Managing Risk and Liquidity in Your Portfolio with Fixed Income ETFs

Transcription

1 Managing Risk and Liquidity in Your Portfolio with Fixed Income ETFs Mathieu Vinson Head Institutional Sales ishares Romandie & Ticino 26. November 2013

2 Agenda Where are we in Fixed Income today? Potential ETF Solutions in the Current Rate Environment Currency Hedged Fixed Income ETF Solutions Liquidity with Fixed Income ETFs Case Study 2

3 Where are we in Fixed Income today?

4 It s Been a Good Ride G3 Government 10 Year Bond Yields ( ) % United States 10yr Yields United Kingdom 10yr Yields Germany 10yr Yields Source: BlackRock, OECD, Bloomberg as at July

5 and Rising Volatility of Government Bond Rates Government bonds volatility remains high, especially compared to equities 90% 90% 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% % S&P day vol. 10 Yr Treasuries 30 day vol. Euro Stoxx day Volatility 10 year Bund 30 day volatility Source: Bloomberg, Data as at end of ust *30 day realized volatility annualized, calculated as standard deviation of equity index returns/change in government bond yield. 5

6 Traditional Fixed Income Indices are Very Much a Duration Investment Barclays Euro Aggregate Total Return breakdown Barclays EUR Aggregate: Yield, duration and yield breakeven 12% 10% Yield Duration Yield breakeven 8% 6% 4% 2% 0% Dec Nov Change -2% -4% -6% Excess Return Duration Return Source: Chart Top RHS and Table: Barclays, data as at July Chart Top RHS: BlackRock. Data as at November

7 Changes to the Traditional Fixed Income Market Primary dealers face several trends that are impacting their ability to provide liquidity including: Basel III Regulations requiring higher bank capital Dodd-Frank key regulatory policies, particularly the Volcker Rule, reduce the ability of banks to hold inventory Counterparty Risk deteriorating rating quality of sell-side counterparts Liquidity has been reduced and spreads have widened Risk warehousing has been significantly reduced down 75% from the peak Market cap to inventory ratios have been reduced from ~8:1 at peak to ~66.1 today Bid-ask spreads have widened significantly, with IG bid-ask spreads widening as much as 57% from 2007 Primary Dealer Corporate Positions vs. Size of Market (USD Billions) '000 3'500 3'000 2'500 2'000 1'500 1'000 Primary Dealer Corp. Positions (>1 Yr Maturity) (LHS) Market Value of the IG Corp Index (RHS) Source: Federal Reserve Bank of New York, Barclays, as of 3/31/

8 Increased Institutional Use of Fixed Income ETFs Increase in trades above $10 mm Large trades in LQD represented 17% of all trading in Q compared to 9% three years earlier 1 In HYG, these trades grew to 17% from 7% over the same period Growing short interest in fixed income ETFs 2 Short interest in fixed income ETFs is approaching $9bn compared with $2bn as of the end of 2009 Fixed Income ETF Trading Volume (Total Monthly) Large Trades as % of All Trading 3 1. Growth in volumes is measured as the change in volume from Q to Q Large ETFs are defined as those with over $1bn in assets as of 6/30/2013. Source: BlackRock, Bloomberg, NYSE Arca as of 6/30/ Source: BlackRock, Bloomberg as of 6/30/2013. With short sales, an investor faces the potential for unlimited losses as the security's price rises. 3. Source: BlackRock, Bloomberg as of 6/30/2013. Graph shows the total value of single trades over $10m as a percentage of total dollar trading volume for the previous 3 months. 8

9 Potential ETF solutions in the current rate environment

10 Portfolio Solutions in the Current Rate Environment INVESTOR CHALLENGE Low interest rate levels and the uncertainty surrounding the timing of any future rate hikes leads to increased volatility 1 OBJECTIVE Mitigate exposure to rising interest rate risk and generate incremental yield in the low rate environment Solution A: Short & Ultrashort Duration Strategy Solution B: Duration Hedged Strategy INVESTOR MITIGATES OVERALL DURATION RISK Compared to longer dated bonds, short and ultrashort duration bonds offer: Less interest rate risk as proceeds can be reinvested at new, higher rates at a quicker pace Less volatility in total returns i.e. price movements and interest payments. INVESTOR MITIGATES ONLY INTEREST RATE RISK Duration hedged strategies offer: Less interest rate risk while keeping exposure to credit risk and other risk factors unchanged Potential for enhancing total returns through credit spreads tightening. Investors might find a multi-solution approach useful while maintaining a balance of risk in the portfolio 1 Volatility in FI markets has risen particularly since May 22nd when the expectations around earlier tapering in the US first started 10

