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 $14.700 entradas netas.
1. Introduction to iShares Fixed
Income ETFs
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
2. Fixed Income ETF Market Overview
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
3. Global ETP assets by type of exposure
2012 YTD change AUM % market share
as at end Jan 2012
% % AUM
market Monthly 2012 YTD % market
Exposure as at end Jan 2012 (US$bn) AUM share NNA NNA AUM AUM 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) Developed Equity 56.5%
Commodities 195 11.8 2.1 2.1 20.8 12.0 0.4 Emerging markets equity 13.4%
Fixed Income 16.4%
Alternative 5 0.3 0.8 0.8 0.6 14.1 0.01
Commodities 11.8%
Currency 8 0.5 (0.5) (0.5) (0.5) (5.6) (0.1)
Others 1.8%
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
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
4. Fixed Income ETFs: growing industry
Corporate Bond
High Yield
Emerging Debt local,
Tresuries
Emerging Debt,
High Yield
Government Bond
Corporate Bond
Government Bond
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
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
5. Where do FI assets sit and where are they going?
Global FI ETFs AUM (%) YTD 2012 Global FI ETFs NNA
EM Credit 12,903
Other
4%
4%
Inflation Aggregate 1,784
12% Rates
33%
Emerging
1,260
markets
Agg Other 495
16%
Inflation 351
Credit -3,307 Rates
31%
$US Mn
Source: Global ETF Research and Implementation Strategy Team, BlackRock, Bloomberg. Data as at end of February 2012. *NNA stands for net new assets
6. Top Global ETFs
ADV (US$
ETF name Bloomberg Region listed AUM (US$Mill)
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
Source: Global ETF Research and Implementation Strategy Team, BlackRock, Bloomberg. As of 29th of February 2012.
6 fixed income ETFs within the top 20
FOR PROFESSIONAL INVESTORS ONLY 6
7. Fixed Income ETFs Providers
Ranking: US Providers Ranking: European Providers
Fixed Income ETF Provider AUM (US$mn) Feb 2012
iShares 32,292
Fixed Income ETF Provider AUM (US$mn) Feb 2012 db x-trackers 9,350
Lyxor As s et Managem ent 7,171
ETFlab Inves tm ent 2,755
Com m erzbank 2,117
iShares 124,063 Credit Suis s e As s et Managem ent 1,746
Vanguard 32,653 Am undi ETF 1,566
State Street 22,315 Eas yETF 618
Powers hares 5,214 State Street Global Advis ors 501
ProShares 5,093 Source Markets 160
PIMCO 4,072 UBS Global As s et Managem ent 160
Wis dom Tree 2,615 XACT Fonder 121
Van Eck 1,808 BBVA As s et Managem ent 89
Guggenheim 1,212 JP Morgan Mans art Inves tm ents 76
Schwab 919 PowerShares 76
Direxion 488 Finans Portfoy Yonetim i 30
FlexShares 379 ThinkCapital 19
Advis orShares 99 Is Inves tm ent 6
Colum bia 11 RBS 0
Total 200,941 Total 58,852
iShares represent 60% of global fixed income ETF assets
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
8. Fixed Income ETFs benefits
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
9. 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
Exchange Traded Designed to Track a Fixed Income
Index
• Funds that are listed in an exchange and • Managed to track an index and provide
traded like equities broad or narrow exposure to the different
segments of the fixed income market
• Provide exposure to multiple bonds
through a single trade • Optimized to efficiently replicate large
index portfolios with less instruments in
• Potential to reduce capital gains through order to minimize transaction costs
the ETF creation / redemption process
• Generally make monthly distributions to
• 2 sources of liquidity: ETF liquidity and shareholders from the income generated
underlying bond liquidity by the underlying bonds in the ETF
• Provide price discovery of usually OTC,
difficult to price assets
Low cost, efficient way of accessing the fixed income market
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
10. Fixed Income ETFs: benefits
Why should I invest in fixed income ETFs?
• Fixed Income ETFs offer transparency as underlying securities are available daily. All of the underlying
Transparency holdings are available daily on iShares.com
• Given the recent volatility and liquidity issues in the bonds markets, it is more important than ever to have
full transparency into portfolios
• Fixed income ETFs offer intraday liquity, while most bonds trade over-the-counter.
Liquidity • Direct bond trading is often inaccesible due to large trading minimums.
• Fixed income ETFs provide diversification across bonds with just one trade.
Diversification • 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.
