Factor Investing with ishares ETFs. is FOR INSTITUTIONAL USE ONLY - NOT FOR PUBLIC DISTRIBUTION

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1 Factor Investing with ishares ETFs

2 Index and Fund Performance as of 9/30/13 Index Name Index Inception Date Dates of Back- Tested Returns 1-Year 5-Year 10-Year ishares ETF Benchmarked to Index MSCI USA Minimum-Volatility Index 6/2/ /01/99-6/2/ % 10.01% 8.62% Y MSCI USA Momentum Index 2/15/ /01/94-2/15/ % 10.25% 9.22% Y MSCI USA Risk Weighted Index 6/28/ /01/79-06/28/ % 12.61% 10.07% Y MSCI USA Value Weighted Index 12/7/ /01/79-12/7/ % 10.85% 7.88% Y MSCI USA Quality Index 12/18/ /01/81-12/18/ % 11.97% 8.71% Y MSCI USA Index 03/31/ % 10.21% 7.76% Y Fund Name Fund Inception Date Total Annual Fund Operating Exp 30-Day SEC Yield (as of 9/30/13) 1-Year 5-Year 10-Year Since Inception ishares MSCI USA Minimum Volatility ETF 10/18/ % 2.57% Fund NAV Total Return 14.57% % Fund Market Price Total Return 14.56% % Index Total Return 14.77% 10.01% 8.62% 17.46% ishares MSCI USA Momentum Factor ETF 4/16/ % 1.65% Fund NAV Total Return % Fund Market Price Total Return % Index Total Return 18.67% 10.25% 9.22% 5.23% ishares MSCI USA Size Factor ETF 4/16/ % 1.97% Fund NAV Total Return % Fund Market Price Total Return % Index Total Return 23.41% 12.61% 10.07% 6.71% ishares MSCI USA Value Factor ETF 4/16/ % 1.97% Fund NAV Total Return % Fund Market Price Total Return % Index Total Return 24.06% 10.85% 7.88% 8.76% ishares MSCI USA Quality Factor ETF 7/16/ % 1.65% Fund NAV Total Return % Fund Market Price Total Return % Index Total Return 14.71% 11.97% 8.71% 1.86% ishares MSCI USA ETF 5/5/ % 1.86% Fund NAV Total Return 19.76% % Fund Market Price Total Return 19.83% % Index Total Return 19.95% 10.21% 7.76% 14.02% The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling toll-free iShares ( ) or by visiting Index returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Data for time periods prior to the index inception date is hypothetical and is provided for informational purposes only to indicate historical performance had the index been available over the relevant time period. Hypothetical data results are based on criteria applied retroactively with the benefit of hindsight and knowledge of factors that may have positively affected its performance, and cannot account for risk factors that may affect the actual fund performance. The actual performance of the various factor ETFs may vary significantly from the hypothetical index performance due to transaction costs, liquidity or other market factors. Index methodology is available upon request. Backtested data is calculated by individual index providers and used in analysis until live index data is available. This analysis uses backtested data from MSCI Inc. 2

3 Agenda 1. Factors Overview 2. Suite of ishares Factors ETFs ishares MSCI USA Factor ETFs ishares Enhanced ETFs ishares Minimum Volatility ETFs 3. Resources & Contacts 4. Appendix 3

4 What are factors and how are they used? What are factors? Factors are investment characteristics that can help explain the risk and return behavior of an asset or stock. Every asset has an unique set of factors that influences its returns. Beta, which measures a stock s sensitivity to broad market movements, is the first identified factor used in the single factor model known as the capital asset pricing model (CAPM). 1 Research has expanded beyond CAPM to identify additional factors - quality, value, size, momentum, and volatility which have historically driven a significant part of companies risk and return over the long term. 2 How are factors used? Portfolio strategies are often built around insights into factors for example, many active managers seek out value stocks (those whose earnings or assets are priced cheaply relative to the market as a whole). Multi-factor strategies may be used to potentially achieve competitive risk-adjusted returns versus the corresponding broad market. Individual factors may be used to help manage exposure and risk within an overall portfolio allocation. Considerations Factors can be challenging to isolate to the exclusion of others in a single product. Incorporating a risk model such as BarraOne, which dissects the drivers of returns for an asset or portfolio, helps to better implement factor exposure. 1 CAPM E(r) = Rf + β(rm Rf) CAPM describes the relationship between a stock s market risk and expected return. CAPM suggests stocks with higher beta are expected to produce higher returns. 2 Source: BlackRock, Global Return Premiums on Earnings Quality, Value, and Size, January 7, 2013, Max Kozlov and Antti Petajisto. 4

5 Some factors may earn a return premium Academic and industry research have identified a number of factors that, over long periods of time, have resulted in outperformance over the broad market. Size Value Volatility Quality Momentum Small Market Cap Low Valuations P/E, P/B Low volatility in stock returns Low variance Earnings Quality Earnings Variability Leverage Positive Historical Price Momentum Size and value are well-documented factors Over the long term: Small caps have traditionally outperformed large caps Value stocks have traditionally outperformed growth stocks More recently, factors such as volatility, quality, and momentum have also been found to influence and enhance returns Over the long term: Low volatility stocks have traditionally outperformed high volatility High quality stocks have traditionally outperformed low quality Momentum may be used tactically to capture returns Source: BlackRock, Global Return Premiums on Earnings Quality, Value, and Size, January 7, 2013, Max Kozlov and Antti Petajisto. 5

