INTRODUCING
iSHARES AND ETFs
Exchange Traded Funds (ETFs) have revolutionised the way
investors manage their portfolios. ETFs are simple, flexible,
cost-effective and offer opportunities to spread risk.
These benefits have driven the popularity of ETFs with
some of the most demanding investors, from private banks
and pension funds, to government agencies, professional
investment managers and private investors.
This guide provides information to help you understand
ETFs and how they can be included in your portfolio.
Join the
investment revolution
ETFs – SIMPLE, TRANSPARENT AND EFFICIENT
ETFs are the most popular type of Exchange Traded Products (ETPs),
which also include various investment vehicles such as Exchange Traded
Commodities (ETCs) and Exchange Traded Notes (ETNs).
An ETF is a pooled investment fund, similar to a unit trust or mutual fund,
which can be bought and sold on a stock exchange, like a share in a company.
For investors, ETFs blend the benefits of pooled funds and shares.
iShares
®ETFs are a type of index-tracking fund – they aim to replicate the
performance of a specified index, such as the EURO STOXX Index of leading
Eurozone company shares. This means that the aim of an ETF is to provide
investors with the same return as the underlying market. For example, if the
EURO STOXX 50 Index goes up by 10% during a year, an ETF tracking this
index aims to provide investors with the same return, minus fees, which in
the case of an ETF is called the Total Expense Ratio (TER). To deliver the same
return as the market index, ETFs hold all the index constituents, or a subset
of the index constituents, to replicate the performance of the index.
ETFs are available that track most major indices for stocks and shares,
bonds, commodities and other asset types, providing efficient access to
many markets for investors.
MUTUAL FUND
iSHARES
SHARE
ETFs
ETF benefits
CHF
LOWER COSTS
SPREAD RISK
TRANSPARENCY
FLEXIBILITY
The growing popularity of ETFs demonstrates the value investors place
upon the following benefits:
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ETFs can be cheaper than many traditional pooled funds.
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ETFs provide diversification – they avoid putting all your eggs
in one basket.
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ETFs offer a high degree of transparency regarding the
ETF portfolio holdings, the ETF performance and costs.
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There is a wide choice of ETFs available, and they can be bought
and sold simply and quickly.
Please remember that as with all investments there are risks involved
with buying and selling ETFs. Your investment can go up and down and
your capital and any income is at risk. The liquidity of your investments is
not guaranteed.
iShares is the provider of the world’s leading ETF fund range. iShares
funds are managed to consistently provide these benefits and their growth
in assets, industry awards and leading market position reflect a proven
record of delivering what investors expect.
The growth in the ETP industry has been phenomenal. Since the launch of
the first ETF in 1993, the ETP industry has grown to over US$2.92 trillion in
Assets Under Management (AUM) with 5,462 ETPs available worldwide
1.
The chart below shows the global growth in ETP assets since 2000.
LOWER COSTS WITH ETFs
Keeping the cost of an investment down is important. Many investment
products promise to beat the market, and these are often accompanied
by higher costs. In reality the majority of investment products do not
consistently beat the market and your returns can be eroded over time by
higher fees.
iShares ETFs aim to deliver the performance of the market and charge for
delivering just that – no more, no less. The cost of owning an ETF is measured
by the TER, which shows the total cost to the investor over a year. There are
no hidden costs – iShares ETFs are totally transparent and all TERs are
available at iShares.com.
1 Source: BlackRock, ETP Landscape, Industry Highlights, February 2015.
ETF industry growth
0 1,000 2,000 3,000 4,000 5,000 0 500 1,000 1,500 2,000 2,500 3,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Feb-15 6,000
Assets USDbn Number of ETPs
A SSET S NUMBER OF ETP s
BUYING AND SELLING ETFS
Buying and selling costs also need to be considered with any investment.
Just like a company share traded on a stock exchange, buying or selling an
ETF incurs a transaction fee.
Your stock broker or financial adviser will be able to guide you through this
straightforward process and detail the transaction costs. Again, there are no
hidden charges and you have the assurance of knowing the exact price you pay
when buying an ETF. Purchases and sales can be made instantly on-exchange,
avoiding the possible delays and generally wide spreads that are still common
with other types of pooled investments. Spreads are the difference between
the price of buying and the price of selling units in a pooled vehicle and are
calculated on a daily basis. As with all investments, your investments can go up
and down and your capital is at risk.
HELPING INVESTORS BALANCE RISK,
COST AND RETURN
Historically, many investment decisions have focused on ‘return’ in
isolation. But there is growing recognition that return must be considered
in the context of ‘risk’ and ‘cost’. This more comprehensive approach to
investing may sound complex, but it offers the prospect of more reliably
meeting financial goals.
The benefits of ETFs mean they are the ideal investment tools to build
highly effective portfolios that balance risk, cost and return.
DIVERSIFICATION WITH ETFs
Understanding risk is fundamental to successful investing. A return of
10% per annum with a high level of risk is less attractive than the same
return but with lower risk. The highest return for the lowest risk is the
ideal balance that investors seek. Achieving this ideal is not easy, but
‘diversification’ is a widely recognised and highly effective tool that you
can use.
Diversification relies upon the age-old wisdom of not putting all your
eggs in one basket. By spreading investments across various assets,
the expected return can be achieved with less risk. The table opposite
illustrates the benefits of diversification for a simple portfolio of stocks
and shares.
The diversified portfolio B targets a similar level of return to portfolio A,
but importantly does this with considerably lower risk, potentially making
it a more attractive investment.
iShares ETFs offer you the benefits of diversification in two ways:
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ETFs typically hold large numbers of individual securities (for example,
stocks and shares), which are the constituents of the index they track.
This means ETFs are inherently diversified and offer an attractive
balance of risk and return.
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There is a broad range of iShares ETFs easily available, providing
you with access to many different markets and asset types around
the world.
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4 shares
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7% expected return per annum
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14% expected risk per annum
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45 shares
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6% expected return per annum
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9% expected risk per annum
PORTFOLIO A:
CONCENTRATED
PORTFOLIO B:
DIVERSIFIED
For illustrative purposes only.
Past performance is not a guide to future performance and may not be repeated.
Transparency with ETFs
With many types of investment, there is a lack of clarity as to exactly where
your money is actually invested. There may also be considerable uncertainty
as to the investment meeting its targets, with little transparency to see how
the investment is performing on a daily basis.
iShares ETFs offer you transparency and aim to closely track the
performance of the market they follow.
Every physical ETF
2publishes a full list of the securities (for example,
stocks and shares or bonds) that it holds on a daily basis. For derivative
replicating iShares ETFs
3, iShares publishes names of counterparties,
collateral levels, collateral holdings and the most recent swap spreads.
This allows you to see exactly where your money is invested. These details
are easily accessible at iShares.com.
For those ETFs participating in securities lending, iShares also discloses all
relevant information on its website
4.
You also have the confidence of knowing that the investment manager aims
to mirror the performance of the index that the ETF follows – nothing more,
nothing less. On the other hand, actively managed funds target returns that
are greater than the returns from the underlying market, but many of them
have consistently disappointed investors by missing their targets.
2 Physically replicating ETFs hold the assets of the index that is being tracked. There are two tracking techniques: full replication, where all the stocks are held in the weighting defined by the index, or an optimised approach, where the ETF holds only some of the index constituents. 3 A derivative replicating ETF seeks to deliver the performance of an index through the use of
derivative contracts (total return index swaps).
4 Securities lending involves a transfer of securities to a third party (the borrower), who gives the lender collateral in the form of shares, bonds or cash and pays the lender a fee.
At iShares, we make
no secret of how well
our ETFs are tracking
their benchmark
indices. Performance
information on
iShares.com allows
you to follow the daily
performance of your
iShares ETFs
“
BUYING iSHARES ETFs
iShares ETFs are listed on the
various European exchanges,
such as the ATX, Euronext, SIX
Swiss Exchange and Xetra and
are purchased as you would
any single company stock.
A stock broker or financial
adviser will be able to explain
how to set limits on the
purchase and sale prices that
transactions are completed at.
They can also advise on other
features and benefits
of ETFs.
The wide range of iShares ETFs available allows you and your adviser to
build portfolios that aim to fulfill many investment goals. The ability to
simply and efficiently invest in many different asset types, from stocks
and shares, bonds, commodities, property and so on has never been
more accessible to investors.
You can also invest around the world, via ETFs that provide global
coverage or by bringing together separate funds that follow individual
markets, from the major economies of the US and Europe, to Asia and
many more exotic emerging markets.
This level of choice gives you the power to build a portfolio that targets
your specific goals. And if these goals change over time as your
circumstances alter, the portfolio of ETFs can easily be altered so it
continues to suit you. The ability to buy and sell ETFs as and when
needed enables this flexibility, while also keeping transaction costs low.
iShares ETFs are ideal portfolio building blocks, giving you access to a
wide range of asset types and markets.
iShares – the world’s
No. 1 ETF provider
5
5 Source: BlackRock Investment Institute, Bloomberg. Data as at February 2015.
PERFORMANCE
CHART
FUND SEARCH TOOL
INDEX RETURNS
CHART
iShares is the leading ETF provider globally with over US$1,085B in AUM.
iShares pioneered making ETFs accessible to all types of investors.