• Fixed income ETFs offer a fix duration while single bond duration is continually decreasing as time to the
Duration maturity decreases.
• Transaction costs in the bond market can be significant, and often difficult to identify. iShares ETFs offer
clarity in terms of the costs.
Cost • iShares fixed income ETFs tend to have lower management fees than comparable mutual funds.
FOR PROFESSIONAL INVESTORS ONLY
11. 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
12. Comparing Equity and Bond transaction costs
iShares fixed income ETFs bring equity-like pricing to the bond market
250
200
Transaction Costs (bps)
150
100
50
0
$20 $50 $150 $250 $500 $1,000 $2,500 $5,000 $10,000
Trade Size (Thousands)
Equity Bonds
For illustrative purposes only.
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
13. iShares cost efficiency advantage: US ETFs
Fixed Income ETF bid-offer spreads have often been a fraction of individual bond spreads
AGG Sector Composition
225
ETF Bid/Offer Bond Market Bid/Offer (est.)
200
Bid/Offer Spread (bps)
150
80
100
40
50 35
8 1 2 3
0
MUB AGG LQD HYG
iBoxx $
iBoxx $ High
S&P National AMT Barclays Capital U.S. Investment
Yield
Free Municipal Bond Aggregate Index Grade
Underlying Corporate
Index Corporate
Market Bond Index
Bond Index
iShares Avg. Daily
$19 $134 $176 $197
Volume ($MM)
Sources: BlackRock, Barclays Capital, Bloomberg. 30-day average daily volume and bid/offer, as of 8/31/11.
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
14. iShares cost efficiency advantage: European ETFs
Spreads on iShares FI ETFs versus underlying basket
200
180
160
140
120
100
80
60
40
20
0
EEXF IEAC SEMB IHYG ISXF SEML
Underlying spreads ETF spreads
Barclays Capital Euro Barclays Capital Euro JPMorgan $ Emerging Markit iBoxx Euro High Markit iBoxx £ Barclays Capital
Corporate Bond ex- Corporate Bond Markets Bond Yield Bond Corporate Bond ex Emerging Market Local
Underlying - Financials Govt Bond
Financials
Market
iShares Avg. Daily
$10.8 $25.6 $10.1 $22 $4.6 $5.2
Volume ($MM)
15. Income choices in Fixed Income
Fixed Income ETFs
Nam e Tick e r Dom icilio UCITS Divis a Bas e Dur ation TIR Structure AUM s (thous ands ) TER Holdings
iShare s M ark it iBoxx $ High Yie ld Cappe d Bond SHY U Irish Y es USD 4.98 7.35% (USD) Sampled 235.861 0.50% 449 US HY
iShare s M ark it iBoxx Euro High Yie ld Bond IHY G Irish Y es EUR 3.46 7.03% (EUR) Sampled 1,043,364 0.50% 243 Eur HY
iShare s Bar clays Capital Em e rging M ark e t Local Govt Bond SEML Irish Y es USD 5.02 6.75% (USD) Sampled 229,833 0.50% 112 Emerging debt
iShare s JPM organ $ Em e rging M ark e ts Bond Fund IEMB Irish Y es USD 7.41 5.07% (USD) Sampled 1,428,447 0.45% 74 Emerging debt
iShare s Bar clays Capital EM As ia Local Govt Cappe d Bond SGEA Irish Y es USD 5.74 4.13% (USD) Sampled 9.879 0.50% 29 A sian Emerging debt
iShare s M ark it iBoxx $ Corporate Bond LQDE Irish Y es USD 6.68 3.95% (USD) Sampled 1,221,659 0.20% 57 US Corporate
iShare s Bar clays Capital Euro Cor porate Bond IEA C Irish Y es EUR 3.93 3.20% (EUR) Sampled 1289336 0.20% 1211 Euro Corporate
iShare s Bar clays Capital Euro Cor porate Bond 1-5 SE15 Irish Y es EUR 2.65 2.78% (EUR) Sampled 123.483 0.20% 727 Euro Corporate
iShare s Bar clays Capital Euro Aggre gate Bond IEA G Irish Y es EUR 5.34 2.75% (EUR) Sampled 407.235 0.25% 1278 Euro A gg
iShare s Bar clays Capital Euro Cor porate Bond e x-Financials EEXF Irish Y es EUR 4.05 2.64% (EUR) Sampled 1,260,639 0.20% 735 Euro Corporate
iShare s M ark it iBoxx Euro Corpor ate Bond IBCX Irish Y es EUR 4.14 2.63% (EUR) Sampled 3,228,153 0.20% 110 Euro Corporate
iShare s Bar clays Capital Euro Cor porate Bond e x-Financials 1-5 EEX5 Irish Y es EUR 2.56 2.14% (EUR) Sampled 322.424 0.20% 435 Euro Corporate
iShare s Bar clays Capital US Aggr e gate Bond SUA G Irish Y es USD 4.66 1.99% (USD) Sampled 15.4 0.25% 158 US A gg
iShare s Citigr oup Global Gove rnm e nt Bond IGLO Irish Y es USD 6.66 1.43% (USD) Sampled 453.838 0.20% 615 Gov