6 Factors Can Help Portfolio Diversification Correlations of Active Returns vs. MSCI USA Index Active Returns represent the performance of each respective factor index compared to the MSCI USA Index MSCI USA RISK WEIGHTED INDEX MSCI USA VALUE WEIGHTED INDEX MSCI USA MINIMUM VOLATILITY INDEX MSCI USA QUALITY INDEX MSCI USA MOMENTUM INDEX MSCI USA RISK WEIGHTED INDEX 1.0 MSCI USA VALUE WEIGHTED INDEX MSCI USA MINIMUM VOLATILITY INDEX MSCI USA QUALITY INDEX MSCI USA MOMENTUM INDEX Correlations for the period from Oct Sept 2013 based on simulated gross index returns Active Returns = Excess returns vs. Parent Index Source: MSCI as of Sept 30, MSCI index methodology resources: The index correlations are for illustrative purposes only and do not represent actual ishares Fund Performance. Index performance returns do not reflect any management fees, transaction costs, or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. For more information on the index performance data included in this chart, see page 2. Index inception dates: MSCI USA Risk Weighted Index 6/28/11, MSCI USA Value Weighted Index 12/7/10, MSCI USA Minimum Volatility Index (USD) Index 5/30/08, MSCI USA Quality Index 12/18/12, MSCI USA Momentum Index 2/15/13. Data for time periods prior to the index inception date is hypothetical and is provided for informational purposes only to indicate historical performance had the index been available over the relevant time period. Hypothetical data results are based on criteria applied retroactively with the benefit of hindsight and knowledge of factors that may have positively affected its performance, and cannot account for risk factors that may affect the actual fund performance. The actual performance of the fund may vary significantly from the hypothetical index performance due to transaction costs, liquidity or other market factors. 6

7 Suite of ishares Factor ETFs

8 Ways to invest in factors with ishares ETFs Investors can focus on single factors or use managed multi-factor strategies based on BlackRock expertise ishares MSCI USA Factor ETFs Individual Factors ishares Minimum Volatility ETFs Volatility Focus ishares Enhanced ETFs Active Factor Strategies QUAL ishares MSCI USA Quality Factor ETF USMV ishares MSCI USA Minimum Volatility ETF IELG ishares Enhanced U.S. Large-Cap ETF VLUE ishares MSCI USA Value Factor ETF ACWV ishares MSCI All Country World Minimum Volatility ETF IESM ishares Enhanced U.S. Small-Cap ETF SIZE ishares MSCI USA Size Factor ETF EFAV ishares MSCI EAFE Minimum Volatility ETF MTUM ishares MSCI USA Momentum Factor ETF EEMV ishares MSCI Emerging Markets Minimum Volatility ETF Index-based exposure to specific factors value, size, and momentum -- for targeted access MSCI index methodology overweights desired factor exposure using Barra factor principles Use within asset allocation strategy to help manage exposure and risk Broad, diversified market exposure based on indices that aim for reduced volatility MSCI index methodology designed to overweight low volatility stocks and underweight high volatility stocks while preserving diversification of parent index Use to help reduce overall equity risk in a portfolio while retaining equity exposures Seek to provide competitive longterm risk-adjusted returns relative to broad US large- and small-cap stocks Based on BlackRock insights on the combination of quality, value and size factors Use for long-term strategic allocations 8

9 ishares MSCI USA Factor ETFs Index-based access to individual factors

10 ishares MSCI USA Factors ETFs Factor Quality Value Size Momentum Fund Name ishares MSCI USA Quality Factor ETF ishares MSCI USA Value Factor ETF ishares MSCI USA Size Factor ETF ishares MSCI USA Momentum Factor ETF MSCI USA (parent index) ishares MSCI USA ETF Ticker QUAL VLUE SIZE MTUM EUSA Bloomberg Index Ticker M2USQU M2USVWGT M2USRWGT M2US000$ GDDUUS Fund Expense Ratio 0.15% 0.15% 0.15% 0.15% 0.15% Fund Inception Date 7/16/13 4/16/13 4/16/13 4/16/13 5/5/10 Asset Under Management (as of 9/30/13) $161.1 M $115.7 M $116.9 M $133.3 M $194.6 M Exposure U.S. large and mid-cap quality stocks based on fundamentals (high return on equity, stable year-overyear earnings growth and low financial leverage) U.S. large and mid-cap stocks with lower valuations based on fundamentals U.S. large and mid-cap stocks with a focus on smaller, lower risk companies U.S. large and mid-cap stocks with positive price momentum U.S. large and mid-cap stocks Index Name MSCI USA Quality Index MSCI USA Value Weighted Index MSCI USA Risk Weighted Index MSCI USA Momentum Index MSCI USA Index Top Barra Factor Exposure Leverage and Earnings Variability Value Size Momentum Constituents Subset of parent index (approximately at 125 stocks) Parent index reweighted Parent index reweighted Subset of parent index (approximately at 125 stocks) 600 holdings Index Rebalance Semi-annual Semi-annual Semi-annual Semi-annual Semi-annual Source: BlackRock and MSC as of 9/30/13. 10

11 ishares MSCI USA Factor ETFs: Index Methodology Summary Parent Universe: MSCI USA Index Return on Equity, Debt-to-Equity and Earnings Variability are calculated for each stock and are then winsorized (limit extreme values). The stock s three fundamental variables (above) are then compared to the avg. of the MSCI USA Index using the Z- score 1 method. These Z-scores are then averaged to create the stock s Quality Z-score. Each stock s value weight is calculated across four singlevalue ratios 2 : Cash earnings Earnings Book Value Sales Single value ratios are calculated as the stock's measure divided by the sum of all parent measures. Each stock s volatility (annualized standard deviation) is calculated based on three years of weekly returns and capped between 12% and 80%. Each stock s contribution to riskreduction is evaluated, using the inverse value of variance. These scores are summed across the starting universe (MSCI USA Index). Each stock s 6 month and 12 month risk-adjusted excess returns are calculated. 3 The 6 and 12 month risk-adjusted returns are compared to the averages for the parent index: The resulting Z-scores are averaged, producing the stock s Momentum score 4. Each stock s Quality score is then multiplied by each stock s original market cap weight to determine final index weights. The stock s final index weight is calculated as the average of the four single-value ratios. Each stock s inverse of variance is divided by the sum across the index, creating individual stock weights. Momentum scores are normalized, approximately 125 are selected and multiplied by each stock s market cap weight to determine final index weights. 5 MSCI USA Quality Index MSCI USA Value Weighted Index MSCI USA Risk Weighted Index MSCI USA Momentum Index 1 Z-scores measure how far above average a stock s fundamental variable is versus the MSCI USA Index. 2 Value ratios adjusted for firms with missing metrics. Cash Earnings, Earnings and Sales ratios are based on the average of the previous three reported fiscal year-end cash earnings, earnings and sales values. Book Value based on the last reported book value. 3 Excess return = Return minus the risk-free (3-month T-bill) yield as of rebalance date. 4 Z-scores measure how far above average a stock s 6 and 12 month excess returns compare to the MSCI USA Index. Risk-adjusted Momentum Score = excess return / annualized volatility. Annualized volatility = annualized standard deviation of weekly returns over three years. 5 Final weights capped at 5%. See MSCI s MSCI USA Momentum Index Methodology document for additional details. 11

