AUGUST 31, ANNUAL REPORT

Transcription

1 AUGUST 31, ANNUAL REPORT ishares Trust ishares Edge MSCI Multifactor Consumer Discretionary ETF CNDF BATS ishares Edge MSCI Multifactor Consumer Staples ETF CNSF BATS ishares Edge MSCI Multifactor Energy ETF ERGF BATS ishares Edge MSCI Multifactor Financials ETF FNCF BATS ishares Edge MSCI Multifactor Healthcare ETF HCRF BATS ishares Edge MSCI Multifactor Industrials ETF INDF BATS ishares Edge MSCI Multifactor Materials ETF MATF BATS ishares Edge MSCI Multifactor Technology ETF TCHF BATS ishares Edge MSCI Multifactor Utilities ETF UTLF BATS

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3 Table of Contents Management s Discussions of Fund Performance... 5 About Fund Performance Shareholder Expenses Schedules of Investments ishares Edge MSCI Multifactor Consumer Discretionary ETF ishares Edge MSCI Multifactor Consumer Staples ETF ishares Edge MSCI Multifactor Energy ETF ishares Edge MSCI Multifactor Financials ETF ishares Edge MSCI Multifactor Healthcare ETF ishares Edge MSCI Multifactor Industrials ETF ishares Edge MSCI Multifactor Materials ETF ishares Edge MSCI Multifactor Technology ETF ishares Edge MSCI Multifactor Utilities ETF Financial Statements Financial Highlights Notes to Financial Statements Report of Independent Registered Public Accounting Firm Tax Information Board Review and Approval of Investment Advisory Contract Supplemental Information Trustee and Officer Information... 85

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5 Management s Discussion of Fund Performance ishares TRUST U.S. EQUITY MARKET OVERVIEW The U.S. stock market posted a strong return for the 12 months ended August 31, 2017 (the reporting period ). The Russell 3000 Index, a broad U.S. equity index that includes stocks of all capitalization ranges, returned 16.06% for the reporting period. After declines in September and October 2016, the U.S. equity market began a steady increase that extended through the end of the reporting period. Initially, the catalyst for the market s advance was the U.S. presidential election in November The new presidential administration was expected to enact pro-business fiscal policies including lower taxes, decreased regulation, and increased fiscal spending on infrastructure and other projects aimed at strengthening U.S. economic growth. These expectations contributed to gains in U.S. stocks in late 2016 and early However, the anticipated pro-business policies failed to materialize as the Trump administration and a Republican-controlled Congress struggled to implement their fiscal agenda. In addition, the U.S. Federal Reserve Bank (the Fed ) increased short-term interest rates three times between December 2016 and June The Fed s actions increased the short-term interest rate target to its highest level since October The Fed also unveiled a plan to reduce the amount of U.S. Treasury bonds and mortgagebacked securities on its balance sheet before the end of The interest rate increases and balance sheet reduction were part of the Fed s plan to begin reducing the substantial economic stimulus measures implemented in the wake of the 2008 credit crisis and re-establish more normal monetary policy conditions. The lack of economic stimulus initiatives from the federal government along with the Fed s monetary policy changes created challenges for the U.S. economy. Although year-over-year economic growth improved modestly during the reporting period, it remained below its long-term historical average. Employment growth continued to be robust, leading to a 16-year low in the unemployment rate, and industrial production continued to recover from a low point in late In contrast, vehicle sales decreased sharply during the reporting period, and although consumer spending increased overall, it declined from its peak in early In the housing market, home prices continued to increase as demand outstripped supply, in part due to limited new home construction. In contrast to mixed economic data in the U.S., signs of stronger economic growth emerged globally. This was especially true in China, where economic growth improved after several years of slowing, and the Eurozone, led by increased economic activity in its largest countries, including Germany, France, Italy, and Spain. An improving economic environment in developed countries also contributed to strengthening growth in many emerging economies around the world. Better global economic conditions led to a notable improvement in earnings growth for U.S. companies, particularly those with significant operations outside of the U.S. In particular, technology-related companies posted strong returns for the reporting period as many of the largest U.S. technology-oriented companies derive more than half of their sales from outside of the country. As fiscal policy agenda expectations faded, healthy corporate earnings growth helped sustain the advance in the U.S. stock market over the last half of the reporting period. The steadily positive equity market performance contributed to the major U.S. equity indexes reaching record highs late in the reporting period. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 5