Nam e Tick e r Dom icilio UCITS Divis a Bas e Dur ation TIR Structure AUM s (thous ands ) TER Holdings
iShare s iBoxx High Yie ld Cor porate Bond Fund HY G United States USD 4.25 6.85% Physical 14,285,857 0.50% 500 US HY
iShare s JP M or gan USD Em e rging M ark e ts Bond Fund EMB United States USD 7.33 5.03% Physical 4,285,649 0.60% 122 Emerging debt
iShare s 10+ Ye ar Cr e dit Bond Fund CLY United States USD 11.71 5.02% Physical 188.825 0.20% 513 US Corporate
iShare s 10+ Ye ar Gove r nm e nt/Cre dit Bond Fund GLJ United States USD 12.77 4.19% Physical 23.319 0.20% 285 US A gg
iShare s iBoxx $ Inve s tm e nt Grade Corporate Bond Fund LQD United States USD 7.45 3.69% Physical 19,605,973 0.15% 771 US Corporate
iShare s Bar clays Cr e dit Bond Fund CFT United States USD 6.33 3.22% Physical 1,147,365 0.20% 1771 US Corporate
iShare s Bar clays Inte rm e diate Cre dit Bond Fund CIU United States USD 4.25 2.59% Physical 4,437,350 0.20% 1800 US Corporate
iShare s Bar clays Aggre gate Bond Fund A GG United States USD 4.47 1.96% Physical 14,779,558 0.20% 1421 US A gg
iShare s Bar clays Inte rm e diate Gove rnm e nt/Cre dit Bond Fund GV I United States USD 3.84 1.45% Physical 731,103 0.20% 726 US A gg
iShare s Bar clays 1-3 Ye ar Cr e dit 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
16. Fixed Income ETF Mechanics
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
17. Fixed Income Indexing
Quantitative Process Balances Tracking Error & Transaction Costs
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
Tracking Error Transaction Costs
Basis Points
Optimal Portfolio
Number of issues
iShares fixed income funds aim to minimize tracking error with low possible
transaction costs
For illustrative purpose only. Source: BlackRock.
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
18. Portfolio Construction: Stratified Sampling
Benchmark is divided into subsets (cells) based upon relative risk factor parameters
Government Mortgage-Backed Credit and Sector
Bonds Securities Asset-Backed
Securities
Issuer
Sector/Issue type (GNMA, FNMA, Sector/issue type
FHLMC)
Mortgage type
Maturity /
Maturity
Maturity (30 yr, 15 yr,
average life
balloon)
Call Features Coupon Credit rating
Vintage Call/payment
Cell
(year of issuance) structure
• BBB-rated
• Industrial
• 7–10 years
maturity
Portfolios are constructed by sampling bonds from each index cell
For illustrative purposes only
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
19. 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
20. Understanding Fixed Income ETF Trading Behavior
ETF Creation Cost
ETF Premium to NAV
Arbitrage Region
Arbitrage Region
Sell Pressure Buy Pressure
Portfolio Portfolio Portfolio
Bid (NAV) MidMarket Offer
ETF Bid/Offer
(Liquidity Layer)
• 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
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
21. Taxes
iShares funds with the same underlying investments can have different withholding taxes depending on their
domicile
U.S. Domiciled Dublin Domiciled U.S. Domiciled Dublin Domiciled
iShares U.S. Equity iShares U.S. Equity iShares U.S. Bond iShares U.S. Bond
Fund Fund Fund Fund
Offshore Offshore Offshore Offshore $10
$70 $85 $70
Non-U.S. Non-U.S. Non-U.S. Non-U.S. 0
Investor Investor Investor Investor
30% 0% 30% 0%
Witholding Witholding Witholding Witholding
Tax Tax Tax** Tax
Irish iShares Irish iShares
US iShares fund US iShares fund
fund fund
0%
0% withholding 15% withholding 0% withholding withholding
$10 $10 $10 $10
0 0 0 0
US equities US equities US Bonds US Bonds
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
** 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
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
22. Fixed Income ETF Portfolio Uses
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
23. 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 reducing
the trading, research and operational costs associated with investing in individual securities