12 1. VLUE (ishares MSCI USA Value Factor ETF) Index-based access to individual factors

13 ishares MSCI USA Value Factor ETF: Holdings example OBJECTIVE: Exposure to US large and mid-cap stocks with higher value characteristics TWC Index Weighting Example 1 1. Starting universe is the MSCI USA Index. TWC in MSCI USA Index: Cap. Weighted = 0.22% 2. Each MSCI USA Index stock s value weight is calculated across four single-value ratios 1 : Cash Earnings Earnings Book Value Sales TWC Cash Earnings: $4.6 / $1,213.1 = 0.34% TWC Earnings: $1.5 / $827.7 = 0.19% TWC Book Value: $7.5 / $6,040.9 = 0.12% TWC Sales: $19.3 / $8,933.0 = 0.22% 3. The stock s weight in the MSCI USA Value Weighted Index is calculated as the equal-weighted average of the four singlevalue ratios. MSCI USA Value Weighted Index holdings are rebalanced semi-annually. TWC Final Weight: (0.34% % % %) / 4 = 0.21% 1 Cash Earnings = stock s measure / sum of all parent measures. Average of the previous three reported fiscal year-end cash earnings values. Earnings = stock s measure / sum of all parent measures. Average of the previous three reported fiscal year-end earnings values. Book Value = stock s measure / sum of all parent measures. Based on last reported book value. Sales = stock s measure / sum of all parent measures. Average of the previous three reported fiscal year-end sales values. Value ratios adjusted for firms with missing metrics. 1 Source: MSCI as of 3/20/13. TWC is the ticker symbol for Time Warner Cable, Inc. Information on TWC is provided strictly for illustrative purposes and should not be deemed an offer to sell or a solicitation of an offer to buy shares of any securities, other than the ishares Funds, that are described in this material. This example is an illustration of the index methodology, and does not represent actual Fund portfolio management. The index methodology is not a recommendation of any security or asset allocation plan. 13

14 MSCI Value-Weighted Barra Factor Exposure Average Current Active Exposures MOMENTUM VOLATIL VALUE SIZE SIZENONL GROWTH LIQUID LEVERAGE Source: MSCI, May 1999-Sept MSCI index methodology resources: Active Exposures = Represented by a z-score relative to their estimation universe. Z-scores are standardized to have a mean of 0 and a standard deviation of 1. Index returns are for illustrative purposes only and do not represent actual ishares Fund performance. Index performance returns do not reflect any management fees, transaction costs, or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. Index inception dates: MSCI USA Value Weighted Index 12/7/10. Data for time periods prior to the index inception date is hypothetical and is provided for informational purposes only to indicate historical performance had the index been available over the relevant time period. Hypothetical data results are based on criteria applied retroactively with the benefit of hindsight and knowledge of factors that may have positively affected its performance, and cannot account for risk factors that may affect the actual fund performance. The actual performance of the fund may vary significantly from the hypothetical index performance due to transaction costs, liquidity or other market factors. 14

15 MSCI USA Value-Weighted Index Performance % Total Return (%) YTD 1 Yr Annlzd 3 Yr Annlzd 5 Yr Annlzd 10 Yr Annlzd 15 Yr MSCI USA Value-Weighted Index MSCI USA Index Sharpe Ratios Sharpe Ratio 1 Yr Sharpe Ratio 3 Yr Sharpe Ratio 5 Yr Sharpe Ratio 10 Yr MSCI USA Value-Weighted Index MSCI USA Index Beta yr Beta 3 yr Beta 5 yr Beta 10 yr Beta MSCI USA Value-Weighted Index MSCI USA Index Source: MSCI and Morningstar Direct as of 09/30/13. MSCI index methodology resources: Index returns are for illustrative purposes only and do not represent actual ishares Fund performance. Index performance returns do not reflect any management fees, transaction costs, or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. Index inception dates: MSCI USA Value Weighted Index 12/7/10. Data for time periods prior to the index inception date is hypothetical and is provided for informational purposes only to indicate historical performance had the index been available over the relevant time period. Hypothetical data results are based on criteria applied retroactively with the benefit of hindsight and knowledge of factors that may have positively affected its performance, and cannot account for risk factors that may affect the actual fund performance. The actual performance of the fund may vary significantly from the hypothetical index performance due to transaction costs, liquidity or other market factors. 15