6 Management s Discussion of Fund Performance ishares EDGE MSCI MULTIFACTOR CONSUMER DISCRETIONARY ETF Performance as of August 31, 2017 Average Annual Total Returns Cumulative Total Returns NAV MARKET INDEX NAV MARKET INDEX 1 Year 7.41% 6.80% 7.80% 7.41% 6.80% 7.80% Since Inception 8.31% 8.00% 8.78% 11.05% 10.63% 11.62% GROWTH OF $10,000 INVESTMENT (SINCE INCEPTION AT NET ASSET VALUE) $11,500 $11,000 $11,162 $11,105 $10,500 $10,000 $9,500 May 16 Aug 16 Nov 16 Feb 17 May 17 Aug 17 Fund Index The inception date of the Fund was 5/10/16. The first day of secondary market trading was 5/12/16. Past performance is no guarantee of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares. See About Fund Performance on page 24 for more information. Beginning Account Value (3/1/17) Actual Ending Account Value (8/31/17) Expenses Paid During Period a Shareholder Expenses Beginning Account Value (3/1/17) Hypothetical 5% Return Ending Account Value (8/31/17) Expenses Paid During Period a Annualized Expense Ratio $ 1, $ 1, $ 1.78 $ 1, $ 1, $ % a Expenses are calculated using the Fund s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (184 days) and divided by the number of days in the year (365 days). See Shareholder Expenses on page 24 for more information. The ishares Edge MSCI Multifactor Consumer Discretionary ETF (the Fund ) seeks to track the investment results of an index composed of U.S. large- and mid-capitalization stocks in the consumer discretionary sector that have favorable exposure to target style factors subject to constraints, as represented by the MSCI USA Consumer Discretionary Diversified Multiple-Factor Capped Index (the Index ). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month reporting period ended August 31, 2017, the total return for the Fund was 7.41%, net of fees, while the total return for the Index was 7.80%. The Index advanced for the reporting period as consumer spending in the U.S. increased. For the year ended August 31, 2017, retail sales grew by 3.2. Nonetheless, retail sales peaked in early 2017 and slowed during the second half of the reporting period, in part due to a steady decline in vehicle sales ishares A NNUAL R EPORT TO S HAREHOLDERS

7 Management s Discussion of Fund Performance (Continued) ishares EDGE MSCI MULTIFACTOR CONSUMER DISCRETIONARY ETF Within the Index, the consumer services industry contributed the most to the Index s return for the reporting period, led by restaurants and cruise line operators. Restaurants benefited from innovative menu changes that attracted customers, while cruise operators were helped by an increase in passengers and higher onboard spending. Internet retailers and media companies were also significant contributors to the Index s return for the reporting period. Online retailers benefited from a sharp increase in e-commerce sales, while increased merger and acquisition activity, particularly among cable and satellite television operators, led the advance in the media industry. On the downside, specialty retailers detracted the most from the Index s return for the reporting period. Intense competition from e-commerce sales weighed on much of the retail sector, particularly niche specialty stores. Retailers in the apparel, automotive, and home furnishing industries were the most significant detractors from the Index s performance. For the reporting period, the Index underperformed the broad sector market, as represented by the MSCI USA Consumer Discretionary Index. The Index s research-based selection process focuses on four investment factors: value, quality, momentum, and size. Of the four target style factors, value and quality contributed to the Index s performance relative to the performance of the broad sector market, while size and momentum detracted. Although the target style factors provided a net positive contribution to relative performance, industry allocation detracted from the Index s performance compared with that of the broad sector market. Most notably, an overweight allocation in the Index to the struggling specialty retail industry including department stores, apparel retailers, and home furnishing stores detracted the most from relative performance. In addition, an underweight allocation in the Index to internet retailers weighed on relative performance. On the positive side, an overweight allocation in the Index to the household durables industry, which includes homebuilders and appliance manufacturers, contributed to relative performance for the reporting period. ALLOCATION BY SECTOR As of 8/31/17 Percentage of Sector Total Investments* Specialty Retail 23.70% Media Hotels, Restaurants & Leisure Household Durables Internet & Direct Marketing Retail Auto Components 4.76 Multiline Retail 3.68 Textiles, Apparel & Luxury Goods 2.49 Leisure Products 2.39 Automobiles 0.18 TOTAL % TEN LARGEST FUND HOLDINGS As of 8/31/17 Percentage of Security Total Investments* Amazon.com Inc % Comcast Corp. Class A 4.87 Home Depot Inc. (The) 4.70 Walt Disney Co. (The) 3.90 Carnival Corp Royal Caribbean Cruises Ltd Mohawk Industries Inc NVR Inc Best Buy Co. Inc Scripps Networks Interactive Inc. Class A 2.70 TOTAL 43.19% * Excludes money market funds. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 7