Core
• Seeks to provide beta
AGG
• Provides exposure to a diversified portfolio
(iShares Barclays
while helping reduce costs Single Bond
Aggregate Bond 2
• As an example. AGG can be used as a core Fixed Income
Fund)
Mutual Fund
U.S. fixed income market holding with
individual bonds or alpha-seeking fixed
income funds as satellites Single
Bond 1
Satellite
• Seeks to provide alpha Portfolio of laddered
• Focus on a specific sector or asset class. bonds Single Bond
HYG 2
• For example, HYG can be used as a (iShares iBoxx $ High Yield
tactical allocation for investors seeking Corporate Bond Fund )
higher income from their investments
Single
Bond 1
For illustrative purposes only
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
24. Fixed Income iShares Uses - Diversification
Fixed Income Strategy:
Number of
Diversify an existing portfolio of laddered bonds
holdings
Scenario: Existing Portfolio 7
Investor has a portfolio of 7 corporate / high yield bonds with
laddered maturities ranging from 1-10 years iShares iBoxx $ High Yield Corporate
474
(HYG)
iShares Solution: iShares iBoxx $ Investment Grade
712
Corporate (LQD)
• Maintain laddering solution
• Use HYG, LQD, CFT or CSJ as a diversifying complement
iShares Barclays Credit (CFT) 1,603
to the ladder
iShares Barclays 1-3 Year Credit (CSJ) 663
iShares fixed income funds offer a cost-effective way of diversifying bond
portfolios with just one trade
Source: BlackRock, as of 11/11/11. Holdings are subject to change. For illustrative purposes only.
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
25. 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 Portfolio B: 80% EUR assets / 20% foreign assets
Weighted YTM = 6.66% Weighted YTM = 6.24%
Source: BlackRock. Data as at 18 January 2012. For illustration purposes only
26. Global High Yield Solution through iShares
Investors can use iShares high yield bond ETFs to
approximate the global high yield bond market
Global HY Benchmark
•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
iShares Global HY Solution
•5 year correlations between an iShares ETF portfolio
and global HY indices is around 97%*
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
27. Fixed Income iShares Uses – Duration Management
Fixed Income Strategy: 8%
Reduce portfolio duration to guard against possible rate 7%
increases in the future
6%
Scenario: 25% HYG
5% 75% AGG
Investor holds an intermediate bond portfolio but is concerned Portfolio 1:
Yield
4% 25% HYG
that interest rates will rise, leading to decreases in the value of Duration: 4.47
the portfolio
3%
45% AGG
30% SHV
iShares Solution: 2% Portfolio 2
Duration: 3.23
• Maintain intermediate bond portfolio 1%
• Blend in SHV to lower the duration
and risk 0%
Duration
Impact of a 25 bp Impact of a 50 bp
increase in rates 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
Source: BlackRock, as of 11/11/11. For illustrative purposes only.
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION
28. Highly demanded Fixed Income ETFs
Corporates
iShares Barclays Capital Euro Corporate Bond
iShares Barclays Capital Euro Corporate Bond ex-Financials
iShares Barclays Credit Bond Fund
iShares Markit iBoxx Euro Corporate Bond
iShares Markit iBoxx $ Corporate Bond
iShares iBoxx $ Investment Grade Corporate Bond Fund
High Yield
iShares iBoxx High Yield Corporate Bond Fund
iShares Markit iBoxx $ High Yield Capped Bond
iShares Markit iBoxx Euro High Yield Bond
Emerging Debt
iShares Barclays Capital Emerging Market Local Govt Bond
iShares JPMorgan $ Emerging Markets Bond Fund
iShares Barclays Capital EM Asia Local Govt Capped Bond
iShares JP Morgan USD Emerging Markets Bond Fund
Aggregates
iShares Barclays Capital Euro Aggregate Bond
iShares Barclays Aggregate Bond Fund
iShares Barclays Capital US Aggregate Bond
Government
iShares Citigroup Global Government Bond
FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION