BlackRock UK Absolute Alpha Fund D GB00B5ZNQ990

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1 Page 1 of 9 Morningstar Category Alt - Long/Short Equity - Category Index Total Assets Current Yield % Inception Date 1/7/9 Domicile/ Currency GBR/GBP Morningstar Rating Equity Style Map Giant Large Mid Small K 1K Performance 31/3/18 Growth of 1, Annualized Value GBP Ret % Fund 13, Category Index Full Manager Change Partial Manager Change Deep Value People Value Blend Growth High Growth Micro Nicholas Osborne 1/8 Nigel Ridge 3/13 Total Named Managers 2 Morningstar Pillars Process p. 2-3 Performance p. 4 People p. 5 Parent p. 6 Price p. 7 Negative _ 5K Morningstar Rating QQQQQQQQQQQQQQQQQQQQQQQQQQQQQQQQQQQQQ QQQQQQQQQQQQQQQQQQQQQQQQQQQQQQQQQQQQQ QQQQQQQQQQQQQQQQQQQQQQQQ QQQQQQQQ QQ Quartile Rank in Category Percentile Rank in Category % Total Return GBP +/- Category +/- Index Process Equity Style Box Asset Allocation Stock Bond Cash Other Equity Supersectors m Cyclical w Sensitive x Defensive Price TER/OGC Analyst View Randal Goldsmith, Senior Analyst Low-beta long-short equity absolute return approach. The conduct of Morningstar's analysts is governed by Morningstar's Code of Ethics, Securities Trading and Disclosure Policy, and Morningstar Manager Research Integrity Policy. For informaton regarding conflicts of interest, please click Morningstar evaluates mutual funds based on five key pillars, which its analysts believe lead to funds that are more likely to outperform over the long term on a risk-adjusted basis. Analyst Rating Spectrum Œ Á The for Funds is a forward-looking analysis of a fund. Morningstar has identified five key areas crucial to predicting the future success of a fund: People, Parent, Process, Performance, and Price. The pillars are used in determining the for a fund. s are assigned on a five-tier scale running from Gold to Negative. The top three ratings, Gold, Silver, and Bronze, all indicate that our analysts think highly of a fund; the difference between them corresponds to differences in the level of analyst conviction in a fund s ability to outperform its benchmark and peers through time, within the context of the level of risk taken over the long term (defined as a full market cycle or at least five years). Neutral represents funds in which our analysts don t have a strong positive or negative conviction over the long term (defined as a full market cycle or at least five years) and Negative represents funds that possess at least one flaw that our analysts believe is likely to significantly hamper future performance over the long term (defined as a full market cycle or at least five years). Past performance of a security may or may not be sustained in future and is no indication of future performance. For detailed information about the Morningstar Analyst Rating for Funds, please visit 28 Jun, 217 Nigel Ridge manages this low beta long-short equity absolute return fund, making use of BlackRock s equities team. Since taking lead responsibility for the mandate in March 213, he has managed it alongside his BlackRock Equity Hedge fund that he has run from inception in May 25. Ridge views Absolute Alpha as the strategic core of the latter, which has all of this fund s holdings (except four illiquid legacy positions) as well as around 2-3 more tactical positions. So the two portfolios are managed alongside each other, both with net exposure in a range of negative 1% to positive 3%. The hedge fund has a wider gross range (it can go up to 2%), but this fund was given an upper limit of 15% (while 1% was targeted by the previous manager) when Ridge took on the portfolio to bring them more into line with each other. Ridge prefers to use some gross leverage and hold core, larger-cap positions than higherrisk stocks with no leverage, while recognising that some risk has to be taken in order to deliver a meaningful return over cash rates (while the fund does not have a formal target, Ridge aims for Libor plus 4%-5%, commensurate with a volatility range of 5%-7%). In particular, he takes positions only in stocks that are covered by BlackRock s equities team, which was the main change from his predecessor. Gross exposure is typically at or below 13%, but the manager likes to have room to take further risk during periods of rising volatility in markets when he finds that some of the best opportunities appear. Ridge is an experienced manager (28 years in total, 12 focused on equity long-short investing) and is head of the absolute return subgroup of four within the wider BlackRock equities team. The absolute return group also works closely with BlackRock s well-resourced risk and quantitative analysis group, making effective use of their proprietary analytics. During Ridge s tenure, a strong track record of consistently positive returns has been built, annualising 5.3% from end March 213 to end May 217. We like Ridge s lengthy experience and success in equity long-short investing, making effective use of colleagues and BlackRock s strong risk and quantitative analysis group. The fund retains its of Bronze.