8 Management s Discussion of Fund Performance ishares EDGE MSCI MULTIFACTOR CONSUMER STAPLES ETF Performance as of August 31, 2017 Average Annual Total Returns Cumulative Total Returns NAV MARKET INDEX NAV MARKET INDEX 1 Year 0.11% 0.53% 0.46% 0.11% 0.53% 0.46% Since Inception 0.89% 0.95% 1.30% 1.18% 1.24% 1.70% GROWTH OF $10,000 INVESTMENT (SINCE INCEPTION AT NET ASSET VALUE) $10,600 $10,400 $10,200 $10,000 $10,170 $10,118 $9,800 $9,600 $9,400 $9,200 May 16 Aug 16 Nov 16 Feb 17 May 17 Aug 17 Fund Index The inception date of the Fund was 5/10/16. The first day of secondary market trading was 5/12/16. Past performance is no guarantee of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares. See About Fund Performance on page 24 for more information. Beginning Account Value (3/1/17) Actual Ending Account Value (8/31/17) Expenses Paid During Period a Shareholder Expenses Beginning Account Value (3/1/17) Hypothetical 5% Return Ending Account Value (8/31/17) Expenses Paid During Period a Annualized Expense Ratio $ 1, $ $ 1.75 $ 1, $ 1, $ % a Expenses are calculated using the Fund s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (184 days) and divided by the number of days in the year (365 days). See Shareholder Expenses on page 24 for more information. The ishares Edge MSCI Multifactor Consumer Staples ETF (the Fund ) seeks to track the investment results of an index composed of U.S. large- and mid-capitalization stocks in the consumer staples sector that have favorable exposure to target style factors subject to constraints, as represented by the MSCI USA Consumer Staples Diversified Multiple-Factor Capped Index (the Index ). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month reporting period ended August 31, 2017, the total return for the Fund was 0.11%, net of fees, while the total return for the Index was 0.46%. The fractional gain for the Index during the reporting period generally reflected the impact of broad economic and investment trends. Consumer staples stocks are considered to be defensive investments because they sell products that are typically in demand regardless of the economic environment. Consequently, these stocks tend to perform well during periods of economic ishares A NNUAL R EPORT TO S HAREHOLDERS

9 Management s Discussion of Fund Performance (Continued) ishares EDGE MSCI MULTIFACTOR CONSUMER STAPLES ETF uncertainty, but underperform during periods of economic strength. During the reporting period, economic conditions around the globe improved, resulting in relatively modest returns for consumer staples stocks. The Index s performance also reflected the varied industry returns within the consumer staples sector during the reporting period. Household products companies were the most significant contributors to the Index s return, led by the positive performance of several of the largest companies in the industry. Tobacco producers and beverage companies were also meaningful contributors to performance. On the downside, food products companies detracted the most from the Index s return for the reporting period. Increased competition from private-label brands and changing consumption patterns contributed to the decline in food products stocks. Food and drug retailers also weighed on the Index s performance as the acquisition of a major grocery chain by a large e-commerce company created concerns about pricing and competition in the industry. For the reporting period, the Index underperformed the broad sector market, as represented by the MSCI USA Consumer Staples Index. The Index s research-based selection process focuses on four investment factors: value, quality, momentum, and size. Of the four target style factors, value was a strong contributor to the Index s performance relative to the performance of the broad sector market, while size detracted meaningfully. Quality and momentum were modest detractors. In addition to the small net negative contribution from the target style factors, industry allocation detracted from the Index s performance compared with that of the broad sector market. An overweight allocation in the Index to the struggling food products industry and an underweight position in the beverage industry detracted from relative performance for the reporting period. On the positive side, individual security selection in the household products industry contributed to relative performance for the reporting period. ALLOCATION BY SECTOR As of 8/31/17 Percentage of Sector Total Investments* Food Products 26.87% Food & Staples Retailing Beverages Household Products Tobacco TOTAL % TEN LARGEST FUND HOLDINGS As of 8/31/17 Percentage of Security Total Investments* Procter & Gamble Co. (The) 10.55% Wal-Mart Stores Inc Coca-Cola Co. (The) 7.90 Philip Morris International Inc PepsiCo Inc CVS Health Corp Altria Group Inc Sysco Corp Archer-Daniels-Midland Co Tyson Foods Inc. Class A 3.27 TOTAL 62.99% * Excludes money market funds. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 9

10 Management s Discussion of Fund Performance ishares EDGE MSCI MULTIFACTOR ENERGY ETF Performance as of August 31, 2017 Average Annual Total Returns Cumulative Total Returns NAV MARKET INDEX NAV MARKET INDEX 1 Year (3.68)% (4.63)% (3.35)% (3.68)% (4.63)% (3.35)% Since Inception (1.20)% (1.20)% (0.76)% (1.57)% (1.57)% (0.99)% GROWTH OF $10,000 INVESTMENT (SINCE INCEPTION AT NET ASSET VALUE) $11,500 $11,000 $10,500 $10,000 $9,901 $9,843 $9,500 May 16 Aug 16 Nov 16 Feb 17 May 17 Aug 17 Fund Index The inception date of the Fund was 5/10/16. The first day of secondary market trading was 5/12/16. Past performance is no guarantee of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares. See About Fund Performance on page 24 for more information. Beginning Account Value (3/1/17) Actual Ending Account Value (8/31/17) Expenses Paid During Period a Shareholder Expenses Beginning Account Value (3/1/17) Hypothetical 5% Return Ending Account Value (8/31/17) Expenses Paid During Period a Annualized Expense Ratio $ 1, $ $ 1.69 $ 1, $ 1, $ % a Expenses are calculated using the Fund s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (184 days) and divided by the number of days in the year (365 days). See Shareholder Expenses on page 24 for more information. The ishares Edge MSCI Multifactor Energy ETF (the Fund ) seeks to track the investment results of an index composed of U.S. large- and mid-capitalization stocks in the energy sector that have favorable exposure to target style factors subject to constraints, as represented by the MSCI USA Energy Diversified Multiple-Factor Capped Index (the Index ). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month reporting period ended August 31, 2017, the total return for the Fund was -3.68%, net of fees, while the total return for the Index was -3.35%. The modest decline in the Index for the reporting period masked some meaningful volatility. The Index rose sharply in late 2016 along with the price of oil after OPEC members responded to record global crude oil inventories by agreeing to reduce their daily output levels. However, the Index declined gradually over the remainder of the reporting period as rising oil and gas production in ishares A NNUAL R EPORT TO S HAREHOLDERS