11 EUR Example: Short Duration vs Duration Hedged solution ishares Euro Corporate Bond UCITS ETF (IEAC) ishares Euro Corporate Bond 1-5yr UCITS ETF (IE15) ishares Euro Ultrashort Bond UCITS ETF (ERNE) ishares Euro Corporate Bond Interest Rate Hedged UCITS (IRCP) Yield: 2.02% Duration: 4.36 Yield: 1.47% Duration: 2.77 Yield: 0.68% Duration: 0.33 Yield: 1.35% Duration: Zero Credit spread Credit spread 1.35% 1.35% Yield Credit spread 1.06% Government bond yield 0.67% Government bond yield 0.41% Credit spread 0.46% Government bond yield 0.22% Mitigate interest rate risk by selling German Bund futures Example for illustrative purposes only. Yield and Duration data source: BlackRock, Barclays, Markit iboxx. Data as of 21st October

12 EUR Investor: How do the Duration Hedged Indices Work? The Barclays Euro Corporates Interest Rate Hedged Index is designed to capture the excess return of EUR denominated corporate bonds over German Government bonds The exposure of EUR corporate bonds is isolated by selling a basket of German Bund futures. Barclays Euro Corporates Index average duration 4.36 Buy bonds 0-3 year Euro Corporate bonds 3-5 year Euro Corporate bonds 5+ year Euro Corporate bonds + Match duration Match duration Match duration Sell futures 2 year German Government bond futures 5 year German Government bond futures 10 year German Government bond futures The new ishares ETF: Euro Corporate bonds, target duration: 0 ishares Euro Corporate Bond Interest Rate Hedged UCITS ETF helps to lock in past positive corporate bonds performance and protect investors portfolios when German government bond yields go up Source Barclays. Data as of end of July For illustration purposes only. 12

13 EUR Investor: IRCP - How has it Performed to Date? Barclays Euro Corporate Bond Index Breakdown of total returns IRCP, IEAC & IDEU: Comparison of total returns 2.00% 1.50% 1.00% Total returns 0.50% 0.00% -0.50% -1.00% % % Jan 13 Feb 13 Mrz 13 Apr 13 Mai 13 Jun 13 Jul Dez 12 Jan 13 Mrz 13 Apr 13 Mai 13 Jun 13 Jul EUR IG Coroprate Index German Rates contribution Credit spread contribution Source: Source: BlackRock. Data as at end of ust Past performance is not a guarantee of future returns IG refers to Investment Grade Credit TR refers to Total Return German Government bonds IRCP IEAC IEAC: ishares Euro Corporate Bond UCITS ETF IRCP: ishares Euro Corporate Bond Interest Rate Hedged UCITS ETF IDEU: ishares Germany Government Bond UCITS ETF 13

14 Currency Hedged Fixed Income ETF Solutions

15 Why Currency Hedged ETFs? Volatility of the Barclays Global Aggregate Corporate Index* 16% 14% 12% 10% 8% 6% 4% 2% 0% Unhedged EURO Index Hedged EURO Index Significantly reduced volatility on hedged versus unhedged indices A reduction of approximately 3.7%* in volatility over the 8 year period Source: Barclays Live, as of 31 May 2013 * Volatility calculated as the average of the quarterly annualised volatility over 8 years. 15

16 Portfolio Hedging Illustration: ishares Global Corporate Bond EUR Hedged UCITS ETF ishares Global Corporate Bond EUR Hedged UCITS ETF tracks Barclays Global Aggregate Corporate Index (EUR hedged) The index is exposed to a total of 15 currencies: global corporate exposure is hedged back into EUR using one month currency forwards for each of the 15 currency pairs individually Implemented by selling the currency exposure of the underlying asset (USD, JPY, GBP, CAD and other) and buying the base currency (EUR) (see figure below) This means the Portfolio Manager will enter into 15 separate currency forward contracts each month. USD Sell USD buy EUR via monthly forward EUR JPY Sell JPY buy EUR via monthly forward EUR EUR EUR GBP Sell GBP buy EUR via monthly forward EUR CAD Sell CAD buy EUR via monthly forward EUR Other Sell other currencies buy EUR via monthly forward EUR 16