2 Page 2 of 9 Process: Approach Morningstar Category Category Index Index Proxy Alt - Long/Short Equity - Long-short ideas are drawn from the BlackRock Equity team s research. Process Pillar 28 Jun, 217 Bottom-up stock selection is the main driver of this low beta, long-short equity absolute return approach, leveraging off the BlackRock equity team s stock research. Each portfolio manager has research responsibility for stocks within his respective sector and provides internal rankings. These stock rankings are the Equity Style 31/3/18 Holdings-Based Style Map Deep Value Value Blend Growth High Growth Equity Style Box Factors Giant Large Mid Small Micro Fund Centroid: Weighted average of equity holdings Zone: 75% of fund equity holdings Category Average Index Proxy Market Cap Fund 3-Yr Avg Category Proxy Giant/Large 86.2 Mid 16.1 Small/Micro -2.3 Avg Market Cap Bil GBP 17.3 Value Measures Fund 3-Yr Avg Category Proxy Price/Prospect. Earnings Price/Book Price/Sales Price/Cash Flow Dividend Yield Growth Measures Fund 3-Yr Avg Category Proxy Long-Term Earnings % Historical Earnings % Sales % Cash Flow % Book-Value % Asset Allocation 31/3/18 Current Allocation 3-Year Average -1 1 Net Assets % Fund 3-Yr Avg Category Proxy Equity Fixed Income Cash Other Regional Exposure 31/3/18 Market Type Equity % Fund 3-Yr Avg Category Proxy Developed Emerging Top 5 Countries Equity % Fund 3-Yr Avg Category Proxy United Kingdom Ireland Virgin Islands (British) New Zealand... Belgium... Key Ratios 31/3/18 Fund 3-Yr Avg Category Proxy Net Margin % 11.3 ROA % 7. Debt/Total Capital % 41.4 ROE % 25.2 starting point for further research by the absolute return subgroup of the broader equities team. For a stock to enter the fund s portfolio, either long or short, it must be proposed by one of the members of the absolute return group and is then discussed before a decision is reached. Nigel Ridge chairs and challenges this discussion and, along with comanager Nick Osborne, has responsibility for the overall positioning of the portfolio. The managers also work closely with Black- Rock s risk & quantitative analysis team, using its proprietary analysis to ensure that risk is deliberate and diversified. A gross exposure limit of 15% was introduced in 213 (previously it was around 1%) to allow the managers to take risk exposure commensurate with a return of Libor plus 4%-5%. Since taking on the fund, Ridge has used the gross exposure range. Typically he positions the portfolio around 13% gross but uses the additional gross leverage capacity to take advantage of opportunities arising in periods of market volatility. Net exposure of the fund ranges from negative 1% to positive 3%. Sectors 31/3/18 Sector Delta Defensive Sensitive Cyclical Fund Index Larger sector concentrations versus the index move the investment to the corner of the triangle corresponding to that equity Super Sector. Equity Sectors Fund 3-Yr Avg Category Proxy xdefensive 17.1 sconsumer Defensive 5.6 dhealthcare 9.3 futilities 2.3 wsensitive 26.4 icommunication Serv. 5.3 oenergy 9.2 pindustrials 12.4 atechnology -.5 mcyclical 56.5 rbasic Materials 7.9 tconsumer Cyclical 27.2 yfinancial Services 14.2 ureal Estate 7.1 Economic Moat 31/3/18 Fund 3-Yr Avg Category Proxy Wide Moat Narrow Moat No Moat Coverage Ratio

3 Page 3 of 9 Process: Portfolio Morningstar Category Category Index Index Proxy Alt - Long/Short Equity - The portfolio encompasses pair trades, as well as naked long and short positions. Process Pillar Similarity to Index Proxy 31/12/17 28 Jun, 217 The portfolio includes around 7-9 positions, encompassing pair trades, as well as naked long and short positions. It includes some smaller-cap stocks; however, since Ridge s appointment, the average cap size has increased as he has focused more on liquidity. At the end of March 217 the main sector net longs were consumer services, financials, and industrials, while basic materials was the main sector net short. The overall net position was 17%,and gross exposure was 13%. Thematically, the portfolio was also net short expensive defensive stocks. The portfolio s main holdings in the financials sector were Lloyds Banking Group and 3i, the private equity group. Lloyds was the thirdlargest holding, behind RELX and BAT. The managers topped up BAT following the Brexit referendum, when its price corrected owing to investors switching out of defensive stocks. The portfolio s legacy illiquid holdings have continued to shrink, and were less than 2% of the total. Ridge expected them to fall to less than 1% following the winding up of Dolphin Capital and LXBH Retail Property s business and the takeover of Circle Holdings. Better Capital is the largest of the four illiquid positions and was expected to reduce significantly if the sale of its largest asset is completed. Index Proxy Overlap Number of Equity Holdings Fund 7 Index Proxy Fund Overlap With Index Proxy Holdings Overlap Asset Overlap Largest Common Holdings Fund % Proxy % Largest Distinct Holdings Fund % Portfolio Holdings 31/12/17 Previous Portfolio Date Equity Holdings Bond Holdings Other Holdings Assets in Top 1 Holdings Turnover Ratio (Reported) 3/11/ % Top 1 Equity Holdings Country Assets % Assets % Proxy % 31/12/17 3/11/17 31/12/17 R FTSE 1 TR (Declared Dividend) - Stnd Index Future Mar18 Change since previous portfolio: T Increase Y Decrease R New First Bought Days Trading Economic Moat Sector 1-Yr Total GBR New Holdings Largest Purchases % Assets Sector FTSE 1 TR (Declared Dividend) - Stnd Index Future Mar18 Otc Lloyds Banking Gro Gb 6.3 Otc British American Gbp 4.62 Otc Carnival Plc Usd Otc Rentokil Initial Ord 3.51 Eliminated Holdings Largest Sales % Assets Sector British American Tobacco PLC 5.2 s Carnival PLC 4.2 t RELX PLC 3.93 t CRH PLC 3.68 r Ferguson PLC 3.66 p Largest Position Changes Current % Prior % R FTSE 1 TR (Declared Dividend) Stnd Index Future Mar18 R Otc Lloyds Banking Gro Gb 6.3. R Otc British American Gbp R Otc Carnival Plc Usd Y British American Tobacco PLC. 5.2

4 Page 4 of 9 Morningstar Category Category Index Performance Alt - Long/Short Equity - Attractive risk-adjusted returns during Nigel Ridge s tenure. Performance Pillar 28 Jun, 217 From Nigel Ridge s appointment on 28 March 213 to the end of May 217, the fund has delivered an annualised 5.3% return with volatility of 4.9%, giving a Sharpe ratio of 1.. Correlation to equities has been low (about.4), underlining the fund s overall attractive risk/return profile across Ridge s tenure. The fund has delivered positive returns in each of the calendar years under Ridge s lead management, although the return in 216 was relatively small. The fund lost some money around the Brexit referendum. It also lost a small amount of money around the US presidential election, but in each case losses were small because of the manager s action to control risk, reducing net and gross exposures. Ridge s tenure on this fund is still relatively short (just more than four years as of this review). However, he has a strong track record from his BlackRock Equity Hedge fund, which he has managed from launch in May 25 achieving consistently positive returns across its 12 calendar years and an annualised return of more than 7% from his slightly more active approach on that mandate. Morningstar Rating and Risk 31/3/18 Period Morningstar Ret vs Cat Morningstar Risk vs Cat 3 Years 5 Years 1 Years Overall Rating Risk Analysis 31/3/18 3-Year Return and Risk Analysis Total Return % Morningstar Rating Fund Category Index _ History 31/3/18 12-Month Rolling Return % Fund Full Manager Change Partial Manager Change Quartile Rank in Cat Percentile Rank in Cat % Total Return GBP +/- Category +/- Index Income Return Standard Deviation 3-Year Risk Measures Fund Category Index Standard Deviation 3.25 Sharpe Ratio.61 R-Squared Beta Alpha Maximum Drawdown Fund Category Index Max Drawdown (%) Peak Date Valley Date Max Drawdown (Months) Upside/Downside Fund Category Index Upside Capture Ratio Downside Capture Ratio Returns 31/3/18 Trailing Returns Total Investor Rank in Cat Cat Index 1 Year Years Years Years 2.3 Tenure 1/ Inception 7/ Rolling-Returns Summary % Month Rolling Periods 32 Observations, 2 Years The shading and percentages correspond to how often the fund returns landed in each category quartile. Income and Capital Returns Return % Income Return Capital Return Year /18 Income Income % Rank in Cat Capital Capital % Rank in Cat /

5 Page 5 of 9 Morningstar Category Category Index People Alt - Long/Short Equity - Nigel Ridge was appointed joint manager of the fund with Nick Osborne on 28 March 213. People Pillar Management Team 28 Jun, 217 Nigel Ridge was appointed joint manager of the fund with Nick Osborne on 28 March 213. The fund had been managed by Mark Lyttleton since its launch in April 25, with Nick Osborne becoming joint manager at the beginning of 28. Osborne was left with the fund for an interim period in which Lyttleton had a sabbatical and then left before Ridge s appointment. Ridge has been lead manager of the BlackRock Equity Hedge Fund since its launch in May 25. He is also responsible for coverage of the utilities sector. Ridge has more than 27 years investment experience and worked at Legal & General, Deutsche Asset Management and Schroders before joining BlackRock in 24. Osborne also manages the fund, having become comanager in January 28. Osborne has been actively involved in the management of the fund since its launch. He began his career in 1999 with MLIM as an investment analyst on the and emerging-markets teams. Ridge and Osborne are supported on this strategy by a further three people who focus on long/short strategies. This includes Imran Sattar, who works with Ridge on the hedge fund. This team are also all members of the Equity team led by two highly experienced managers, Luke Chappell and James Macpherson. The equity team sits in the International Fundamental Equity team headed by its chief investment officer Nigel Bolton. Experience and Asset Load Total AUM Bil GBP in Funds Managed 2+ Number of Managers Longest Tenure Years Manager Retention Rate 5-Year % Average Manager Tenure 7.67 Years Tenure Years Advisor BlackRock Investment Management () Ltd. Subadvisor BlackRock (Channel Islands) Limited Nicholas Osborne 1/8 to Present Years on Managed Funds Years on Fund 1 1 Fund AUM Current Funds Managed Largest Funds Managed Tenure Dates Role Fund Size Investment Tenure Index BlackRock Absolute Alpha Fund 1/8 to Present 1 of BSF Equity Absolute Return Fund 8/16 to Present 1 of ILI BlackRock Absolute Alpha P GBP 9/11 to Present 1 of Utmost BlackRock Absolute Alpha 11/9 to Present 1 of SJPI/ Absolute Return Fd 4/1 to Present 1 of Nigel Ridge 3/13 to Present Years on Managed Funds Years on Fund 16 5 Fund AUM Current Funds Managed Largest Funds Managed Tenure Dates Role Fund Size Investment Tenure Index BlackRock Absolute Alpha Fund 3/13 to Present 1 of BSF Equity Absolute Return Fund 8/16 to Present 1 of ILI BlackRock Absolute Alpha P GBP 3/13 to Present 1 of Utmost BlackRock Absolute Alpha 3/13 to Present 1 of

6 Page 6 of 9 Morningstar Category Category Index Parent Alt - Long/Short Equity - BlackRock, though not perfect, has largely served fundholders well. Parent Pillar 8 May, 217 At $5 trillion in assets under management, BlackRock is the largest asset manager in the world. The firm isn't perfect--after struggling with its active-equity capabilities for years, it's reorganizing that outfit for the second time, and its ishares franchise launches some trendy exchange-traded funds. But the firm has made Assets By Region, By Domicile Bil GBP Fund Family Details Europe (*) Breakdown great strides to encourage its portfolio managers to invest alongside fundholders, and strengthen its investment offerings. The firm's Parent rating was raised to Positive from Neutral. The firm has grown quickly, in large part thanks to the strength of ishares and its active fixed-income and multi-asset businesses, as well as a growing institutional business, which includes mostly index-based strategies. BlackRock's solid stewardship of capital stems in large part from its decision that to succeed as a publicly traded asset manager, it must act as a responsible, high-performing fiduciary. The firm uses its scale and technological capabilities to achieve this goal. BlackRock is constantly evolving and has focused on technology in recent years to further growth, including selling its proprietary riskmanagement system, Aladdin, to competitors and developing a pared-down version for advisors. A recent announcement to move $3 billion in active equity to quant-driven strategies demonstrates a willingness to rely more heavily on technology to run portfolios. Morningstar Rating Breakdown Americas 39.5 Europe & Africa Asia & Australia 5.8 Rating Assets % Œ ˇ 4. Ø Not Rated 59.8 Rating Assets % QQQQQ 12.6 QQQQ 3.6 QQQ 17.4 QQ 6.7 Q.1 Not Rated 32.7 Asset Class Breakdown Europe (ex Money Mkt) Assets Bil GBP Asset Class Assets Bil GBP Assets % Equity Fixed Income Allocation Convertibles Property Alternative Commodities Fund Family Details Europe Top Performing Funds Category Name Fund Size Return % 3-Year Rank in Cat 3-Year BlackRock Active Selection Fund - European Europe Large-Cap Blend Equity Unconstrained Equity Fund Institutional EUR Acc BlackRock Global Funds - China Bond Fund D3 RMB Bond USD BlackRock Equity I Acc Large-Cap Blend Equity Largest Funds Category Name Fund Size Return % 3-Year Rank in Cat 3-Year BlackRock Global Funds - Global Allocation USD Moderate Allocation 14, Fund A2 BlackRock Global Funds - Euro Short Duration EUR Diversified Bond - Short 1, Bond Fund A2 EUR Term ishares Developed World Index Fund (IE) Flexible Acc USD Global Large-Cap Blend Equity 9, Recent Fund Launches Category Name Fund Size Return % Inception Inception Date BlackRock Emerging Markets Equity Impact Global Emerging Markets Equity /2/18 Fund Class Flexible Accumulating USD BlackRock Global Funds - Dynamic High Income Fund D2 USD USD Flexible Allocation 1, /2/18 BlackRock Strategic Funds - Managed Index Portfolios Conservative D2 EUR EUR Moderate Allocation - Global /1/18 (*) All data is based on Branding name and refers to funds domiciled in Europe.

7 Page 7 of 9 Morningstar Category Category Index Price Alt - Long/Short Equity - OCF is in line with the category median but subject to an additional performance charge TER/OGC Expense History TER/OGC Price Pillar Negative 28 Jun, 217 The ongoing charge on the fund s clean share class is in line with the category median. However, there is an additional 2% performance fee on returns over three-month Libor when cumulative performance is above its highwater mark TER/OGC Net Assets. Net Flows Expense Breakdown Fee Level Ongoing charge Ongoing charge 7/2/18.92 Fee Level Peer Group Selected Components Max Management Fee.75 Performance Fee 2. Fee Level Breakpoints High >. Above Average.-. Average.-. Below Average.-. Low <. Fund.92 Peer Median Share Class Information Share Class Identifier Morningstar Category TER/OGC Max Mgmt Fee Performance Fee Maximum Inital Charge BlackRock Absolute Alpha A Alt - Long/Short Equity Inc BlackRock Absolute Alpha A Acc Alt - Long/Short Equity BlackRock Absolute Alpha P Acc Alt - Long/Short Equity BlackRock Absolute Alpha D Alt - Long/Short Equity ,. BlackRock Absolute Alpha S Acc Alt - Long/Short Equity ,,. BlackRock Absolute Alpha S Inc Alt - Long/Short Equity ,,. L&G/BlackRock Absolute Alpha Pen Alt - Long/Short Equity - Aviva/BlackRock Abs Alpha inet Alt - Long/Short Equity - Pen FNW/BlackRock Absolute Alpha Alt - Long/Short Equity - Life Pru/Blackrock Absolute Alpha A- Alt - Long/Short Equity - Pen Pru/Blackrock AbsolAlph 2-Life Alt - Long/Short Equity - Pru/Blackrock AbsolAlph 4-Life Alt - Long/Short Equity - ReAssure AL/BlackR Abs Alp Alt - Long/Short Equity - GQSB Life SE/BLK Abs Alpha Pen Alt - Long/Short Equity - Aviva/BlackRock Abs Alpha S4 Alt - Long/Short Equity - Life Canlife/BlackRock Abs Alpha 3 Life Alt - Long/Short Equity - Minimum Initial Inv Assets Bil GBP

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Page 9 of 9 *The Conflicts of Interest disclosure above also applies to relatives and associates of Manager Research Analysts in India #The Conflicts of Interest disclosure above also applies to associates of Manager Research Analysts in IndiaThe terms and conditions on which Morningstar Investment Adviser India Private Limited offers Investment Research to clients, varies from client to client, and are detailed in the respective client agreement. For recipients in Japan: The Report is distributed by Ibbotson Associates Japan, Inc., which is regulated by Financial Services Agency. Neither Ibbotson Associates Japan, Inc., nor its representatives, are acting or will be deemed to be acting as an investment advisor to any recipients of this information. For recipients in Singapore: This Report is distributed by Morningstar Investment Adviser Singapore Pte Limited, which is licensed by the Monetary Authority of Singapore to provide financial advisory services in Singapore. Investors should consult a financial adviser regarding the suitability of any investment product, taking into account their specific investment objectives, financial situation or particular needs, before making any investment decisions. Negative Represents funds that possess at least one flaw that our analysts believe is likely to significantly hamper future performance, such as high fees or an unstable management team. Because of these faults, we believe these funds are inferior to most competitors and will likely underperform their relevant performance benchmark and/or peer group, within the context of the level of risk taken, over a full market cycle. Morningstar may also use two other designations in place of a rating: Under Review This designation means that a change that occurred with the fund or at the fund company requires further review to determine the impact on the rating. Not Ratable This designation is used only where we are providing a report on a new strategy or on a strategy where there are no relevant comparators, but where investors require information as to suitability. For more information about our Analyst Rating methodology please go to Morningstar Star Rating The Morningstar Star Rating is a proprietary data point that is quantitatively driven. Funds are rated from one to five stars based on how well the fund performed (after adjusting for risk and accounting for sales charges) in comparison to similar funds. Within each Morningstar Category, the top 1% of funds receive five-stars and the bottom 1% receives one-star. Funds are rated for up to three time periods three-, five-, and ten-years and these ratings are combined to produce an overall star rating, which is noted within the Report. Funds with less than three years of history are not rated. Morningstar Star Ratings are based entirely on a mathematical evaluation of past performance. Morningstar Star Ratings are in no way to be considered a buy or sell signal nor should be viewed as a statement of fact. Equity-Related Data Points The Report lists the fund s top ten holdings as of the dated noted. For each underlying holding, a series of data points is provided including, where applicable, that security s Economic Moat as of the date noted. Economic Moat The concept of an economic moat plays a vital role in our equity analyst s qualitative assessment of a firm s long-term investment potential, but also in the actual calculation of its fair value estimate. An economic moat is a structural feature that allows a firm to sustain excess profits over a long period of time. We define economic profits as returns on invested capital (or ROIC) over and above our estimate of a firm s cost of capital, or weighted average cost of capital (or WACC). Without a moat, profits are more susceptible to competition. We have identified five sources of economic moats: intangible assets, switching costs, network effect, cost advantage, and efficient scale. Companies with a narrow moat are those we believe are more likely than not to achieve normalized excess returns for at least the next 1 years. Wide-moat companies are those in which we have very high confidence that excess returns will remain for 1 years, with excess returns more likely than not to remain for at least 2 years. The longer a firm generates economic profits, the higher its intrinsic value. We believe low-quality, no-moat companies will see their normalized returns gravitate toward the firm s cost of capital more quickly than companies with moats. For more information about methodology in analysing stocks, please go to For Recipients in Australia: This Report has been issued and distributed in Australia by Morningstar Australasia Pty Ltd (ABN: ; ASFL: 24892). Morningstar Australasia Pty Ltd is the provider of the general advice ( the Service ) and takes responsibility for the production of this report. The Service is provided through the research of investment products. To the extent the Report contains general advice it has been prepared without reference to an investor s objectives, financial situation or needs. Investors should consider the advice in light of these matters and, if applicable, the relevant Product Disclosure Statement before making any decision to invest. Refer to our Financial Services Guide (FSG) for more information at For Recipients in Hong Kong: The Report is distributed by Morningstar Investment Management Asia Limited, which is regulated by the Hong Kong Securities and Futures Commission to provide services to professional investors only. 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