11 Management s Discussion of Fund Performance (Continued) ishares EDGE MSCI MULTIFACTOR ENERGY ETF the U.S., led by a resurgence in U.S. shale oil production, kept inventories high. In addition, many OPEC countries failed to fully comply with the reduced output agreement. The end result was an ongoing excess of supply that kept the price of oil below $50 per barrel, down from a peak of more than $110 per barrel in Oil prices below $50 per barrel continued to pressure the profitability of oil and gas exploration and production companies, which detracted the most from the Index s return for the reporting period. Energy services and equipment companies also detracted meaningfully from the Index s performance as energy exploration and production companies cut back on their capital spending projects. On the positive side, oil and gas refiners contributed the most to the Index s return for the reporting period, as moderate input costs for oil refiners led to high levels of profitability. Oil and gas storage and transportation companies also contributed to the Index s performance. For the reporting period, the Index outperformed the broad sector market, as represented by the MSCI USA Energy Index. The Index s research-based selection process focuses on four investment factors: value, quality, momentum, and size. Of the four target style factors, value contributed significantly to the Index s performance relative to the performance of the broad sector market for the reporting period. Momentum and quality were also modest contributors to relative performance, while size detracted. In addition to the net positive contribution from the target style factors, industry allocation contributed to the Index s performance compared with that of the broad sector market for the reporting period. In particular, an underweight allocation in the Index to the oil and gas exploration and production industry contributed to relative performance. On the downside, an overweight allocation in the Index in the energy equipment and services industry detracted from relative performance. ALLOCATION BY SECTOR As of 8/31/17 Percentage of Sector Total Investments* Oil, Gas & Consumable Fuels 84.26% Energy Equipment & Services TOTAL % TEN LARGEST FUND HOLDINGS As of 8/31/17 Percentage of Security Total Investments* Exxon Mobil Corp % Chevron Corp Phillips Schlumberger Ltd Valero Energy Corp Andeavor 4.57 Marathon Petroleum Corp Concho Resources Inc HollyFrontier Corp Targa Resources Corp TOTAL 71.30% * Excludes money market funds. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 11

12 Management s Discussion of Fund Performance ishares EDGE MSCI MULTIFACTOR FINANCIALS ETF Performance as of August 31, 2017 Average Annual Total Returns Cumulative Total Returns NAV MARKET INDEX NAV MARKET INDEX 1 Year 21.43% 21.90% 21.75% 21.43% 21.90% 21.75% Since Inception 21.06% 21.32% 21.47% 28.51% 28.86% 28.94% GROWTH OF $10,000 INVESTMENT (SINCE INCEPTION AT NET ASSET VALUE) $14,000 $13,000 $12,894 $12,851 $12,000 $11,000 $10,000 $9,000 May 16 Aug 16 Nov 16 Feb 17 May 17 Aug 17 Fund Index The inception date of the Fund was 5/10/16. The first day of secondary market trading was 5/12/16. Past performance is no guarantee of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares. See About Fund Performance on page 24 for more information. Beginning Account Value (3/1/17) Actual Ending Account Value (8/31/17) Expenses Paid During Period a Shareholder Expenses Beginning Account Value (3/1/17) Hypothetical 5% Return Ending Account Value (8/31/17) Expenses Paid During Period a Annualized Expense Ratio $ 1, $ 1, $ 1.77 $ 1, $ 1, $ % a Expenses are calculated using the Fund s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (184 days) and divided by the number of days in the year (365 days). See Shareholder Expenses on page 24 for more information. The ishares Edge MSCI Multifactor Financials ETF (the Fund ) seeks to track the investment results of an index composed of U.S. large- and mid-capitalization stocks in the financials sector that have favorable exposure to target style factors subject to constraints, as represented by the MSCI USA Financials Diversified Multiple-Factor Capped Index (the Index ). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month reporting period ended August 31, 2017, the total return for the Fund was 21.43%, net of fees, while the total return for the Index was 21.75%. The robust performance of the Index for the reporting period reflected a series of positive developments for the financials sector, including improving global economic growth, optimism regarding less stringent regulatory requirements, three short-term interest rate increases by the Fed, and strong financial market activity ishares A NNUAL R EPORT TO S HAREHOLDERS

13 Management s Discussion of Fund Performance (Continued) ishares EDGE MSCI MULTIFACTOR FINANCIALS ETF Within the Index, banks contributed the most to the Index s return for the reporting period. Interest rate increases by the Fed led to higher net interest margins, which are the differences between the interest rate a bank charges for lending and the interest rate it pays to depositors. In addition, stress tests for many of the largest U.S. banks indicated strong capital and liquidity positions. Finally, banks benefited from optimism generated by the potential for the new administration to lighten their regulatory burden. Insurance companies were also meaningful contributors to the Index s return for the reporting period. The Fed s interest rate increases were beneficial for insurers as higher interest rates translated into increased profits on their underlying fixed-income portfolios. Insurers typically invest policyholder premiums in these portfolios until they pay out claims. Another notable contributor to the Index s return for the reporting period was the capital markets industry, which includes asset managers, brokerage companies, and investment banks. Capital markets companies benefited from increased trading activity and a broad rise in financial markets during the reporting period. Despite posting a solid return for the reporting period, the Index underperformed the broad sector market, as represented by the MSCI USA Financials Index. The Index s research-based selection process focuses on four investment factors: value, quality, momentum, and size. Of the four target style factors, size detracted meaningfully from the Index s performance relative to the performance of the broad sector market, outweighing the positive contributions from momentum and value. Quality had a negligible impact on relative performance. In addition to the net negative contribution from the target style factors, industry allocation detracted from the Index s performance compared with that of the broad sector market. Most notably, underweight allocations in the Index to banks and capital markets companies detracted the most from relative performance. On the positive side, an overweight allocation in the Index to the insurance industry contributed to relative performance for the reporting period. ALLOCATION BY SECTOR As of 8/31/17 Percentage of Sector Total Investments* Banks 43.65% Insurance Capital Markets Diversified Financial Services 7.47 Consumer Finance 4.34 TOTAL % TEN LARGEST FUND HOLDINGS As of 8/31/17 Percentage of Security Total Investments* JPMorgan Chase & Co. 8.43% Wells Fargo & Co Bank of America Corp Berkshire Hathaway Inc. Class B 5.11 Citigroup Inc Aflac Inc Synchrony Financial 3.01 Ameriprise Financial Inc Principal Financial Group Inc Lincoln National Corp TOTAL 43.29% * Excludes money market funds. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 13

14 Management s Discussion of Fund Performance ishares EDGE MSCI MULTIFACTOR HEALTHCARE ETF Performance as of August 31, 2017 Average Annual Total Returns Cumulative Total Returns NAV MARKET INDEX NAV MARKET INDEX 1 Year 16.05% 14.58% 16.55% 16.05% 14.58% 16.55% Since Inception 15.66% 14.60% 16.19% 21.03% 19.59% 21.66% GROWTH OF $10,000 INVESTMENT (SINCE INCEPTION AT NET ASSET VALUE) $13,000 $12,000 $12,166 $12,103 $11,000 $10,000 $9,000 May 16 Aug 16 Nov 16 Feb 17 May 17 Aug 17 Fund Index The inception date of the Fund was 5/10/16. The first day of secondary market trading was 5/12/16. Past performance is no guarantee of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares. See About Fund Performance on page 24 for more information. Beginning Account Value (3/1/17) Actual Ending Account Value (8/31/17) Expenses Paid During Period a Shareholder Expenses Beginning Account Value (3/1/17) Hypothetical 5% Return Ending Account Value (8/31/17) Expenses Paid During Period a Annualized Expense Ratio $ 1, $ 1, $ 1.86 $ 1, $ 1, $ % a Expenses are calculated using the Fund s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (184 days) and divided by the number of days in the year (365 days). See Shareholder Expenses on page 24 for more information. The ishares Edge MSCI Multifactor Healthcare ETF (the Fund ) seeks to track the investment results of an index composed of U.S. large- and mid-capitalization stocks in the healthcare sector that have favorable exposure to target style factors subject to constraints, as represented by the MSCI USA Health Care Diversified Multiple-Factor Capped Index (the Index ). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month reporting period ended August 31, 2017, the total return for the Fund was 16.05%, net of fees, while the total return for the Index was 16.55%. The Index posted a strong return for the reporting period despite some challenges facing the healthcare sector, including uncertainty surrounding the fate of the Affordable Care Act ( ACA ) and the possibility of an executive order from President Trump ishares A NNUAL R EPORT TO S HAREHOLDERS

