs.
• iShares fixed income ETFs tend to have lower management fees than comparable mutual funds.
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
Comparing Fixed Income and Equity markets
Equities and ETFs are exchange traded
• Central execution
• Two-sided markets supported by a market maker
• Observable bid/offer spreads
• Direct measurement of transaction costs
The fixed income market is an Over The Counter (OTC) market
• Transactions are done directly between participants
• No exchange to ensure best execution
• Lack of transparency into what transaction costs are paid
• Potential for large disparities in transaction costs paid by investors
iShares ETFs bring the benefits of trading in an exchange to fixed income investors
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
Comparing Equity and Bond transaction costs
0
50
100
150
200
250
$20 $50 $150 $250 $500 $1,000 $2,500 $5,000 $10,000
Tra
nsacti
on
Co
sts
(b
ps)
Trade Size (Thousands)
Equity Bonds
For illustrative purposes only.
iShares fixed income ETFs bring equity-like pricing to the bond market
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
iShares cost efficiency advantage: US ETFs
Sources: BlackRock, Barclays Capital, Bloomberg. 30-day average daily volume and bid/offer, as of 8/31/11.
S&P National AMT Free Municipal Bond
Index
Barclays Capital U.S. Aggregate Index
iBoxx $ Investment
Grade Corporate
Bond Index
iBoxx $ High Yield
Corporate Bond Index
iShares Avg. Daily Volume ($MM)
$19 $134 $176 $197
UnderlyingMarket
8 1 28 1 21 2 3
4040
MUB
35
80
225
AGG LQD HYG
ETF Bid/OfferETF Bid/Offer Bond Market Bid/Offer (est.)Bond Market Bid/Offer (est.)
0
50
100
150
200
Bid
/Off
er
Sp
read
(b
ps)
Fixed Income ETF bid-offer spreads have often been a fraction of individual bond spreads
AGG Sector Composition
0
20
40
60
80
100
120
140
160
180
200
EEXF IEAC SEMB IHYG ISXF SEML
Underlying spreads ETF spreads
Spreads on iShares FI ETFs versus underlying basket
Barclays Capital Euro Corporate Bond ex-
Financials
Barclays Capital Euro Corporate Bond
iShares Avg. Daily Volume ($MM) $10.8 $25.6 $22 $4.6
UnderlyingMarket
JPMorgan $ Emerging Markets Bond
$10.1
Markit iBoxx Euro High Yield Bond
Markit iBoxx £ Corporate Bond ex
- Financials
Barclays Capital Emerging Market Local
Govt Bond
$5.2
iShares cost efficiency advantage: European ETFs
Income choices in Fixed Income
Nam e Ticker Dom icilio UCITS Divisa Base Duration TIR Structure AUMs (thousands) TER Holdings
iShares M ark it iBoxx $ High Yie ld Capped Bond SHYU Irish Yes USD 4.98 7.35% (USD) Sampled 235.861 0.50% 449 US HY
iShares M ark it iBoxx Euro High Yie ld Bond IHYG Irish Yes EUR 3.46 7.03% (EUR) Sampled 1,043,364 0.50% 243 Eur HY
iShares Barclays Capital Em erging Market Local Govt Bond SEML Irish Yes USD 5.02 6.75% (USD) Sampled 229,833 0.50% 112 Emerging debt
iShares JPM organ $ Em erging M arkets Bond Fund IEMB Irish Yes USD 7.41 5.07% (USD) Sampled 1,428,447 0.45% 74 Emerging debt
iShares Barclays Capital EM Asia Local Govt Capped Bond SGEA Irish Yes USD 5.74 4.13% (USD) Sampled 9.879 0.50% 29 Asian Emerging debt
iShares M ark it iBoxx $ Corporate Bond LQDE Irish Yes USD 6.68 3.95% (USD) Sampled 1,221,659 0.20% 57 US Corporate
iShares Barclays Capital Euro Corporate Bond IEAC Irish Yes EUR 3.93 3.20% (EUR) Sampled 1289336 0.20% 1211 Euro Corporate
iShares Barclays Capital Euro Corporate Bond 1-5 SE15 Irish Yes EUR 2.65 2.78% (EUR) Sampled 123.483 0.20% 727 Euro Corporate
iShares Barclays Capital Euro Aggregate Bond IEAG Irish Yes EUR 5.34 2.75% (EUR) Sampled 407.235 0.25% 1278 Euro Agg
iShares Barclays Capital Euro Corporate Bond ex-Financials EEXF Irish Yes EUR 4.05 2.64% (EUR) Sampled 1,260,639 0.20% 735 Euro Corporate
iShares M ark it iBoxx Euro Corporate Bond IBCX Irish Yes EUR 4.14 2.63% (EUR) Sampled 3,228,153 0.20% 110 Euro Corporate
iShares Barclays Capital Euro Corporate Bond ex-Financials 1-5 EEX5 Irish Yes EUR 2.56 2.14% (EUR) Sampled 322.424 0.20% 435 Euro Corporate
iShares Barclays Capital US Aggregate Bond SUAG Irish Yes USD 4.66 1.99% (USD) Sampled 15.4 0.25% 158 US Agg
iShares Citigroup Global Governm ent Bond IGLO Irish Yes USD 6.66 1.43% (USD) Sampled 453.838 0.20% 615 Gov
Nam e Ticker Dom icilio UCITS Divisa Base Duration TIR Structure AUMs (thousands) TER Holdings
iShares iBoxx High Yie ld Corporate Bond Fund HYG United States USD 4.25 6.85% Physical 14,285,857 0.50% 500 US HY
iShares JP M organ USD Em erging Markets Bond Fund EMB United States USD 7.33 5.03% Physical 4,285,649 0.60% 122 Emerging debt
iShares 10+ Year Credit Bond Fund CLY United States USD 11.71 5.02% Physical 188.825 0.20% 513 US Corporate
iShares 10+ Year Governm ent/Credit Bond Fund GLJ United States USD 12.77 4.19% Physical 23.319 0.20% 285 US Agg
iShares iBoxx $ Investm ent Grade Corporate Bond Fund LQD United States USD 7.45 3.69% Physical 19,605,973 0.15% 771 US Corporate
iShares Barclays Credit Bond Fund CFT United States USD 6.33 3.22% Physical 1,147,365 0.20% 1771 US Corporate
iShares Barclays Interm ediate Credit Bond Fund CIU United States USD 4.25 2.59% Physical 4,437,350 0.20% 1800 US Corporate
iShares Barclays Aggregate Bond Fund AGG United States USD 4.47 1.96% Physical 14,779,558 0.20% 1421 US Agg
iShares Barclays Interm ediate Governm ent/Credit Bond Fund GVI United States USD 3.84 1.45% Physical 731,103 0.20% 726 US Agg
iShares Barclays 1-3 Year Credit Bond Fund CSJ United States USD 1.85 1.33% Physical 9,160,805 0.20% 669 US Corporate
Attractive yields within fixed income ETFs
Fixed Income ETFs
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
Fixed Income ETF Mechanics
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
For illustrative purpose only. Source: BlackRock.
Fixed Income Indexing
� Unlike equities, Fixed Income is not traded on exchanges
� Prohibitive costs, uncertain liquidity and issue scarcity often makes perfect replication unfeasible
� Index process optimizes marginal contribution to tracking error with T-Costs
Quantitative Process Balances Tracking Error & Transaction Costs
Tracking Error
Number of issues
Transaction Costs
Optimal Portfolio
Basis Points
iShares fixed income funds aim to minimize tracking error with low possible transaction costs
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
Portfolio Construction: Stratified Sampling
Benchmark is divided into subsets (cells) based upon relative risk factor parameters
Portfolios are constructed by sampling bonds from each index cell
Mortgage-Backed Securities
Issuer (GNMA, FNMA,
FHLMC)
Mortgage type(30 yr, 15 yr,
balloon)
Coupon
Vintage (year of issuance)
Credit and Asset-Backed
Securities
Sector/issue type
Maturity / average life
Credit rating
Call/payment structure
Sector
Ma
turi
ty
Cell• BBB-rated • Industrial• 7–10 years
maturity
Government Bonds
Sector/Issue type
Maturity
Call Features
For illustrative purposes only
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
Understanding Fixed Income ETF Trading Behavior
There are four key drivers of premiums/discounts in fixed Income ETFs:
NAV
•Underlying bonds marked to the Bid side of OTC bond market for NAV
•ETF trades at market clearing price
ETF Supply & Demand
•Balance of exchange flows drive where ETF trades relative to underlying bond market
•Sale pressure: ETF moves closer to bid side of bond market (NAV)
•Buy pressure: ETF moves closer to offer side of bond market (potential share creation)
Cost of Share Creation
•If demand > exchange liquidity, new shares can be created
•Cost of creation ≈ underlying bond market bid/offer spread
•ETF price incorporates the marginal cost of share creation
Fixed Income Market Volatility & Liquidity
•NAV = average bid of the underlying bonds in the portfolio; does not contemplate a portfolio execution. This is an Indicative price
•In volatile/illiquid markets the difference between the average bond price and a portfolio execution may be large: Average Price ≠Price of the Average Bond
•This leads to premiums or discounts outside of average underlying market bid/offer spread
Although market makers will generally take advantage of differences between the NAV and the trading price of shares of ETFs through arbitrage opportunities, there is no guarantee that they will do so.
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
Understanding Fixed Income ETF Trading Behavior
• Arbitrage activity anchors ETF pricing to underlying value
• If the ETF price moves too far above offer side of underlying portfolio, market participants can short the ETF and purchase the underlying bonds
• If the ETF price moves too far below the bid side of underlying portfolio, market participants can purchase the ETF and short the underlying bonds
Arb
itra
ge R
egio
n
Arb
itra
ge R
egio
n
ETF Bid/Offer
(Liquidity Layer)
Portfolio
Bid (NAV)
Portfolio
Offer
ETF Premium to NAV
ETF Creation Cost
Portfolio
MidMarket
Sell Pressure Buy Pressure
Although market makers will generally take advantage of differences between the NAV and the trading price of shares of ETFs through arbitrage opportunities, there is no guarantee that they will do so.
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
Taxes
** Some of the distributions made from fixed income funds can be considered Qualified Interest Income (QII), which is subject to 0% withholding and could potentially reduce the investor’s tax burden
iShares funds with the same underlying investments can have different withholding taxes depending on their domicile
Additional considerations such as transaction costs and liquidity should be taken into account as part of the decision to invest in one domicile versus another. Please consult your tax advisor for advice regarding your particular situation
US iShares fund
Offshore
Non-U.S.
Investor
0% withholding
$10
0
$70
US equities
Irish iShares
fund
Offshore
Non-U.S.
Investor
15% withholding
0%
Witholding
Tax
$10
0
$85
US equities
US iShares fund
Offshore
Non-U.S.
Investor
0% withholding
$10
0
$70
US Bonds
Irish iShares
fund
Offshore
Non-U.S.
Investor
0%
withholding
$10
0
$10
0
US Bonds
U.S. Domiciled iShares U.S. Equity
Fund
Dublin Domiciled iShares U.S. Equity
Fund
U.S. Domiciled iShares U.S. Bond
Fund
Dublin Domiciled iShares U.S. Bond
Fund
30%
Witholding
Tax
30%
Witholding
Tax**
0%
Witholding
Tax
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
Fixed Income ETF Portfolio Uses
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
AGG (iShares Barclays Aggregate Bond
Fund)
Single Bond 2
Single Bond 1
Fixed Income Mutual Fund
Core
• Seeks to provide beta
• Provides exposure to a diversified portfolio while helping reduce costs
• As an example. AGG can be used as a core U.S. fixed income market holding with individual bonds or alpha-seeking fixed income funds as satellites
Satellite
• Seeks to provide alpha
• Focus on a specific sector or asset class.
• For example, HYG can be used as a tactical allocation for investors seeking higher income from their investments
Fixed Income iShares Uses – Core - Satellite
Core – Satellite Strategy
iShares fixed income ETFs allow investors to quickly implement tactical views on certain market sectors and segments by reducingthe trading, research and operational costs associated with investing in individual securities
For illustrative purposes only
Portfolio of laddered bonds Single Bond
2
Single Bond 1
HYG (iShares iBoxx $ High Yield
Corporate Bond Fund )
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
Fixed Income Strategy:
Diversify an existing portfolio of laddered bonds
Scenario:
Investor has a portfolio of 7 corporate / high yield bonds with laddered maturities ranging from 1-10 years
iShares Solution:
• Maintain laddering solution• Use HYG, LQD, CFT or CSJ as a diversifying complement
to the ladder
Number of holdings
Existing Portfolio 7
iShares iBoxx $ High Yield Corporate (HYG)
474
iShares iBoxx $ Investment Grade Corporate (LQD)
712
iShares Barclays Credit (CFT) 1,603
iShares Barclays 1-3 Year Credit (CSJ) 663
Source: BlackRock, as of 11/11/11. Holdings are subject to change. For illustrative purposes only.
Fixed Income iShares Uses - Diversification
iShares fixed income funds offer a cost-effective way of diversifying bond portfolios with just one trade
Target yield portfolios with iShares ETFs
• German 10yr Bunds are currently yield less than 2%, while Euro Corporates yield around 4.2%.
• In order to target an attractive yield of above 6% investors need to consider diversifying into High yield corporate bonds or Emerging Market debt
• A portfolio of around 50% High Yield Corporates , 20% Emerging Market Local Currency bonds and 30% Investment Grade corporate credit would have a weighted yield of above 6%
Portfolio A: Broad Credit Weighted YTM = 6.66%
Portfolio B: 80% EUR assets / 20% foreign assetsWeighted YTM = 6.24%
Source: BlackRock. Data as at 18 January 2012. For illustration purposes only
Global High Yield Solution through iShares
Investors can use iShares high yield bond ETFs to approximate the global high yield bond market
•A basket of two iShares high yield bond ETFs offers an investable solution to achieving global HY exposure
•85% USD and 15% EUR high yield bond ETFs will be a fairly good proxy to a global HY benchmark
•5 year correlations between an iShares ETF portfolio and global HY indices is around 97%*
iShares Global HY Solution
Global HY Benchmark
USD High Yield: 83%
EUR High Yield: 15%
Other High Yield: 2%
iShares Markit iBoxx Euro High Yield Bond: 15%
Markit iBoxx $ High Yield Capped Bond Index: 85%
Source: BlackRock, Barclays Capital. Data as at December 2011. Global HY benchmark is based on the Barclays Capital Global High Yield Index. (other include: GBP, Swiss Frank and Swedish Krona). *Correlation based on monthly data.
iShares EMEA Investment Strategy and Insights FOR PROFESSIONAL INVESTORS ONLY
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
Fixed Income Strategy:
Reduce portfolio duration to guard against possible rate increases in the future
Scenario:
Investor holds an intermediate bond portfolio but is concerned that interest rates will rise, leading to decreases in the value of the portfolio
iShares Solution:
• Maintain intermediate bond portfolio• Blend in SHV to lower the duration
and risk
Source: BlackRock, as of 11/11/11. For illustrative purposes only.
0%
1%
2%
3%
4%
5%
6%
7%
8%
Duration
Yie
ld
25% HYG75% AGGPortfolio 1:Duration: 4.4725% HYG
45% AGG30% SHVPortfolio 2Duration: 3.23
Fixed Income iShares Uses – Duration Management
Impact of a 25 bp increase in rates
Impact of a 50 bp increase in rates
Portfolio 1 (no SHV) -1.12% -2.24%
Portfolio 2 (with SHV) -0.81% -1.62%
Difference 0.31% 0.62%
iShares fixed income funds can help manage duration quickly and in a cost effective manner
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
CorporatesiShares Barclays Capital Euro Corporate BondiShares Barclays Capital Euro Corporate Bond ex-FinancialsiShares Barclays Credit Bond FundiShares Markit iBoxx Euro Corporate BondiShares Markit iBoxx $ Corporate BondiShares iBoxx $ Investment Grade Corporate Bond Fund
High YieldiShares iBoxx High Yield Corporate Bond FundiShares Markit iBoxx $ High Yield Capped BondiShares Markit iBoxx Euro High Yield Bond
Emerging DebtiShares Barclays Capital Emerging Market Local Govt BondiShares JPMorgan $ Emerging Markets Bond FundiShares Barclays Capital EM Asia Local Govt Capped BondiShares JP Morgan USD Emerging Markets Bond Fund
AggregatesiShares Barclays Capital Euro Aggregate BondiShares Barclays Aggregate Bond FundiShares Barclays Capital US Aggregate Bond
GovernmentiShares Citigroup Global Government Bond
Highly demanded Fixed Income ETFs
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
Disclaimer
Carefully consider risk factors, charges and expenses related to fund investments before investing according to your objectives. This and additional information may be found in the funds’ prospectus or through you financial adviser. Read the prospectus carefully before investing. Investments imply risks and even possible capital loss. Past performance does not guarantee future results. Diversification may not protect against market risk.
This material does not constitute an offer or solicitation to sell or a solicitation to offer to buy any shares of any Fund (nor shall any such shares be offered or sold to any person) in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities law of that jurisdiction.
Bonds and bond funds will decrease in value as interest rates rise.
The information in this presentation is strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. There is no guarantee that any strategies discussed will be effective. The information is not intended to provide investment advice.
Investment comparisons are for illustrative purposes only and are not meant to be all-inclusive. To better understand the similarities and differences between investments, including investment objectives, risks, fees and expenses, it is important to read the products’ prospectuses.
Information on PIMTRII is provided strictly for illustrative purposes and should not be deemed an offer to sell or a solicitation of an offer to buy shares of any funds, other than the iShares Funds, that are described in this material.
There can be no assurance that an active trading market for shares of an ETF will develop or be maintained. Buying and selling shares of ETFs will result in brokerage commissions.
BlackRock Fund Advisors serves as the investment advisor to the iShares Funds that are registered with the United States Securities and Exchange Commission under the Investment Company Act of 1940. BlackRock Fund Advisors is a subsidiary of BlackRock, Inc.
The iShares Funds are not sponsored, endorsed or issued by Barclays Capital. This company does not make any representation regarding the advisability of investing in the Funds. Neither BlackRock, Inc., nor any of its affiliates, are affiliated with the company listed above.
BlackRock, Inc., and its affiliates do not provide tax advice. Please note that (i) any discussion of U.S. tax matters contained in this communication cannot be used by you for the purpose of avoiding tax penalties; (ii) this communication was written to support the promotion or marketing of the matters addressed herein; and (iii) you should seek advice based on your particular circumstances from an independent tax advisor.
©2011 BlackRock Institutional Trust Company, N.A. All rights reserved. iShares® is a registered trademark of BlackRock Institutional Trust Company, N.A. BlackRock® is a registered trademark of BlackRock, Inc. All other trademarks, servicemarks or registered trademarks are the property of their respective owners. iSg-1893-1111