16 MSCI Value-Weighted: Sector and Stock Weights vs. Standard Indices Telecom Services Materials Utilities Industrials Energy Relative Sector Weights MSCI Value-Weighted vs. MSCI USA As of 9/30/13 MSCI USA -0.1% -1.0% 0.0% 0.6% 3.5% MSCI USA Value- Weighted Information Technology 18.4% 14.5% Financials 16.0% 21.4% Consumer Discretionary 13.1% 11.6% Health Care 12.7% 10.7% Energy 10.5% 13.9% Industrials 10.4% 9.5% Consumer Staples 9.8% 8.7% Materials 3.5% 3.4% Utilities 3.1% 3.7% Telecom Services 2.5% 2.5% Weighted Avg. Market Cap ($M) 96, ,170 Consumer Staples Consumer Discretionary Health Care Financials Information Technology -3.9% -1.5% -2.1% -1.1% -7.00% -2.00% 3.00% 5.4% Top 10 MSCI Value-Weighted Index Weight MSCI USA Exxon Mobil 3.55% 2.42% Chevron 2.38% 1.49% Apple 2.27% 2.83% JPMorgan Chase 2.25% 1.23% Wells Fargo 1.95% 1.31% Bank of America 1.68% 0.94% General Electric 1.65% 1.56% Citigroup 1.60% 0.93% Microsoft 1.38% 1.67% AT&T 1.36% 1.15% Total 20.06% 15.52% MSCI Value- Top 10 MSCI USA Index Weight Weighted Index Apple 2.83% 2.27% Exxon Mobil 2.42% 3.55% Microsoft 1.67% 1.38% General Electric 1.56% 1.65% Johnson & Johnson 1.54% 1.00% Google 1.50% 0.67% Chevron 1.49% 2.38% Wells Fargo 1.31% 1.95% Procter & Gamble 1.31% 0.98% JPMorgan Chase 1.23% 2.25% Total 16.85% 18.08% Source: MSCI, 9/30/13. 16

17 2. SIZE (ishares MSCI USA Size Factor ETF) Index-based access to individual factors

18 ishares MSCI USA Size Factor ETF: Holdings example OBJECTIVE: Exposure to US large and mid-cap stocks with smaller capitalization and lower risk TWC Index Weighting Example 2 1. Starting universe is the MSCI USA Index. TWC in MSCI USA Index: Cap. Weighted = 0.22% 2. Each MSCI USA Index stock s volatility (annualized standard deviation) is calculated based on three years of weekly returns) and capped between 12% and 80%. Using volatility as a driver of weighting and capping the range between 12% and 80% - provides a smallercapitalization bias relative to market-cap weighting. TWC Annualized Volatility: 25.9% 3. Each stock s contribution to risk-reduction is evaluated, using the inverse value of variance. These scores are summed across the starting universe (MSCI USA Index). TWC Inverse of Variance: 1 / (25.9%^2) = 14.9 Inverse of Variance (MSCI USA) = 9, Each stock s inverse of variance is divided by the sum across the index, creating individual stock weights. MSCI USA Risk Weighted Index holdings are rebalanced semi-annually. TWC Weight = 14.9 / = 0.16% 2 Source: MSCI as of 3/20/13. TWC is the ticker symbol for Time Warner Cable, Inc. Information on TWC is provided strictly for illustrative purposes and should not be deemed an offer to sell or a solicitation of an offer to buy shares of any securities other than the ishares Funds, that are described in this material. This example is an illustration of the index methodology, and does not represent actual Fund portfolio management. The index methodology is not a recommendation of any security or asset allocation plan. 18

19 MSCI Risk-Weighted Barra Factor Exposure Average Current Active Exposure MOMENTUM VOLATIL VALUE SIZE SIZENONL GROWTH LIQUID LEVERAGE Source: MSCI, May 1999 May MSCI index methodology resources: Active Exposures = Represented by a z-score relative to their estimation universe. Z-scores are standardized to have a mean of 0 and a standard deviation of 1. Index returns are for illustrative purposes only and do not represent actual ishares Fund performance. Index performance returns do not reflect any management fees, transaction costs, or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. Index inception dates: MSCI USA Risk Weighted Index 6/28/11. Data for time periods prior to the index inception date is hypothetical and is provided for informational purposes only to indicate historical performance had the index been available over the relevant time period. Hypothetical data results are based on criteria applied retroactively with the benefit of hindsight and knowledge of factors that may have positively affected its performance, and cannot account for risk factors that may affect the actual fund performance. The actual performance of the fund may vary significantly from the hypothetical index performance due to transaction costs, liquidity or other market factors. 19

20 MSCI USA Risk-Weighted Index Performance % Total Return (%) Total Ret YTD Total Ret 1 Yr Total Ret Annlzd 3 Yr Total Ret Annlzd 5 Yr Total Ret Annlzd 10 Yr Total Ret Annlzd 15 Yr MSCI USA Risk-Weighted Index MSCI USA Index Sharpe Ratios Sharpe Ratio 1 Yr Sharpe Ratio 3 Yr Sharpe Ratio 5 Yr Sharpe Ratio 10 Yr MSCI USA Risk-Weighted Index MSCI USA Index Source: MSCI and Morningstar Direct as of 9/30/13. MSCI index methodology resources: Beta yr Beta 3 yr Beta 5 yr Beta 10 yr Beta MSCI USA Risk-Weighted Index MSCI USA Index Index returns are for illustrative purposes only and do not represent actual ishares Fund performance. Index performance returns do not reflect any management fees, transaction costs, or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. Index inception dates: MSCI USA Risk Weighted Index 6/28/11. Data for time periods prior to the index inception date is hypothetical and is provided for informational purposes only to indicate historical performance had the index been available over the relevant time period. Hypothetical data results are based on criteria applied retroactively with the benefit of hindsight and knowledge of factors that may have positively affected its performance, and cannot account for risk factors that may affect the actual fund performance. The actual performance of the fund may vary significantly from the hypothetical index performance due to transaction costs, liquidity or other market factors. 20