17 Liquidity with Fixed Income ETFs Case Study

18 Insurance Company Plans a More Flexible Approach to Fixed Income More dynamic asset allocation but no liquidity in some of the cash bond markets 100% 90% 3% 7% 0-5% 5-10% 250,000 Primary Dealer Credit Positions v. US Credit ETF Assets 80% 70% 60% 20% 5% 20-30% 5-10% Value ($M) 200, , ,000 50,000 50% 40% 44% 35-55% - Jul-02 Nov-02 Mar-03 Jul-03 Nov-03 Mar-04 Jul-04 Nov-04 Mar-05 Jul-05 Nov-05 Mar-06 Jul-06 Nov-06 Mar-07 Jul-07 Nov-07 Mar-08 Jul-08 Nov-08 Mar-09 Jul-09 Nov-09 Mar-10 Dealer Single Issue Positions US Credit ETF Assets Jul-10 Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 30% 20% 10% 21% 10-20% Constructing broad beta portfolios from bonds available at dealers can be challenging given low inventory levels and market fragmentation 0% 2012 Mid-term plan Cash Government bonds Sec. products Corporate Bonds Equities/Alt. Other Source: Webiste. BlackRock, Bloomberg as of 8/29/12. Primary dealer inventory is measured by the Primary Dealer Positions Outright Level of Corporate Securities Due Greater Than 1 Year. Credit ETF assets include US listed corporate bond ETFs, excluding leveraged or inverse funds. 18

19 Low Trading Costs of Fixed Income ETFs Extra layer of ETF liquidity Underlying BIDs ETF BIDs ETF ASKs Underlying ASKs Best Bid Best Ask Bid/Offer spreads (bps) HYG 1 IHYU IHYG LQD 2 LQDE 26 IEAC 18 $ High Yield High Yield $ Corporate Corporate $ J.P Emerging Market ishares Bid/Offer (US ETFs) ishares Bid/Offer (European ETFs) Underlying Bid/Offer EMB 15 IEMB CEMB 60 EMCP $ Emerging Market Corp ishares ADV (US$mn) HYG IHYU IHYG LQD LQDE IEAC EMB IEMB CEMB EMCP $465 $13 $20 $305 $7.5 $13 $120 $25 $0.2 $0.3 HYG: ishares iboxx $ High Yield Corporate Bond ETF, IHYU: ishares $ High Yield Corporate Bond UCITS ETF, IHYG: ishares Euro High Yield Corporate Bond UCITS ETF, LQD: ishares iboxx $ Investment Grade Corporate Bond ETF, LQDE: ishares $ Corporate Bond UCITS ETF, IEAC: ishares Euro Corporate Bond UCITS ETF, EMB: ishares J.P. Morgan USD Emerging Markets Bond ETF, IEMB: ishares J.P. Morgan $ Emerging Markets Bond UCITS ETF, CEMB: ishares Emerging Markets Corporate Bond ETF, EMCP: ishares $ Emerging Markets Corporate Bond UCITS ETF. Source: Bloomberg, Markit, BlackRock. Data as of June For illustrative purposes only. ADV - Average Daily Volumes 19

20 Appendix

21 Pillars of global liquidity Fed ECB, BoE BoJ Emerging Markets QE3: off-again, on-again Forward guidance yet declining ECB balance sheet BoE: conditional guidance battling the Fed and the data Bazooka: more to come? Declining current account surpluses and currency protection 21

22 Monthly Hedged Methodology: Hedge Ratio!" #"# Hedge is set at the start of every month Intra-month, the index does not adjust the hedge for price movements of the underlying in local currency The underlying exposure will not always be perfectly hedged : Scenario 1: If the index (in local currency) appreciated then the currency exposure will be under-hedged* Scenario 2: If the index (in local currency) depreciated then the currency exposure will be over-hedged*. Scenario 1: Under-hedged Hedge at beginning of month (static) Index value (in local currency) Scenario 2:Over-hedged Start of Month End of Month Hedge Ratio is impacted by asset moves and not by FX moves * - Note we track a currency hedged benchmark, the under hedged or over-hedged is relative to the unhedged benchmark. 22

23 Monthly Hedged Methodology: Investments NAV (in base currency) = Assets Value (in base currency) +/- FX P&L 110 There are two components to a currency hedged fund NAV: 1. Asset value in base currency 2. Hedge impact, gain or loss on the forward contracts. Example: Assume Fund NAV=100, base currency=usd and asset value stays constant and there is only FX move: Scenario 1: loss on assets is offset by FX gain Scenario 2: gain on assets is offset by FX loss 100 Assets Value NAV = FX P&L= 10 FX P&L USD10 Assets Value NAV = Assets Value USD110 NAV= USD100 USD90 10 Month start Scenario 1 FX P&L USD10 Month end - FX P&L= 10 Scenario 2 Investments is impacted FX moves and not by asset moves 23

24 Intra-month creations and redemptions Intra-month creations and redemptions: Hedge Ratio The index does not account for intra-month inflows, therefore for the fund to track the index, adjustments are required to the hedge Creations and redemptions do not impact the Hedge Ratio, hedges are adjusted based on the Hedge Ratio at that time Example: Assume the hedge ratio is 90% because the assets grew in value since start of the month. For a USD10m equivalent creation, the FX forward is adjusted by USD9m (USD10m 90%). After the creation the hedge ratio remains at 90% in line with the index. Intra-month creations and redemptions: Investments The index level changes intra-month due to the unrealised +/-P&L as cash asset or liability As the index does not account for intra-month flows, with any create or redeem the fund has to account for the level of fixed income investments of the index Example: Assume intra-month inflows, FX P&L=10% of assets. Investment of these flows has to account for that FX P&L. 1. Positive FX P&L: theoretically the fund should invest 90% of the inflows in securities, with 10% left as cash. To match the index investment profile while maintaining the risk parameters of the fund in-line with the index: Fixed income PMs may decide to hold higher weights in shorter maturity bonds Equity PMs keep the unrealised cash. 2. Negative FX P&L: theoretically fund needs to invest 110% in assets. To match the index investment profile, while maintaining the overall risk parameters of the fund in-line with the index: Fixed income PMs may decide to hold higher weights in longer maturity bonds Equity PMs achieve leverage by using futures on the underlying. At the end of the month the FX P&L is realised in the fund, mitigating the impact of currency movements on the fund. Intra-month creations and redemptions do not impact the Hedge Ratio, whereas those impact Investments 24

25 ishares solutions for EUR based investors New ishares Euro Ultrashort Bond UCITS ETF ishares Euro Corporate Bond 1-5yr UCITS ETF ishares Euro Corporate Bond ex-financials 1-5yr UCITS ETF ishares Euro Corporate Bond Interest Rate Hedged UCITS Scope: Aims to track the performance of the index that invests in EUR denominated investment grade corporate bonds* with lower duration compared to a broad maturity index Maturity: 0-1 years for fixed bonds (approx. 54% of the index) and 0-3 years for floating rate bonds (approx. 46% of the index) Diversification: Currently the index tracks around 389 bonds from 178 issuers. Individual issuer cap of 3% Liquidity: Minimum amount outstanding per issue EUR 500 Million Use of derivatives: No Scope: Aims to track the performance of the index that invests in EUR denominated investment grade corporate bonds with lower duration compared to the broad maturity index Maturity: Between 1-5 years Diversification: Currently the Barclays EUR Corporate Bonds 1-5 years index tracks around 770 bonds and the Barclays EUR Credit Corporate 1-5 Yr ex Financials index tracks around 400 bonds Liquidity: Minimum amount outstanding per issue EUR 300 Million Use of derivatives: No Scope: Aims to track the performance of the index that invests in EUR denominated investment grade corporate bonds and sells German Bund futures on monthly basis to mitigate duration risk Maturity: All maturities, minimum 1 year Diversification: Currently the index tracks more than 1,300 bonds Liquidity: Minimum amount outstanding per issue EUR 300 Million Use of derivatives: Yes, German Bund futures *Flexibility to add other sectors over time as market conditions evolve (e.g. ABS, supras, govts, etc). Source: Barclays. Markit Iboxx. Data as at end of ust

26 ishares solutions for EUR based investors (continued) New ishares Euro Ultrashort Bond UCITS ETF 1 ishares Euro Corporate Bond 1-5yr UCITS ETF ishares Euro Corporate Bond ex-financials 1-5yr UCITS ETF ishares Euro Corporate Bond Interest Rate Hedged UCITS ETF Ticker ERNE SE15 EEX5 IRCP Benchmark Markit iboxx EUR Liquid Investment Grade Ultrashort Index Barclays Euro Corporate 1-5 Year Bond Index Barclays Euro Corporate ex Financials 1-5 Year Bond Index Barclays EUR Corporate Interest Rate Hedged Index Inception date TBD Oct /09/09 25/09/09 22/10/12 TER 0.20% 0.20% 0.20% 0.25% Rebalancing Monthly Monthly Monthly Monthly Distributing Semi annually Semi annually Semi annually Semi annually Number of holdings AUM Approx. EUR 25 Million EUR 420 Million EUR 630 Million EUR 262 Million YTM 0.70% 1.73% 1.50% 1.51% Duration Target 0 Source: BlackRock. Barclays, Markit Iboxx. As at end of end of ust Yield, duration and # of holdings are predicted based on index data. 2. Number of holdings at launch will be lower due to sampling 26

27 ishares solutions for USD based investors New New New ishares $ Ultrashort Bond UCITS ishares $ Short Duration Corporate Bond UCITS ETF ishares $ Short Duration High Yield Corporate Bond UCITS ETF ishares $ Corporate Bond Interest Rate Hedged UCITS ETF Scope: Aims to track the performance of the index that invests in USD denominated investment grade corporate bonds* with lower duration compared to a broad maturity index Maturity: 0-1 years for fixed bonds (approx. 57% of the index) and 0-3 years for floating rate bonds (approx. 43% of the index) Diversification: Currently the index tracks around 447 bonds from 171 issuers. Individual issuer cap of 3% Liquidity: Minimum amount outstanding per issue USD 500 Million Use of derivatives: No Scope: Aims to track the performance of the index that invests in USD denominated investment grade and high yield corporate bonds respectively with lower duration compared to the broad maturity index Maturity: Between 0-5 years Diversification: Currently the Markit iboxx USD Liquid Investment Grade 0-5 index tracks around 1,233 bonds and the Markit iboxx USD Liquid High Yield 0-5 Capped Index tracks around 359 bonds Liquidity: Minimum amount outstanding per issue USD 500 Million and USD 1 Billion per issuer for IG. USD 350 Million for HY respectively Use of derivatives: No Scope: Aims to track the performance of the index that invests in USD denominated investment grade corporate bonds and sells US Treasury bond futures on monthly basis to mitigate duration risk Maturity: All maturities, minimum 3 year Diversification: Currently the index tracks more than 1,000 bonds Liquidity: Minimum amount outstanding per issue USD 750 Million and USD 1 Billion per issuer Use of derivatives: Yes, US Treasury futures *Flexibility to add other sectors over time as market conditions evolve (e.g. ABS, supras, govts, etc). Source: Markit Iboxx. Data as at end of ust

28 ishares solutions for USD based investors (continued) New New New New ishares $ Ultrashort Bond UCITS 1 ishares $ Short Duration Corporate Bond UCITS ETF 1 ishares $ Short Duration High Yield Corporate Bond UCITS ETF 1 ishares $ Corporate Bond Interest Rate Hedged UCITS ETF Ticker ERND SDIG SDHY LQDH Benchmark Markit iboxx USD Liquid Investment Grade Ultrashort Index Markit iboxx USD Liquid Investment Grade 0-5 Index Markit iboxx USD Liquid High Yield 0-5 Capped Index Markit iboxx USD Liquid Investment Grade Interest Rate Hedged Index Inception date TBD Oct 2013 TBD Oct 2013 TBD Oct /09/13 TER 0.20% 0.20% 0.45% 0.25% Rebalancing Monthly Monthly Monthly Monthly Distributing Semi annually Semi annually Semi annually Quarterly Number of holdings Ca. 220 AUM Approx. USD 25 Million Approx. USD 25 Million Approx. USD 25 Million Approx. USD 25 Million YTM 0.70% 1.80% 5.72% 1.28%* Duration Target 0 Source: BlackRock. Barclays, Markit Iboxx. As at end of end of ust Yield, duration and # of holdings are predicted based on index data. 2. Number of holdings at launch will be lower due to sampling *Based on the underlying benchmark 28

29 Details for the ishares currency hedged Fixed Income ETFs ishares JPM $ EM Bond EUR Hedged UCITS ETF ishares Global Corporate Bond EUR Hedged UCITS ETF ishares Global High Yield Corp Bond GBP Hedged UCITS ETF Ticker EMBE CRPH GHYS Benchmark J.P. Morgan Emerging Markets Bond Index Global Core Index (EUR hedged) BBarclays Global Aggregate Corporate Index (EUR hedged) Markit iboxx Global Developed Markets Liquid High Yield Capped (GBP Hedged) Inception date 08-Jul June June-2013 TER 0.50% 0.25% 0.55% Rebalancing Monthly Monthly Monthly Distributing Semi annually Semi annually Semi annually Number of holdings AUM USD36 Million USD107 Million USD61 Million YTM 5.58% 2.89% 5.61% Duration Source: BlackRock. Barclays, Markit Iboxx. As at end of end of July * Number of holdings at launch will be lower due to sampling 29

30 Disclaimer Regulatory Information BlackRock Advisors (UK) Limited, which is authorised and regulated by the Financial Conduct Authority ('FCA'), having its registered office at 12 Throgmorton Avenue, London, EC2N 2DL, England, Tel +44 (0) , has issued this document for access by Professional Clients only and no other person should rely upon the information contained within it. ishares plc, ishares II plc, ishares III plc, ishares IV plc, ishares V plc, ishares VI plc and ishares VII (together 'the Companies') are open-ended investment companies with variable capital having segregated liability between their funds organised under the laws of Ireland and authorised by the Financial Regulator. The German domiciled funds are "undertakings for collective investment in conformity with the directives" within the meaning of the German Law on the investments. These funds are managed by BlackRock Asset Management Deutschland AG which is authorised and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht. ishares ETF (CH) and ishares ETF II (CH) are umbrella funds established under the Swiss Collective Investment Schemes Act (CISA) of June 23, 2006, as amended, and are divided into sub-funds. The funds are regulated by the Swiss Financial Market Supervisory Authority ( FINMA ). For investors in Switzerland The distribution of the funds in Switzerland will be exclusively made to qualified investors as defined in the Swiss Collective Investment Schemes Act of 23 June 2006, as amended and its implementing ordinance. Accordingly, some of the funds have not been registered with the Swiss Financial Market Supervisory Authority ( FINMA ). This document may be made available in Switzerland solely to qualified Investors. In respect of the registered funds, BlackRock Asset Management Schweiz AG, Bahnhofstrasse 39, P.O.Box 2118 CH-8022 Zurich, is the Swiss Representative and JPMorgan Chase Bank, National Association, Columbus, Zurich branch, Dreikönigstrasse 21, 8002 Zurich, the Swiss Paying Agent of the funds. The Prospectus, Key Investor Information Document, the Articles of Incorporation, the latest and any previous annual and semi-annual reports of the funds are available free of charge from the Swiss representative. Investors should read the fund specific risks in the Key Investor Information Document and the Prospectus. Restricted Investors This document is not, and under no circumstances is to be construed as an advertisement or any other step in furtherance of a public offering of shares in the United States or Canada. This document is not aimed at persons who are resident in the United States, Canada or any province or territory thereof, where the companies/securities are not authorised or registered for distribution and where no prospectus has been filed with any securities commission or regulatory authority. The companies/securities may not be acquired or owned by, or acquired with the assets of, an ERISA Plan. Risk Warnings Investment in the products mentioned in this document may not be suitable for all investors. Past performance is not a guide to future performance and should not be the sole factor of consideration when selecting a product. The price of the investments may go up or down and the investor may not get back the amount invested. Your income is not fixed and may fluctuate. The value of investments involving exposure to foreign currencies can be affected by exchange rate movements. We remind you that the levels and bases of, and reliefs from, taxation can change. BlackRock has not considered the suitability of this investment against your individual needs and risk tolerance. The data displayed provides summary information, investment should be made on the basis of the relevant Prospectus which is available from BlackRock Advisors (UK) Limited. In respect of the products mentioned this document is intended for information purposes only and does not constitute investment advice or an offer to sell or a solicitation of an offer to buy the securities described within. This document may not be distributed without authorisation from BlackRock Advisors (UK) Limited.