15 Management s Discussion of Fund Performance (Continued) ishares EDGE MSCI MULTIFACTOR HEALTHCARE ETF targeting drug prices. However, beneficial long-term trends such as the aging of the baby boomer generation and growing technological innovation continued to support healthcare stocks. The leading contributor to the Index s return for the reporting period was the healthcare providers and services industry. In particular, managed healthcare providers generated robust profit growth resulting from improved medical cost controls and increased Medicare and Medicaid revenues. Nonetheless, volatility in managed healthcare stocks increased during the reporting period as Congress struggled to agree on a solution to repeal and replace the ACA. The healthcare equipment and supplies industry also contributed meaningfully to the Index s return for the reporting period. Healthcare equipment manufacturers benefited from merger and acquisition activity, while companies that produce contact lenses and dental supplies drove gains among healthcare suppliers. Other contributors to the Index s performance for the reporting period included the pharmaceuticals and biotechnology industries. Although regulatory uncertainty regarding drug pricing weighed on both industries, positive clinical trial data for a number of new medications and a proposal to streamline approvals from the Food and Drug Administration helped biotechnology and pharmaceuticals stocks. For the reporting period, the Index outperformed the broad sector market, as represented by the MSCI USA Health Care Index. The Index s research-based selection process focuses on four investment factors: value, quality, momentum, and size. Of the four target style factors, momentum and value contributed to the Index s performance relative to the performance of the broad sector market, while size detracted. Quality had a negligible impact on relative performance. In addition to the net positive contribution from the target style factors, industry allocation also contributed to the Index s performance compared with that of the broad sector market. Overweight allocations in the Index to the healthcare equipment and supplies industry and to the healthcare providers and services industry, particularly managed healthcare companies, contributed to relative performance. On the downside, underweight allocations to the pharmaceutical and biotechnology industries detracted from relative performance for the reporting period. ALLOCATION BY SECTOR As of 8/31/17 Percentage of Sector Total Investments* Health Care Providers & Services 33.07% Health Care Equipment & Supplies Pharmaceuticals Biotechnology 9.56 Life Sciences Tools & Services 8.09 Health Care Technology 2.01 TOTAL % TEN LARGEST FUND HOLDINGS As of 8/31/17 Percentage of Security Total Investments* Johnson & Johnson 10.67% Pfizer Inc UnitedHealth Group Inc Anthem Inc Merck & Co. Inc Cigna Corp Danaher Corp Intuitive Surgical Inc Humana Inc Agilent Technologies Inc TOTAL 43.18% * Excludes money market funds. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 15

16 Management s Discussion of Fund Performance ishares EDGE MSCI MULTIFACTOR INDUSTRIALS ETF Performance as of August 31, 2017 Average Annual Total Returns Cumulative Total Returns NAV MARKET INDEX NAV MARKET INDEX 1 Year 16.46% 16.01% 16.94% 16.46% 16.01% 16.94% Since Inception 14.88% 14.91% 15.45% 19.97% 20.01% 20.65% GROWTH OF $10,000 INVESTMENT (SINCE INCEPTION AT NET ASSET VALUE) $13,000 $12,000 $12,065 $11,997 $11,000 $10,000 $9,000 May 16 Aug 16 Nov 16 Feb 17 May 17 Aug 17 Fund Index The inception date of the Fund was 5/10/16. The first day of secondary market trading was 5/12/16. Past performance is no guarantee of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares. See About Fund Performance on page 24 for more information. Beginning Account Value (3/1/17) Actual Ending Account Value (8/31/17) Expenses Paid During Period a Shareholder Expenses Beginning Account Value (3/1/17) Hypothetical 5% Return Ending Account Value (8/31/17) Expenses Paid During Period a Annualized Expense Ratio $ 1, $ 1, $ 1.78 $ 1, $ 1, $ % a Expenses are calculated using the Fund s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (184 days) and divided by the number of days in the year (365 days). See Shareholder Expenses on page 24 for more information. The ishares Edge MSCI Multifactor Industrials ETF (the Fund ) seeks to track the investment results of an index composed of U.S. large- and mid-capitalization stocks in the industrials sector that have favorable exposure to target style factors subject to constraints, as represented by the MSCI USA Industrials Diversified Multiple-Factor Capped Index (the Index ). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month reporting period ended August 31, 2017, the total return for the Fund was 16.46%, net of fees, while the total return for the Index was 16.94%. The Index s strong return for the reporting period reflected improving global economic growth, which was especially beneficial for industrial stocks with significant operations outside of the U.S. However, industrial stocks also benefited from better economic ishares A NNUAL R EPORT TO S HAREHOLDERS

17 Management s Discussion of Fund Performance (Continued) ishares EDGE MSCI MULTIFACTOR INDUSTRIALS ETF conditions domestically as the 12-month growth rate for industrial production turned positive in late 2016 after 20 consecutive months of declines. Within the Index, the capital goods industry contributed the most to performance for the reporting period, led by aerospace and defense companies and machinery manufacturers. Aerospace and defense stocks benefited from expectations of increased defense spending by the federal government, as well as strong orders for new aircraft. The machinery industry advanced as robust new order growth led to better-than-expected earnings. Transportation stocks also contributed meaningfully to the Index s return for the reporting period, led by strong results for airline operators. U.S. airline operators benefited from industry consolidation, relatively low fuel prices, and slowing capacity growth that led to higher passenger fares. Other contributors to the Index s return for the reporting period included commercial and professional services stocks, most notably environmental services companies and human resources and employment services providers. On the downside, industrial conglomerates and construction and engineering companies detracted from the Index s performance. For the reporting period, the Index narrowly trailed the broad sector market, as represented by the MSCI USA Industrials Index. The Index s research-based selection process focuses on four investment factors: value, quality, momentum, and size. Of the four target style factors, value was a significant contributor to the Index s performance relative to the performance of the broad sector market, while size was a meaningful detractor. Momentum contributed modestly, while quality had a negligible impact on relative performance. Although the target style factors made a net positive contribution to relative performance, industry allocation detracted from the Index s performance compared with that of the broad sector market. An underweight allocation in the Index to the capital goods industry, particularly aerospace and defense companies and machinery manufacturers, detracted the most from relative performance. On the positive side, overweight allocations to the airlines and professional services industries contributed to relative performance for the reporting period. ALLOCATION BY SECTOR As of 8/31/17 Percentage of Sector Total Investments* Aerospace & Defense 16.67% Industrial Conglomerates Machinery Road & Rail Commercial Services & Supplies Professional Services 7.10 Air Freight & Logistics 6.64 Construction & Engineering 4.22 Airlines 3.91 Electrical Equipment 3.31 Building Products 3.30 Trading Companies & Distributors 2.56 TEN LARGEST FUND HOLDINGS As of 8/31/17 Percentage of Security Total Investments* General Electric Co. 8.32% Boeing Co. (The) 3.94 Norfolk Southern Corp M Co Eaton Corp. PLC 3.31 Cummins Inc Stanley Black & Decker Inc Parker-Hannifin Corp Waste Connections Inc L3 Technologies Inc TOTAL 38.05% TOTAL % * Excludes money market funds. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 17

18 Management s Discussion of Fund Performance ishares EDGE MSCI MULTIFACTOR MATERIALS ETF Performance as of August 31, 2017 Average Annual Total Returns Cumulative Total Returns NAV MARKET INDEX NAV MARKET INDEX 1 Year 18.22% 16.73% 18.72% 18.22% 16.73% 18.72% Since Inception 18.76% 18.25% 19.22% 25.31% 24.61% 25.82% GROWTH OF $10,000 INVESTMENT (SINCE INCEPTION AT NET ASSET VALUE) $13,000 $12,000 $12,582 $12,531 $11,000 $10,000 $9,000 May 16 Aug 16 Nov 16 Feb 17 May 17 Aug 17 Fund Index The inception date of the Fund was 5/10/16. The first day of secondary market trading was 5/12/16. Past performance is no guarantee of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares. See About Fund Performance on page 24 for more information. Beginning Account Value (3/1/17) Actual Ending Account Value (8/31/17) Expenses Paid During Period a Shareholder Expenses Beginning Account Value (3/1/17) Hypothetical 5% Return Ending Account Value (8/31/17) Expenses Paid During Period a Annualized Expense Ratio $ 1, $ 1, $ 1.82 $ 1, $ 1, $ % a Expenses are calculated using the Fund s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (184 days) and divided by the number of days in the year (365 days). See Shareholder Expenses on page 24 for more information. The ishares Edge MSCI Multifactor Materials ETF (the Fund ) seeks to track the investment results of an index composed of U.S. large- and mid-capitalization stocks in the materials sector that have favorable exposure to target style factors subject to constraints, as represented by the MSCI USA Materials Diversified Multiple-Factor Capped Index (the Index ). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month reporting period ended August 31, 2017, the total return for the Fund was 18.22%, net of fees, while the total return for the Index was 18.72%. The Index s strong return for the reporting period reflected improving global economic growth, which helped drive increased demand for raw materials worldwide and led to higher prices for many commodities. In particular, an economic recovery in China, one of the world s largest consumers of raw materials, provided support for materials stocks ishares A NNUAL R EPORT TO S HAREHOLDERS

19 Management s Discussion of Fund Performance (Continued) ishares EDGE MSCI MULTIFACTOR MATERIALS ETF Within the Index, chemicals companies contributed the most to performance for the reporting period. The industry benefited from growing demand for chemicals across key end-use markets, including the construction, automotive, and electronics industries. Chemicals companies also benefited from increased productivity and strategic acquisitions. Diversified chemicals and specialty chemicals companies were the most significant performance contributors in the industry. Containers and packaging companies were also meaningful contributors to the Index s return for the reporting period, led by the paper packaging industry. Rising containerboard and pulp prices provided a favorable environment for paper packaging stocks, as did increased merger and acquisition activity. Other contributors to the Index s return for the reporting period included metals and mining stocks. Steel producers were the largest contributors among metals and mining stocks as they benefited from a sharp increase in base metals prices, including an increase of nearly 50% in steel prices. Increased global demand for base metals, particularly from China, helped drive the advance in the steel industry. For the reporting period, the Index outperformed the broad sector market, as represented by the MSCI USA Materials Index. The Index s research-based selection process focuses on four investment factors: value, quality, momentum, and size. Of the four target style factors, value and momentum contributed meaningfully to the Index s performance relative to the performance of the broad sector market, while size detracted. Quality had a slightly positive impact on relative performance. Although the target style factors produced a net positive contribution to relative performance, industry allocation detracted from the Index s performance compared with that of the broad sector market. Most notably, an underweight allocation in the Index to copper companies and security selection among gold mining stocks detracted the most from relative performance. On the positive side, overweight allocations in the Index to steel companies and paper packaging producers contributed to relative performance for the reporting period. ALLOCATION BY SECTOR As of 8/31/17 Percentage of Sector Total Investments* Chemicals 70.79% Containers & Packaging Metals & Mining Construction Materials 4.46 TOTAL % TEN LARGEST FUND HOLDINGS As of 8/31/17 Percentage of Security Total Investments* Dow Chemical Co. (The) 11.37% EI du Pont de Nemours & Co LyondellBasell Industries NV Class A 6.97 Sherwin-Williams Co. (The) 6.39 Monsanto Co Celanese Corp. Series A 4.36 WestRock Co Eastman Chemical Co Albemarle Corp Newmont Mining Corp TOTAL 60.68% * Excludes money market funds. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 19