21 MSCI Risk-Weighted: Sector and Stock Weights vs. Standard Indices Telecom Services Materials Utilities Relative Sector Weights MSCI Risk-Weighted vs. MSCI USA -0.7% 1.2% 9.6% As of 9/30/13 MSCI USA MSCI Risk- Weighted Information Technology 18.4% 10.3% Financials 16.0% 17.6% Consumer Discretionary 13.1% 13.1% Health Care 12.7% 11.7% Energy 10.5% 4.9% Industrials 10.4% 10.8% Consumer Staples 9.8% 12.6% Materials 3.5% 4.7% Utilities 3.1% 12.7% Telecom Services 2.5% 1.72% Industrials Energy -5.6% 0.4% Weighted Avg. Market Cap ($M) 96,382 13,903 Consumer Staples Consumer Discretionary Health Care Financials Information Technology Source: MSCI, 9/30/ % -1.1% 0.0% 2.8% 1.6% % -5.00% 5.00% 15.00% MSCI Risk-Weighted Index Weight MSCI USA Pepsico 0.62% 0.78% Southern Co. 0.59% 0.23% Johnson & Johnson 0.58% 1.54% Dominion Resources 0.58% 0.23% Wisconsin Energy Group 0.56% 0.06% Kimberly-Clark Corp 0.55% 0.23% Consolidated Edison 0.54% 0.10% General Mills 0.54% 0.20% Duke Energy Corp 0.52% 0.30% Xcel Energy 0.51% 0.09% Total 5.60% 3.74% MSCI Risk- Top 10 MSCI USA Index Weight Weighted Index Apple 2.83% 0.11% Exxon Mobil 2.42% 0.25% Microsoft 1.67% 0.20% General Electric 1.56% 0.16% Johnson & Johnson 1.54% 0.58% Google 1.50% 0.13% Chevron 1.49% 0.21% Wells Fargo 1.31% 0.13% Procter & Gamble 1.31% 0.47% JPMorgan Chase 1.23% 0.10% Total 16.85% 2.35% 21

22 3. MTUM (ishares MSCI USA Momentum Factor ETF) Index-based access to individual factors

23 ishares MSCI USA Momentum Factor ETF: Holdings example OBJECTIVE: Exposure to US large and mid-cap stocks with positive price momentum 1. Starting universe is the MSCI USA Index. TWC Index Weighting Example 3 TWC in MSCI USA Index: Cap. Weighted = 0.22% 2. Each MSCI USA Index stock s 6 month and 12 month riskadjusted excess returns are calculated 1 (e.g. price momentum/3-year annualized volatility). TWC 6 mo. risk-adjusted excess return: 23.1%/25.8%=0.89 TWC 12 mo. risk-adjusted excess return: 55.5%/25.8%= The stock s 6 month and 12 month risk-adjusted excess returns are compared to the averages for the MSCI USA index using the Z-score. The resulting Z-scores are averaged, producing the stock s Momentum Score After Momentum scores are normalized, stocks are selected to represent approximately 30% of the market cap of the parent index (currently 125 stocks). From there, each stock s momentum score is multiplied by each stock s capitalization weight to create individual stock weights. 3 MSCI USA Momentum Index holdings are rebalanced semi-annually. 1 Excess return = return minus the risk-free (3-month T-bill) yield as of rebalance date. 2 Z-scores measure how far above average a stock s 6 and 12 month risk-adjusted excess returns compare to the MSCI USA Index. Risk-adjusted momentum score = excess return / annualized volatility. Annualized volatility = annualized standard deviation of weekly returns over three years. 3 Final weights capped at 5%. See MSCI s MSCI USA Momentum Index Methodology document for additional details. TWC 6 Mo. Momentum Z-score : (0.89-Avg. risk-adjusted excess return of USA stocks.) /Std. Dev. of risk-adjusted excess return of USA stocks = 1.81 TWC 12 Mo. Momentum Z-score : (2.15-Avg. risk-adjusted excess return of USA stocks.) / Std. Dev. of risk-adjusted excess return of USA stocks = 1.99 Momentum Score (avg. of 6 and 12-mth Z-scores) = 1.90 TWC Final Weight: 1.11% 3 Source: MSCI as of 3/20/13. TWC is the ticker symbol for Time Warner Cable, Inc. Information on TWC is provided strictly for illustrative purposes and should not be deemed an offer to sell or a solicitation of an offer to buy shares of any securities other than the ishares Funds, that are described in this material. This example is an illustration of the index methodology, and does not represent actual Fund portfolio management. The index methodology is not a recommendation of any security or asset allocation plan. 23

24 MSCI Momentum Barra Factor Exposure Average Current Active Exposure MOMENTUM VOLATIL VALUE SIZE SIZENONL GROWTH LIQUID LEVERAGE Source: MSCI, May 1999-May MSCI index methodology resources: Active Exposures = Represented by a z-score relative to their estimation universe. Z-scores are standardized to have a mean of 0 and a standard deviation of 1. Index returns are for illustrative purposes only and do not represent actual ishares Fund performance. Index performance returns do not reflect any management fees, transaction costs, or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. Index inception dates: MSCI USA Momentum Index 2/15/13. Data for time periods prior to the index inception date is hypothetical and is provided for informational purposes only to indicate historical performance had the index been available over the relevant time period. Hypothetical data results are based on criteria applied retroactively with the benefit of hindsight and knowledge of factors that may have positively affected its performance, and cannot account for risk factors that may affect the actual fund performance. The actual performance of the fund may vary significantly from the hypothetical index performance due to transaction costs, liquidity or other market factors. 24

25 MSCI USA Momentum Index Performance % Total Return (%) Total Ret YTD Total Ret 1 Yr Total Ret Annlzd 3 Yr Total Ret Annlzd 5 Yr Total Ret Annlzd 10 Total Ret Annlzd 15 Yr Yr MSCI Momentum Index Sharpe Ratios Sharpe Ratio 1 Yr Sharpe Ratio 3 Yr Sharpe Ratio 5 Yr Sharpe Ratio 10 Yr MSCI Momentum Index MSCI USA Index MSCI USA Index Beta 1 yr Beta 3 yr Beta 5 yr Beta 10 yr Beta MSCI Momentum Index Source: MSCI and Morningstar Direct as of 9/30/13. MSCI index methodology resources: MSCI USA Index Index returns are for illustrative purposes only and do not represent actual ishares Fund performance. Index performance returns do not reflect any management fees, transaction costs, or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. Index inception dates: MSCI USA Momentum Index 2/15/13. Data for time periods prior to the index inception date is hypothetical and is provided for informational purposes only to indicate historical performance had the index been available over the relevant time period. Hypothetical data results are based on criteria applied retroactively with the benefit of hindsight and knowledge of factors that may have positively affected its performance, and cannot account for risk factors that may affect the actual fund performance. The actual performance of the fund may vary significantly from the hypothetical index performance due to transaction costs, liquidity or other market factors. 25

26 MSCI Momentum: Sector and Stock Weights vs. Standard Indices Telecom Services Materials Utilities Industrials Relative Sector Weights MSCI Momentum vs. MSCI USA -9.4% -0.7% 2.8% 1.6% As of 9/30/13 MSCI USA MSCI Momentum Index Information Technology 18.4% 5.7% Financials 16.0% 9.7% Consumer Discretionary 13.1% 14.7% Health Care 12.7% 29.8% Energy 10.5% 1.4% Industrials 10.4% 1% Consumer Staples 9.8% 25.1% Materials 3.5% 2.7% Utilities 3.1% 4.7% Telecom Services 2.5% 5.2% Weighted Avg. Market Cap ($M) 96, ,711 Energy -9.1% Consumer Staples Consumer Discretionary Health Care Financials Information -12.8% Technology Source: MSCI, 9/30/ % 1.6% %-11.00%-6.00% -1.00% 4.00% 9.00% 14.00% 15.3% 17.1% MSCI Momentum Index Weight MSCI USA Johnson & Johnson 5.00% 1.54% Gilead Sciences 4.72% 0.61% Verizon Communications 4.27% 0.84% Pepsico 4.05% 0.78% Pfizer 3.99% 1.19% Proctor & Gamble 3.95% 1.31% Berkshire Hathway B 3.51% 0.77% Celgene Corp 3.16% 0.41% Disney (Walt) 3.11% 0.70% Biogen Idec 2.55% 0.36% Total 38.32% 8.49% MSCI Top 10 MSCI USA Index Weight Momentum Index Apple 2.83% 0.0% Exxon Mobil 2.42% 0.0% Microsoft 1.67% 0.0% General Electric 1.56% 0.0% Johnson & Johnson 1.54% 5.00% Google 1.50% 0.0% Chevron 1.49% 0.0% Wells Fargo 1.31% 0.0% Procter & Gamble 1.31% 3.95% JPMorgan Chase 1.23% 0.0% Total 16.85% 8.95% 26

27 4. QUAL (ishares MSCI USA Quality Factor ETF) Index-based access to individual factors

28 ishares MSCI USA Quality Factor ETF: Holdings example OBJECTIVE: Exposure to US large and mid-cap stocks that are of high quality. MSFT Index Weighting Example 4 1. Starting universe is the MSCI USA Index. 2. Three fundamental variables are calculated for each stock in the MSCI USA Index: ROE, Debt-to-Equity, and Earnings Variability. These measures are winsorized (e.g. limit extreme values). ROE = trailing 12-mo. earnings per share/latest book value per share Debt/Equity = latest total debt / book value Earnings Variability = Std. Dev. of year-over-year earnings per share growth over last 5 years. 3. The stock s three fundamental variables are then compared to the averages of the MSCI USA Index using the Z-score 1 method. The Z-scores of the 3 fundamental variables are then averaged to create the stock s Quality Z-score. 4. After Quality scores are normalized, stocks are selected to represent approximately 30% of the market cap of the parent index (currently 125 stocks). These stocks are included in the MSCI Quality Index. 5. From there, each stock s Quality score is multiplied by each stock s capitalization weight to create individual stock weights. 2 1 Z-scores measure how far above average a stock s fundamental variable is versus the MSCI USA Index.. 2 Final weights capped at 5%. See MSCI s MSCI USA Momentum Index Methodology document for additional details. MSFT in MSCI USA Index: Cap. Weighted = 1.54% Calculate winsorized fundamental variables: 1. MSFT ROE = MSFT Debt/Equity = MSFT Earnings Variability = 0.22 Calculate Quality Z-score: 1. MSFT ROE z-score: ( Avg. ROE of USA stocks)/std. Dev. of ROE of USA stocks = MSFT Debt/Equity z-score: ( Avg. debt/equity of USA stocks)/std. Dev. of debt/equity of USA stocks = MSFT Earnings Variability z-score: ( Avg. Earnings Var of USA stocks)/std. Dev. of Earnings Var of USA stocks)= 0.55 MSFT Quality Z-Score = ( )/3 = 0.92 MSFT Weight = 5% 4 Source: MSCI as of 3/20/13. MSFT is the ticker for Microsoft Corporation. Information on MSFT is provided strictly for illustrative purposes and should not be deemed an offer to sell or a solicitation of an offer to buy shares of any securities other than the ishares Funds, that are described in this material. This example is an illustration of the index methodology, and does not represent actual Fund portfolio management. The index methodology is not a recommendation of any security or asset allocation plan. 28

29 MSCI USA Quality Barra Factor Exposure & Performance Active Exposure Source: MSCI, May 1999-May MSCI index methodology resources: Active Exposures = Represented by a z-score relative to their estimation universe. Z-scores are standardized to have a mean of 0 and a standard deviation of 1 Index returns are for illustrative purposes only and do not represent actual ishares Fund performance. Index performance returns do not reflect any management fees, transaction costs, or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. Index inception dates:, MSCI USA Quality Index 2/18/2012. Data for time periods prior to the index inception date is hypothetical and is provided for informational purposes only to indicate historical performance had the index been available over the relevant time period. Hypothetical data results are based on criteria applied retroactively with the benefit of hindsight and knowledge of factors that may have positively affected its performance, and cannot account for risk factors that may affect the actual fund performance. The actual performance of the fund may vary significantly from the hypothetical index performance due to transaction costs, liquidity or other market factors. 29

30 MSCI USA Quality Index Performance % Total Return (%) Total Ret YTD Total Ret 1 Yr Total Ret Annlzd 3 Yr Total Ret Annlzd 5 Yr Total Ret Annlzd 10 Yr Total Ret Annlzd 15 Yr MSCI USA Quality MSCI USA Index Sharpe Ratios Beta Sharpe Ratio 1 Yr Sharpe Ratio 3 Yr Sharpe Ratio 5 Yr Sharpe Ratio 10 Yr MSCI USA Risk-Weighted Index MSCI USA Index Source: MSCI and Morningstar Direct as of 9/30/13. MSCI index methodology resources: yr Beta 3 yr Beta 5 yr Beta 10 yr Beta MSCI USA Quality MSCI USA Index Index returns are for illustrative purposes only and do not represent actual ishares Fund performance. Index performance returns do not reflect any management fees, transaction costs, or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. Index inception dates:, MSCI USA Quality Index 2/18/2012. Data for time periods prior to the index inception date is hypothetical and is provided for informational purposes only to indicate historical performance had the index been available over the relevant time period. Hypothetical data results are based on criteria applied retroactively with the benefit of hindsight and knowledge of factors that may have positively affected its performance, and cannot account for risk factors that may affect the actual fund performance. The actual performance of the fund may vary significantly from the hypothetical index performance due to transaction costs, liquidity or other market factors. 30

31 MSCI USA Quality: Sector and Stock Weights vs. Standard Indices Telecom Services Materials Utilities Industrials Energy Relative Sector Weights MSCI USA Quality vs. MSCI USA As of 9/30/13 MSCI USA MSCI USA Quality Index Information Technology 18.4% 37.9% -2.5% Financials 16.0% 1.6% Consumer Discretionary 13.1% 20.5% Health Care 12.7% 10.7% -0.7% Energy 10.5% 12.1% Industrials 10.4% 8.5% Consumer Staples 9.8% 6.0% -3.1% Materials 3.5% 2.7% Utilities 3.1% 0.0% Telecom Services 2.5% 0.0% -1.9% Weighted Avg. Market Cap ($M) 96, , % Consumer Staples Consumer Discretionary Health Care Financials Information Technology -14.4% -3.8% -2.0% 7.3% 19.4% % % 0.00% 10.00% 20.00% MSCI Quality Index Weight MSCI USA Apple 5.42% 2.83% Google 4.90% 1.50% Chevron Corp 4.82% 1.49% Microsoft Corp 4.77% 1.67% Exxon Mobil Corp 4.60% 2.42% IBM 4.42% 1.23% Oracle 2.88% 0.79% Qualcomm 2.51% 0.73% Home Depot 2.49% 0.70% McDonald s 2.43% 0.61% Total 39.23% 13.96% MSCI USA Top 10 MSCI USA Index Weight Quality Index Apple 2.83% 5.42% Exxon Mobil 2.42% 4.60% Microsoft 1.67% 4.77% General Electric 1.56% 0.00% Johnson & Johnson 1.54% 0.00% Google 1.50% 4.90% Chevron 1.49% 4.82% Wells Fargo 1.31% 0.00% Procter & Gamble 1.31% 0.00% JPMorgan Chase 1.23% 0.00% Total 16.85% 24.51% Source: MSCI, 9/30/13. 31

32 Example Use Cases Index-based access to individual factors

33 Sample Use Case: Adjusting Factor Exposures Individual factor exposures may be used to hedge specific portfolio risks or potentially capture available risk premia ishares MSCI USA Factor ETFs focus on providing liquid exposure to the most common equity style risk factors MOMENTUM Use ishares MSCI USA Momentum Factor ETF (MTUM) to adjust tactical exposure VOLATILITY Use ishares MSCI USA Minimum Volatility ETF (USMV) to adjust tactical exposure Use ishares MSCI USA Size Factor ETF (SIZE) to adjust tactical exposure SIZE Use ishares MSCI USA Quality Factor ETF (QUAL) to adjust tactical exposure VALUE Use ishares MSCI USA Value Factor ETF (VLUE) to adjust tactical exposure Source: BlackRock. The strategies discussed are strictly for illustrative purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. There is no guarantee that any strategies discussed will be effective. is FOR INSTITUTIONAL USE ONLY - NOT FOR PUBLIC DISTRIBUTION 33

34 ishares Enhanced ETFs Multi-factor strategies

35 ishares Enhanced ETFs Factors: Quality, Value and Size Fund Name ishares Enhanced U.S. Large-Cap ETF ishares Enhanced U.S. Small-Cap ETF Ticker IELG IESM Fund Expense Ratio 0.18% 0.35% Fund Inception Date 4/16/13 4/16/13 Asset Under Management (as of 9/30/13) Exposure $25.4m Seeks to provide competitive long-term risk-adjusted returns relative to broad US large-cap stocks Based on BlackRock insights on the combination of quality, value and size factors $2.9m Seeks to provide competitive long-term risk-adjusted returns relative to broad US small-cap stocks Based on BlackRock insights on the combination of quality, value and size factors Management Style Active Active Investment Process Research-based investment process that combines quality, value, and size factors, overweights factors with higher average returns, accounts for correlation between factors, and minimizes portfolio risk Research-based investment process that combines quality, value, and size factors, overweights factors with higher average returns, accounts for correlation between factors, and minimizes portfolio risk Source: BlackRock as of 9/30/13 35

36 ishares Enhanced ETFs: Investment process The ishares Enhanced ETFs employ a research-based investment process to combine quality, value, and size factors, overweighting factors with higher average returns, accounting for correlation between factors and seeking to minimize portfolio risk. Factors and measures ishares portfolio managers use, but are not limited to, the following metrics to define the three exposures Quality Value Size Cash earnings, leverage and earnings volatility Earnings yield and book-to-market ratios Market capitalization Weighting constraints ishares portfolio managers apply weighting constraints relative to capweighted index (i.e. Russell 1000 or Russell 2000) Sector Industry Individual stocks Limit weights to sectors, industries and stocks to avoid excessive concentration and ensure the ETFs are appropriately diversified On-going research and implementation ishares portfolio managers have discretion to adjust portfolio allocations as needed. Internal Investment Committee (governs the model and portfolio management) meets on a quarterly basis. Factor definitions Factor allocations Continuing research Does NOT stock pick Review and update metrics used to define exposure characteristics Review and determine the optimal allocation across the earnings quality, value and size exposures Incorporate new research and practices as it affects models, portfolio management and implementation Portfolio management does not use its discretion to make bets on individual stocks, specific sectors or specific industries 36

37 Size Value Enhanced Quality ishares Enhanced ETFs: Investment Process Seeks to provide competitive long-term risk-adjusted returns relative to broad U.S. large-cap or U.S. small-cap stocks Based on BlackRock insights on the combination of quality, value and size factors combined with minimum volatility Rank Each company across each factor Combine rankings into a single score Portfolio Construction combines factors and sets constraints and adds minimum volatility/antibeta elements 4 ishares Enhanced Investment Universe Final Portfolio Maximize diversification and manage risk Constrain sector, industry and individual stock weights Tilt toward higher quality, undervalued, smaller names Image credit: FreeDigitalPhotos.net

38 Appendix

39 What drives investment performance? Decades of factors research & innovation, BlackRock a key contributor 1934 Graham, Dodd Value investing 1971 Wells Fargo creates first 1952 index fund Markowitz Diversification, risk 1976 Ross Multiple drivers of expected returns 1979 Barclays Global Investors (now BlackRock) creates first known computer program to identify stocks with higher dividend yields 1985 Rosenberg, Reid, Lanstein Book/price and specific-returnreversal strategies 1994 Grinold, Kahn Applying factors and science with systematic investment process 2000s BlackRock is first to add earnings quality in 2000 (prior to Enron, Tyco, Worldcom, Imclone etc.) 2012 Kozlov, Petajisto Earnings quality enhances value, size strategies 1964 Sharpe Market or beta 1974 Barr Rosenberg Style & industry characteristics, founds Barra 1984 Russell 2000 index to measure small cap stock performance 1992 Fama, French Value and size factors 1980s BlackRock offers products with simple tilts toward fundamental value (P/B, P/E etc.) and other generic drivers of stock returns 1996 Sloan Accruals vs. cash flow in earnings 2011 Beckers, Thomas Style overlays enhance returns 39

40 Contacts MA-MPS Contact: Mark Carver, Investment Strategist is

41 Carefully consider the ishares Funds investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds prospectuses, which may be obtained by calling iShares ( ) or by visiting Read the prospectus carefully before investing. Investing involves risk, including possible loss of principal. Holdings are as of the date indicated and are subject to change. Information on securities listed is provided strictly for illustrative purposes and should not be deemed an offer to sell or solicitation of an offer to buy shares of any securities, other than the ishares Funds, that are described in this material. Risk Related to ishares Enhanced ETFs: The Fund does not seek to replicate the performance of a specific index. The Fund may have higher turnover than funds that replicate an index. The Fund seeks to provide exposure to US large-and-small-capitalization stocks that emphasize certain quantitative investment characteristics, including, but not limited to, cash earnings, earnings variability, leverage, price-to-book ratio and market capitalization. There can be no assurance that exposure to such investment factors will enhance the Fund s performance over time. It is expected that exposure to such investment factors will detract from performance in some market environments, perhaps for extended periods. In such circumstances the Fund s investment process will seek to maintain exposure to the targeted investment factors and will not adjust to target different factors. Investments in smaller companies may exhibit higher volatility. Risks Related to ishares Factor ETFs: In addition to the normal risks associated with investing, narrowly focused investments may exhibit higher volatility. Stocks that previously exhibited high momentum may not experience continued positive momentum or may experience more volatility than the market as a whole. Value securities are those issued by companies that may be perceived as undervalued. Value securities may fail to appreciate for long periods of time and may never realize their full potential value. The value of the securities in the ishares MSCI USA Size ETF s portfolio may fluctuate, sometimes rapidly and unpredictably. The value of a security may fluctuate due to factors affecting markets generally or particular industries. Securities in the ishares MSCI USA Size ETF s portfolio may be subject to price volatility and the prices may not be any less volatile than the market as a whole and could be more volatile. The index underlying ishares MSCI USA Quality Factor ETF seeks to identify common stocks with high return on equity, stable year-over-year earnings growth and low debt-to-equity, but there is no guarantee that the past performance of these stocks will continue. Companies that issue these stocks may experience lower than expected returns or may experience negative growth, as well as increased leverage, resulting in lower than expected or negative returns. The minimum volatility fund(s) may experience more than minimum volatility as there is no guarantee that the underlying index's strategy of seeking to lower volatility will be successful. 41

42 The information provided is not intended to be a complete analysis of every material fact respecting any strategy and has been presented for educational purposes only. Asset allocation models and diversification do not promise any level of performance or guarantee against loss of principal. Shares of ishares Funds are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. There can be no assurance that an active trading market for shares of an ETF will develop or be maintained. The ishares are distributed by BlackRock Investments, LLC (together with its affiliates, BlackRock ). The ishares Funds are not sponsored, endorsed, issued, sold or promoted by MSCI Inc., nor does this company make any representation regarding the advisability of investing in the Funds. BlackRock is not affiliated with MSCI Inc. is Not FDIC Insured No Bank Guarantee May Lose Value 42