With 726 ETPs listed on exchanges worldwide and 37% market share
globally, iShares has been championing ETFs as a better way of investing
for the past 18 years
5.
For further information on iShares ETFs visit iShares.com where you will find
fund data, fund factsheets, tools, more detailed information on ETFs and
how to purchase iShares ETFs.
Tools available to help you make investment decisions:
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Measure iShares ETFs fund performance relative to its index.
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Access ETF indices and their performance.
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Search for a specific fund.
ETFs are not risk free and before investing we recommend you:
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Assess your investment objectives.
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Select investments to match these or consult an adviser to help you
do this.
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Spend time understanding your investment choices and read the relevant
prospectuses before investing.
Please remember that as with all investments there are risks involved with
buying and selling ETFs. Your investment can go up and down and your
capital is at risk.
WHAT TO DO NEXT
To find about more about how
these versatile, cost-efficient
funds can help you achieve your
investment goals, visit iShares.
com. Alternatively you can
speak to your financial adviser
or visit the following websites:
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ATX: www.wienerborse.at
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Borsa Italiana:
www.borsaitaliana.it
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Euronext: www.euronext.com
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London Stock Exchange:
www.londonstockexchange.com
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SIX Swiss Exchange:
www.six-swiss-exchange.com
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Xetra: www.xtf.de
We recommend you seek
independent professional
advice prior to investing.
Want to know more?
Austria
+49 (0) 89 42729 5858
France
+33 (0) 1 56 43 29 19
Luxembourg
+32 (0) 2 402 49 12
Spain
+34 (0) 91 788 94 00
Belgium
+32 (0) 2 4024912
Germany
+49 (0) 89 42729 5858
Netherlands
+31 (0) 800 0233 466
Sweden
+46 (0) 20 79 62 38
Denmark
+358 (0) 800 918 277
Israel
+44 (0) 207 743 1659
Norway
+47 (0) 800 14 324
Switzerland
+41 (0) 800 33 66 88
Finland
+358 (0) 800 918 277
Italy
+39 (0) 800 898085
Portugal
+34 (0) 91 788 94 00
UK
+44 (0) 845 357 7000
iShares.com
Regulatory InformationBlackRock Advisors (UK) Limited, which is authorised and regulated by the Financial Conduct Authority (‘FCA’), having its registered office at 12 Throgmorton Avenue, London, EC2N 2DL, England, Tel +44 (0)20 7743 3000, has issued this document for access by Professional Clients only and no other person should rely upon the information contained within it. iShares plc, iShares II plc, iShares III plc, iShares IV plc, iShares V plc, iShares VI plc and iShares VII (together ‘the Companies’) are open-ended investment companies with variable capital having segregated liability between their funds organised under the laws of Ireland and authorised by the Financial Regulator. For your protection, calls are usually recorded.
For investors in Denmark
The funds mentioned are registered for public distribution in Denmark and are authorised by Finanstilsynet, the Danish Financial Supervisory Authority. Any application for shares in the funds is on the terms of the prospectus, complete, simplified or Key Investor Information Documentation, for the Companies. Any application for shares in the funds is on the terms of the Company’s Prospectus, Key Investor Information Document and the latest half-yearly report and unaudited accounts and/or annual report and audited accounts. Investors should read the fund specific risks in the Key Investor Information Document and the Company’s Prospectus.
The Danish FSA has introduced rules on risk labelling for investment products pursuant to which various categories of investment product have been assigned a risk label. The shares of iShares have the yellow risk label pursuant to the Danish FSA’s rules on risk labelling. The risk labelling is based on the possibility of losing the invested amount based on the product type and not the actual likelihood of this happening.
The risk labelling system is based on the colours of a traffic light.
• Green: Investment products labelled green refer to those where the risk of losing the invested amount is considered very limited and where the product type is not difficult to understand. Examples include Danish government bonds, EU governments bond and Danish mortgage bonds. • Yellow: Investment products labelled yellow refer to those where there is considered to be a risk of losing the entire or a part of the invested amount and where the product type is not difficult to understand. Examples include listed shares, corporate bonds and shares of UCITS funds. • Red: Investment products labelled red refer to those where there is considered to be a risk of losing
more than the invested amount or the product type is difficult to understand. Examples include unlisted shares, options, futures, swaps and structured bonds.
