iSHARES EXCHANGE
TRADED FUNDS
Agenda
Growth of ETFs The engine of ETFs Benefits of ETFs and iShares ETFs
Low cost Tax efficiency Transparency Risk management Liquidity Modularity and strategies
1,600 1,400 1,200 1,000 800 600 400 200 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Sources: FRC and Yahoo Finance, as of 12/31/09. Universe includes exchange traded grantor trusts. 3
iShares family of funds and mutual fund markets in net new asset flows
Fund Family Vanguard PIMCO iShares Franklin Templeton Fidelity T. Rowe Price State Street Global Advisors Dodge & Cox Oppenheimer American Funds
2008 Net Flows ($B) 2009 Net Flows ($B)
69.2 23.6 54.6 -20.2 -34.6 2.6 67.5 -11.6 -11.3 -16.4
121.4 80.4 44.2 18.4 14.9 14.8 2.8 -1.3 -3.4 -22.4
Source: Strategic Insight, as of 12/31/09. Excludes funds of funds and money market funds. Information on American Funds, Vanguard Group, Dodge & Cox, State Street Global Advisors, T. Rowe Price, Dimensional Investment Group, Franklin Templeton Investments, Thornburg and Loomis Sayles 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 securities, other than the iShares Funds, that are described in this presentation. 4
WHAT IS AN ETF?
* With short sales, you risk paying more for a security than you received from its sale. Short sales subject to availability.
Buyers
Fund Company
Stock Exchange
Sellers
Investor
Financial Intermediary
Stock Exchange
Authorized Participants
Fund Company
Mutual funds and iShares Funds are obliged to distribute portfolio gains to shareholders by year-end. These gains may be generated due to index rebalancing or to meet diversification requirements. Trading shares of the iShares Funds will also generate tax consequences and transaction expenses. Certain traditional mutual funds can be tax efficient as well. 9
Active Mutual Funds Most mutual funds are actively managed, seeking to outperform market indexes Accessed directly through the fund company or through a select broker. Pricing generally occurs once a day. Redeemed through fund company at end-of-day NAV, less applicable fees Expense ratios (typically higher than index-linked products2); may charge sales loads or redemption fees Shareholder transactions may generate tax consequences for all shareholders; obliged to distribute gains to shareholders
iShares ETFs seek to track a market index, before fees and expenses
Trading
Accessibility
Trade on exchanges intraday at market price, which may be greater or less than its NAV Shares not individually redeemed through the fund Expense ratio plus transaction costs
Redemption process
Fees
Costs
Tax implications
Transactions generate tax consequences for the transacting shareholder only; obliged to distribute gains to all shareholders
Transparency
Transparency
2. Active funds typically charge higher fees than index-linked products due to increased trading and research expenses that may be incurred 3. In accordance with MSCI licensing, holdings for MSCI-indexed funds are updated monthly. 10
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COSTS OF INVESTING
INTERNAL FEES AND TAXES
12
13
bps
9 15 20 20 15 15 20 55-73 35 72 50 48 48 iShares S&P 500 iShares Russell 1000
iShares ETF
iShares S&P SmallCap 600 iShares Russell 2000 iShares Barclays Treasury Series iShares iBoxx $ Investment Grade Corporate Bond iShares Barclays Aggregate & TIPS iShares MSCI iShares MSCI iShares MSCI iShares MSCI International Series EAFE Emerging Markets Pacific ex-Japan
International
Sector
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ETFs can produce capital gain distributions. For example, during an underlying index reconstitution or corporate actions (especially foreign).
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RISK MANAGEMENT
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* In accordance with MSCI licensing, holdings for MSCI-indexed funds are updated monthly.
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S&P 500
Russell 2000 Dow Jones U.S. Total Market Dow Jones U.S. Technology MSCI Japan MSCI EAFE
Source: BlackRock. Past tracking performance does not guarantee future performance.
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LIQUIDITY
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Market participants compete for client orders, leading to tighter spreads. Investors receive price improvement by transacting in the ETF whenever
they buy/sell the ETF inside the spread cost of the underlying portfolio basket of securities.
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30,000
$0.05
16,000
$0.16
25,000
$0.04
20,000
Spread ($)
$0.08 8,000 6,000 4,000 2,000 0 2004 2005 2006 2007 2008 2009 $0.06 $0.04 $0.02 $0.00
5,000
$0.00
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iSHARES MODULAR
A SOLUTIONS-DRIVEN APPROACH
FAMILY OF FUNDS
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S&P 500
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Russell Midcap
Russell 2000
For illustrative purposes only.
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Utilities
Technology
Energy
Utilities
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Yield
Barclays Capital 20+ Year Treasury iBoxx $ Investment Grade Corporate Bond Barclays Capital 13 Year Credit Barclays Capital Intermediate Credit iBoxx $ High Yield Corporate
Duration
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Carefully consider the iShares Funds investment objectives, risk factors and charges and expenses before investing. This and other information can be found in the Funds prospectuses, which may be obtained by calling 1-800-iShares or by visiting www.iShares.com. Read the prospectuses carefully before investing. Investing involves risk, including possible loss of principal.
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The information provided is not intended to be a complete analysis of every material fact respecting any strategy and has been presented for educational purposes only.
Asset allocation models and diversification do not promise any level of performance or guarantee against loss of principal. Shares of iShares Funds are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Mutual funds and iShares Funds are obliged to distribute portfolio gains to shareholders by year-end. These gains may be generated due to index rebalancing or to meet diversification requirements. Trading shares of the iShares Funds will also generate tax consequences and transaction expenses. Certain traditional mutual funds can be tax efficient as well. When comparing stocks or bonds and iShares Funds, it should be remembered that management fees associated with fund investments, like iShares Funds, are not borne by investors in individual stocks or bonds. The annual management fees of iShares Funds may be substantially less than those of most mutual funds. Buying and selling shares of iShares Funds will result in brokerage commissions, but the savings from lower annual fees can help offset these costs. Neither BlackRock Institutional Trust Company, N.A. and its affiliates nor SEI and its affiliates 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. Index returns are for illustrative purposes only and do not represent actual iShares Fund performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.
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The iShares Funds are not sponsored, endorsed, issued, sold or promoted by Cohen & Steers Capital Management, Inc., Dow Jones & Company, Inc., European Public Real Estate Association (EPRA), FTSE International Limited (FTSE), FTSE/Xinhua Index Limited (FXI), iBoxx, J.P. Morgan Securities Inc., MSCI Inc., Morningstar Inc., The NASDAQ OMX Group, Inc., National Association of Real Estate Investment Trusts (NAREIT), New York Stock Exchange, Inc., Frank Russell Company, or Standard & Poors, nor are they sponsored, endorsed, or issued by Barclays Capital. None of these companies make any representation regarding the advisability of investing in the Funds. Neither SEI, nor BlackRock Institutional Trust Company, N.A., nor any of their affiliates, are affiliated with the companies listed above. FXI does not make any warranty regarding the FTSE/Xinhua Index. All rights in the FTSE/Xinhua Index vest in FXI. Neither FTSE nor NAREIT makes any warranty regarding the FTSE NAREIT Real Estate 50/Residential/Retail/Mortgage REITs or Industrial/Office Index; all rights vest in NAREIT. Neither FTSE nor NAREIT makes any warranty regarding the FTSE EPRA/NAREIT Global Real Estate ex-US/North America/Europe/Asia Index; all rights vest in FTSE, NAREIT, and EPRA. All rights in the FTSE Developed Small Cap ex-North America Index vest in FTSE. "FTSE" is a trade- and servicemark of London Stock Exchange and The Financial Times Limited; "Xinhua" is a trade- and servicemark of Xinhua Financial Network Limited.
The iShares Funds are distributed by SEI Investments Distribution Co. (SEI). BlackRock Fund Advisors (BFA) serves as the investment advisor to the Funds. BFA is a subsidiary of BlackRock Institutional Trust Company, N.A., neither of which is affiliated with SEI. 2010 BlackRock Institutional Trust Company, N.A. All rights reserved. iShares is a registered trademark of BlackRock Institutional Trust Company, N.A. All other trademarks, servicemarks, or registered trademarks are the property of their respective owners. iS-1944-0110 DB-1562-KM10-1/10
Not FDIC Insured No Bank Guarantee May Lose Value
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