31 Disclaimer Index Disclaimers "Barclays Capital Inc." and 'Barclays Euro Aggregate Bond Index', 'Barclays Euro Corporate 1-5 Year Bond Index', 'ishares Barclays Euro Corporate Bond Interest Rate Hedged', 'Barclays Germany Treasury Bond Index', 'Barclays Global Aggregate Bond Index' and 'Barclays Global Aggregate Corporate Bond Index' are trademarks of Barclays Bank PLC and have been licensed for use for certain purposes by BlackRock Fund Advisors or its affiliates. ishares is a registered trademark of BlackRock Fund Advisors or its affiliates.the Underlying Indices are maintained by Barclays Capital. Barclays Capital is not affiliated with the Funds, BFA, State Street, the Distributor or any of their respective affiliates. BFA has entered into a license agreement with the Index Provider to use the Underlying Indices. BFA, or its affiliates, sublicenses rights in the Underlying Indices to the Company at no charge. "J.P. Morgan" and "J.P. Morgan EMBISM Global Core Index" are trademarks of JPMorgan Chase & Co. licensed for use for certain purposes by BlackRock Institutional Trust Company, N.A. ("BTC"). ishares is a registered trademark of BTC.J.P. Morgan is the Index Provider for the Underlying Index. J.P. Morgan is not affiliated with the Fund, BFA, State Street, the Distributor or any of their respective affiliates. J.P. Morgan provides financial, economic and investment information to the financial community. J.P. Morgan calculates and maintains the J.P. Morgan EMBISM Global Core Index, J.P. Morgan Emerging Markets Bond Index Plus, J.P. Morgan Emerging Markets Bond Index Global and Emerging Markets Bond Index Global Diversified. Security additions and deletions into the emerging markets bond indexes do not in any way reflect an opinion in the investment merits of the security. Markit iboxx is a registered trade mark of Markit Indices Limited and has been licensed for use by BlackRock Advisors (UK) Limited. Markit Indices Limited does not approve, endorse or recommend BlackRock Advisors (UK) Limited or ishares plc. These products are not sponsored, endorsed or sold by Markit Indices Limited and Markit Indices Limited makes no representation regarding the suitability of investing in these products. The Fund is not sponsored, endorsed, sold or promoted by Morningstar. Morningstar makes no representation or warranty, express or implied, to the owners of shares of the Fund or any member of the public regarding the advisability of investing in securities generally or in the Fund particularly or the ability of the Morningstar Emerging Markets Corporate Bond Index (the Index ) to track general stock market performance. Morningstar s only relationship to the Company or to the BlackRock group is the licensing to the BlackRock group of certain trademarks and trade names of Morningstar and of the Index which is determined, composed and calculated by Morningstar without regard to the BlackRock group, the Company or the Fund. Morningstar has no obligation to take the needs of the BlackRock group or the owners of the shares of the Fund into consideration in determining, composing or calculating the Index. Morningstar is not responsible for and has not participated in the determination of the prices and amount of shares of the Fund, or the timing of the issuance or sale of such shares or in the determination or calculation of the equation by which shares of the Fund are to be converted into cash. Morningstar has no obligation or liability in connection with the administration, marketing or trading of shares of the Fund. Morningstar does not guarantee the accuracy or the completeness of the Index or any data included therein and Morningstar shall have no liability for any errors, omission, or interruptions therein. Morningstar makes no warranty, express or implied, as to results to be obtained by the BlackRock group, owners of shares of the Fund or any other person or entity from the use of the Index or any data included therein. Morningstar makes no express or implied warranties and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the Index or any data included therein. Without limiting any of the foregoing, in no event shall Morningstar have any liability for any special, punitive, direct, indirect or consequential damages (including lost profits) resulting from the use of the Index or any data included therein, even if notified of the possibility of such damages BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, ALADDIN, ishares, LIFEPATH, SO WHAT DO I DO WITH MY MONEY, INVESTING FOR A NEW WORLD, and BUILT FOR THESE TIMES are registered and unregistered trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners.

32 Disclaimer Markit iboxx is a registered trade mark of Markit Indices Limited and has been licensed for use by BlackRock Asset Management Deutschland AG. Markit Indices Limited does not approve, endorse or recommend BlackRock Asset Management Deutschland AG or ishares Markit iboxx Liquid Sovereigns Capped (DE), ishares Markit iboxx Liquid Sovereigns Capped (DE), ishares Markit iboxx Liquid Sovereigns Capped (DE), ishares Markit iboxx Liquid Sovereigns Capped (DE) and ishares Markit iboxx Liquid Sovereigns Capped (DE). These products are not sponsored, endorsed or sold by Markit Indices Limited and Markit Indices Limited makes no representation regarding the suitability of investing in the products. "J.P. Morgan" and "J.P. Morgan EMBISM Global Core Index" are trademarks of JPMorgan Chase & Co. licensed for use for certain purposes by BlackRock Institutional Trust Company, N.A. ("BTC"). ishares is a registered trademark of BTC.J.P. Morgan is the Index Provider for the Underlying Index. J.P. Morgan is not affiliated with the Fund, BFA, State Street, the Distributor or any of their respective affiliates. J.P. Morgan provides financial, economic and investment information to the financial community. J.P. Morgan calculates and maintains the J.P. Morgan EMBISM Global Core Index, J.P. Morgan Emerging Markets Bond Index Plus, J.P. Morgan Emerging Markets Bond Index Global and Emerging Markets Bond Index Global Diversified. Security additions and deletions into the emerging markets bond indexes do not in any way reflect an opinion in the investment merits of the security. Markit iboxx is a registered trade mark of Markit Indices Limited and has been licensed for use by BlackRock Advisors (UK) Limited. Markit Indices Limited does not approve, endorse or recommend BlackRock Advisors (UK) Limited or ishares plc. These products are not sponsored, endorsed or sold by Markit Indices Limited and Markit Indices Limited makes no representation regarding the suitability of investing in these products. The Fund is not sponsored, endorsed, sold or promoted by Morningstar. Morningstar makes no representation or warranty, express or implied, to the owners of shares of the Fund or any member of the public regarding the advisability of investing in securities generally or in the Fund particularly or the ability of the Morningstar Emerging Markets Corporate Bond Index (the Index ) to track general stock market performance. Morningstar s only relationship to the Company or to the BlackRock group is the licensing to the BlackRock group of certain trademarks and trade names of Morningstar and of the Index which is determined, composed and calculated by Morningstar without regard to the BlackRock group, the Company or the Fund. Morningstar has no obligation to take the needs of the BlackRock group or the owners of the shares of the Fund into consideration in determining, composing or calculating the Index. Morningstar is not responsible for and has not participated in the determination of the prices and amount of shares of the Fund, or the timing of the issuance or sale of such shares or in the determination or calculation of the equation by which shares of the Fund are to be converted into cash. Morningstar has no obligation or liability in connection with the administration, marketing or trading of shares of the Fund. Morningstar does not guarantee the accuracy or the completeness of the Index or any data included therein and Morningstar shall have no liability for any errors, omission, or interruptions therein. Morningstar makes no warranty, express or implied, as to results to be obtained by the BlackRock group, owners of shares of the Fund or any other person or entity from the use of the Index or any data included therein. Morningstar makes no express or implied warranties and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the Index or any data included therein. Without limiting any of the foregoing, in no event shall Morningstar have any liability for any special, punitive, direct, indirect or consequential damages (including lost profits) resulting from the use of the Index or any data included therein, even if notified of the possibility of such damages BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, ALADDIN, ishares, LIFEPATH, SO WHAT DO I DO WITH MY MONEY, INVESTING FOR A NEW WORLD, and BUILT FOR THESE TIMES are registered and unregistered trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners.

33