Important information on the Companies is contained in the relevant Prospectus and other documents, copies of which can be obtained free of charge from (i) offices of the local agent in Denmark, Nordea Bank Danmark A/S, Strandgade 3, DK 0900 Copenhagen C, Denmark Tel: +45 33 33 33 01 Fax: +45 33 33 10 31 email: issuerservice.dk@nordea.com and (ii) on the Companies’ internet website at the address www. iShares.com (http://www.ishares.com/global/content/europe/ishares_danish_country_supplement.pdf and http://www.ishares.com/global/content/europe/ishares_2_danish_country_supplement.pdf).This document is strictly confidential and may not be distributed without authorisation from BlackRock Advisors (UK) Limited. In line with most other non-Danish funds, the iShares range will not have distributor status under Danish tax law, for which reason investors will generally be subject to tax based on the annual change in value of their investment irrespective of whether iShares are sold or not (mark-to-market taxation). For individuals this may be less tax efficient than upon investment in a comparable Danish investment fund with distributor status. For investors in Israel
BlackRock Advisors (UK) Limited is not licensed under Israel’s Regulation of Investment Advice, Investment Marketing and Portfolio Management Law, 5755-1995. This document has not been approved by the Israel Securities Authority and will only be distributed to Israeli residents in a manner that will not constitute “an offer to the public” under sections 15 and 15a of the Israel Securities Law,
5728-1968 (the “Securities Law”) or section 25 of the Joint Investment Trusts Law, as applicable. The document is being offered to those categories of investors listed in the First Addendum (the “Addendum”) to the Securities Law, (“Institutional Investors”); in all cases under circumstances that will fall within the private placement or other exemptions of the Joint Investment Trusts Law, the Securities Law and any applicable guidelines, pronouncements or rulings issued from time to time by the Israel Securities Authority. This document may not be reproduced or used for any other purpose, nor be furnished to any other person other than those to whom copies have been sent. Nothing in this document should be considered investment advice or investment marketing as defined in the Regulation of Investment Counselling, Investment Marketing and Portfolio Management Law, 5755-1995. This document does not constitute an offer to sell or solicitation of an offer to buy any securities, nor does it constitute an offer to sell to or solicitation of an offer to buy from any person or persons in any state or other jurisdiction in which such offer or solicitation would be unlawful, or in which the person making such offer or solicitation is not qualified to do so, or to a person or persons to whom it is unlawful to make such offer or solicitation.
For Swiss Investors
The iShares ETFs are domiciled in Ireland, Switzerland and Germany.
BlackRock Asset Management Schweiz AG, Bahnhofstrasse 39, CH-8001 Zurich, is the Swiss Representative and JPMorgan Chase Bank, National Association, Columbus, Zurich branch, Dreikönigstrasse 21, 8002 Zurich, the Swiss Paying Agent for the foreign iShares ETFs registered in Switzerland. The Prospectus, the Prospectus with integrated fund contract, the Key Investor Information Document, the general and particular conditions, the Articles of Incorporation, the latest and any previous annual and semi-annual reports of the iShares ETFs domiciled or registered in Switzerland are available free of charge from BlackRock Asset Management Schweiz AG. Investors should read the fund specific risks in the Key Investor Information Document and the Prospectus.
Restricted Investors
This document is not, and under no circumstances is to be construed as an advertisement or any other step in furtherance of a public offering of shares in the United States or Canada. This document is not aimed at persons who are resident in the United States, Canada or any province or territory thereof, where the companies/securities are not authorised or registered for distribution and where no prospectus has been filed with any securities commission or regulatory authority. The companies/securities may not be acquired or owned by, or acquired with the assets of, an ERISA Plan.
Risk Warnings
Investment in the products mentioned in this document may not be suitable for all investors. Past performance is not a guide to future performance and should not be the sole factor of consideration when selecting a product. The price of the investments may go up or down and the investor may not get back the amount invested. Your income is not fixed and may fluctuate. The value of investments involving exposure to foreign currencies can be affected by exchange rate movements. We remind you that the levels and bases of, and reliefs from, taxation can change.
BlackRock has not considered the suitability of this investment against your individual needs and risk tolerance. The data displayed provides summary information. Investment should be made on the basis of the relevant Prospectus which is available from the manager.
In respect of the products mentioned this document is intended for information purposes only and does not constitute investment advice or an offer to sell or a solicitation of an offer to buy the securities described within. This document may not be distributed without authorisation from BlackRock Advisors (UK) Limited. © 2015 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, iSHARES, BUILD ON BLACKROCK, SO WHAT DO I DO WITH MY MONEY and the stylized i logo are registered and unregistered trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners.