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FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION NAVIGATING THE ETF LANDSCAPE.

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Presentation on theme: "FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION NAVIGATING THE ETF LANDSCAPE."— Presentation transcript:

1 FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION NAVIGATING THE ETF LANDSCAPE

2 2 FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION The exchange traded landscape Source: BlackRock, as of 12/31/09. *Does not include Target Date and Alternative funds. There are a total of 912 Exchange Traded Products (ETPs) as of 12/31/09. The exchange traded marketplace will look significantly different in five years. Currency Commodity Fixed Income Int’l/Global Equity Domestic Equity

3 3 FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION Key criteria for selecting the right ETF  Know what you own  Total costs matter  Liquidity  Structure  Provider

4 4 FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION What you should know about indexes  Market coverage offered  Definition of value/growth, small cap, mid cap and large cap  Index transparency  “Resets” after adds and deletes  Modularity of index families and degree of constituent overlap  Rebalance frequency Do the characteristics of the index align with client objectives?

5 5 FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION Indexes represent the market Russell 1000 Growth minus S&P 500 Growth Russell 1000 Value minus S&P 500 Value Russell 1000 minus S&P 500 ® Annual Return (%) Which one is right? Both. Sources: BlackRock, Russell, S&P, as of 12/31/09. Index returns are for illustrative purposes only and do not represent actual iShares ETF 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. For actual iShares ETF performance, please visit or request a prospectus by calling iShares ( )

6 6 FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION Style index comparison: Value, growth and core Russell 1000 Two factors: P/B and forecasted earnings growth P/E: 19.6 P/E: 17.0 Morningstar Large Cap Five Growth factors Five Value factors P/E: 23.6 P/E: 14.8 P/E: ValueGrowth Core S&P 500 ® /Citigroup Three Growth factors Three Value factors P/E: 20.4 P/E: Sources: BlackRock, FactSet, as of 12/09. Growth Value

7 7 FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION Mid cap index comparison: Distribution of market capitalization Russell Midcap 800 smallest companies in Russell 1000 Index $15.5B $3.2B $74.6M S&P MidCap 400 Names picked by committee $258.6M$8.3B $2.1B Median market cap Morningstar Mid Cap 70 th to 90 th percentile of US market cap $10.1B $3.6B $486.0M Source: BlackRock investment analysis, as of 12/09.

8 8 FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION Alternative weighting schemes  Fundamental-weighted: Stocks are ranked and weighted by fundamental measures  Equal-weighted: All stocks receive the same weighting  Key considerations  Turnover  Transaction costs  Unintended bias within the index  Transparency

9 9 FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION Dimensions of total cost  Explicit costs  Expense ratio  Commission  Implicit costs  Trading spreads  Rebalancing  Tracking error

10 10 FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION Total cost Source: BlackRock. Trading costs are defined as one-way costs that include estimated average spread and market impact costs, as of 12/31/09. Tracking error is a one-year annualized estimate ending 12/31/09. Expense Ratio 0.20% 0.13% ETF 1 ETF 2 Commission 0.01% Trading Costs 0.03% 0.16% Rebalancing 0.01% 0.03% Tracking Error 0.51% 0.58% Implicit Costs 0.76% 0.91% Total CostExplicit Costs COMPARISON

11 11 FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION Total cost  Full replication  Fund holds all index names at benchmark weight  Optimization  Fund holds a representative sample of index names BENCHMARK TRACKING

12 12 FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION iShares ETF liquidity offers price improvement Sources: NYSE Arca, Bloomberg, as of 12/31/09. iShares MSCI Emerging Markets (EEM) EEM Volume ETF Spread ($) Current bid/ask spread in underlying = 7.5 cents. Current bid/ask spread in underlying = 6.0 cents. iShares Russell 2000 (IWM) IWM Volume ETF Spread ($)

13 13 FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION Product structure  What is the principal source of risk?  What is the potential for tracking error?  What are the tax implications of the structure? Open-End Fund Unit Investment Trust 1940 Act 1933 Act Grantor Trust Exchange Traded Notes Limited Partnership

14 14 FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION Attributes of ETFs and ETNs Exchange Traded Notes Exchange Traded Funds Liquidity Daily on exchange Registration Investment Company Act of Securities Act of 1933 Recourse Portfolio of securitiesIssuer credit Principal Risk Market riskMarket and issuer risk Institutional-Size Redemption Daily via custodian Daily to the issuer Short Sales Yes, on an uptick or a downtick 1 ETFs may be structured as 1933 Act Grantor Trusts. Investment comparisons are for illustrative purposes only and are not meant to be all-inclusive. There may be significant differences between the investments that are not discussed here.

15 15 FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION Evaluating a provider  Size and scale  History  Expertise  Commitment to the industry  Resources

16 16 FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION iShares.com: Essential resources for financial professionals  Live and on-demand e-learning  Client materials  Research – white papers  Fund data  Portfolio construction tools  Trading strategy report ®

17 17 FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION iShares resources Index Comparison Tool Compare how over 170 indexes differ by market capitalization, return, risk, holdings, sector and correlation Sample screenshots from the iShares.com website are for illustrative purposes only.

18 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 iShares ( ) or by visiting Read the prospectuses carefully before investing. Investing involves risk, including possible loss of principal.

19 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 US 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.

20 Not FDIC Insured No Bank Guarantee May Lose Value 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., Russell Investment Group or Standard & Poor’s, 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 BR07-3/10

21 THANK YOU


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