20 Management s Discussion of Fund Performance ishares EDGE MSCI MULTIFACTOR TECHNOLOGY ETF Performance as of August 31, 2017 Average Annual Total Returns Cumulative Total Returns NAV MARKET INDEX NAV MARKET INDEX 1 Year 30.76% 30.05% 31.30% 30.76% 30.05% 31.30% Since Inception 35.87% 35.38% 36.60% 49.52% 48.81% 50.31% GROWTH OF $10,000 INVESTMENT (SINCE INCEPTION AT NET ASSET VALUE) $16,000 $15,000 $14,000 $15,031 $14,952 $13,000 $12,000 $11,000 $10,000 $9,000 May 16 Aug 16 Nov 16 Feb 17 May 17 Aug 17 Fund Index The inception date of the Fund was 5/10/16. The first day of secondary market trading was 5/12/16. Past performance is no guarantee of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares. See About Fund Performance on page 24 for more information. Beginning Account Value (3/1/17) Actual Ending Account Value (8/31/17) Expenses Paid During Period a Shareholder Expenses Beginning Account Value (3/1/17) Hypothetical 5% Return Ending Account Value (8/31/17) Expenses Paid During Period a Annualized Expense Ratio $ 1, $ 1, $ 1.88 $ 1, $ 1, $ % a Expenses are calculated using the Fund s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (184 days) and divided by the number of days in the year (365 days). See Shareholder Expenses on page 24 for more information. The ishares Edge MSCI Multifactor Technology ETF (the Fund ) seeks to track the investment results of an index composed of U.S. large- and mid-capitalization stocks in the information technology sector that have favorable exposure to target style factors subject to constraints, as represented by the MSCI USA Information Technology Diversified Multiple-Factor Capped Index (the Index ). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month reporting period ended August 31, 2017, the total return for the Fund was 30.76%, net of fees, while the total return for the Index was 31.30%. The information technology sector was the best-performing sector in the U.S. stock market during the reporting period. The robust performance of the Index reflected strength among several large, dominant information technology companies with healthy cash ishares A NNUAL R EPORT TO S HAREHOLDERS

21 Management s Discussion of Fund Performance (Continued) ishares EDGE MSCI MULTIFACTOR TECHNOLOGY ETF flow growth, significant market share, and high barriers to entry. However, strong earnings growth across the sector contributed to broadly positive performance for information technology stocks. The software and services industry, the largest industry weight in the Index on average, contributed the most to the Index s return for the reporting period. Systems software companies led the advance in the software and services industry amid developing trends toward cloud computing and cybersecurity software. Internet software and services companies, particularly those involved in social media and online search, were also strong contributors. Technology hardware and equipment stocks also contributed significantly to the Index s return for the reporting period. Growth in mobile devices and other consumer electronics, along with data storage and networking, drove much of the performance in the technology hardware industry. Another meaningful contributor to the Index s return for the reporting period was the semiconductor industry. As new technologies such as cloud computing and artificial intelligence expand, demand for microchips to power servers and data centers has increased significantly. These developments helped drive the strong performance among semiconductor manufacturers. For the reporting period, the Index outperformed the broad sector market, as represented by the MSCI USA Technology Index. The Index s research-based selection process focuses on four investment factors: value, quality, momentum, and size. Of the four target style factors, value and momentum contributed to the Index s performance relative to the performance of the broad sector market, while size detracted. Quality had a negligible impact on relative performance. In addition to the net positive contribution from the target style factors, industry allocation contributed to the Index s performance compared with that of the broad sector market. An overweight allocation in the Index to electronic equipment, instruments, and components companies contributed the most to relative performance. Positioning within the semiconductor industry was also positive for relative performance, while an underweight allocation to the internet software and services industry detracted from relative performance for the reporting period. ALLOCATION BY SECTOR As of 8/31/17 Percentage of Sector Total Investments* Software 24.54% Technology Hardware, Storage & Peripherals Semiconductors & Semiconductor Equipment IT Services Internet Software & Services Electronic Equipment, Instruments & Components 9.90 Communications Equipment 6.14 TOTAL % TEN LARGEST FUND HOLDINGS As of 8/31/17 Percentage of Security Total Investments* Apple Inc % Microsoft Corp Facebook Inc. Class A 5.52 Alphabet Inc. Class C 3.67 Accenture PLC Class A 3.58 Alphabet Inc. Class A 3.50 Applied Materials Inc Micron Technology Inc Lam Research Corp TE Connectivity Ltd TOTAL 49.83% * Excludes money market funds. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 21