Smart Beta ETFs: 3 ways to address investor needs Help achieve investor goals with smart beta ETFs This guide highlights three ways investors are using ishares smart beta ETFs: 1 Lower volatility can help investors stay invested Traditional active and index funds can help investors achieve their financial goals, but they are no longer the only solutions. Smart beta ETFs work alongside traditional building blocks in a portfolio, helping investors seek enhanced returns, reduced volatility and higher income all in a tax efficient, low cost ETF. Smart Beta ETFs: the intersection of index and active 2 Factor strategies can help enhance returns 3 Dividend-paying strategies can help meet income goals Smart Beta Traditional index Generally low cost and transparent like index strategies Can be a source of additional return or a way to manage risk like traditional active funds Can potentially help achieve a desired outcome such as dampening the impact of market volatility or pursuing higher income Traditional active ishares.com
1 Lower volatility can help investors stay invested Establishing and maintaining an appropriate asset allocation is one of the most important determinants of financial success. But market volatility can unnerve investors, causing them to abandon their plans and potentially put their longterm goals at risk. ishares Edge Minimum Volatility ETFs are core equity investments that have delivered market-like returns with less risk. And because they help weather the ups and downs of the market, they can help give investors the confidence to stay invested. How to use in a portfolio Consider replacing broad market exposures with these minimum volatility funds: USMV ishares Edge MSCI Min Vol USA ETF Expense ratio: 0.15% EFAV ishares Edge MSCI Min Vol EAFE ETF Expense ratio: 0.20% EEMV ishares Edge MSCI Min Vol Emerging Markets ETF Expense ratio: 0.25% Risk vs. return 1 11/1/11-3/31/2018 Upside/downside capture 1 11/1/11-3/31/2018 Annualized return 16% USMV S&P 500 12 8 EFAV MSCI EAFE 4 EEMV MSCI EM 0 6% 8% 10% 12% 14% 16% 18% Upside capture Downside capture USMV 79% 52% -49 % EFAV 77% 57% EEMV 77% 70% Annualized risk Investment performance (Data as of 3/31/2018) Annualized return Annualized risk Sharpe ratio 1 year 3 year 5 year Since inception 3 year 5 year Since inception 3 year 5 year Since inception U.S. International Emerging markets USMV 11.0% 10.2% 12.0% 13.9% 8.5% 8.4% 8.1% 1.12 1.35 1.60 S&P 500 14.0% 10.8% 13.3% 14.7% 10.3% 9.9% 9.8% 1.00 1.28 1.43 EFAV 14.2% 6.7% 7.4% 8.8% 9.7% 9.6% 9.8% 0.66 0.76 0.88 MSCI EAFE 14.8% 5.6% 6.5% 7.5% 12.3% 11.9% 12.7% 0.46 0.56 0.61 EEMV 18.4% 4.1% 3.0% 5.3% 12.8% 11.8% 12.0% 0.34 0.28 0.47 MSCI EM 24.9% 8.8% 5.0% 5.0% 16.5% 15.0% 15.6% 0.56 0.38 0.37 Source: Morningstar, as of 3/31/2018. Inception date for USMV, EFAV and EEMV is 10/18/11. Calculations are computed as 11/1/11, the first full calendar month since the ETF launched. Past performance is no guarantee of future results. For standardized returns, see the end of this document. Annualized risk, represented by standard deviation, measures how dispersed returns are around the average. A higher standard deviation indicates that returns are spread out over a larger range of values and thus, more volatile. The Sharpe ratio characterizes how well the return of a portfolio compensates the investor for the risk taken. The higher the Sharpe ratio, the better a portfolio s historical risk-adjusted returns have been.
2 Single and multifactor strategies can help enhance returns Traditional index investing seeks to track a market cap-weighted benchmark, but some investors are looking to potentially enhance a portfolio s return. Single and Multifactor Factor ETFs are focused on addressing this objective. Factors are broad and persistent drivers of returns. ishares Factor ETFs seek to track indexes that employ intuitive screens that active managers have used for generations, but offer similar cost and tax benefits to traditional market capweighted ETFs. How to use in a portfolio Consider four factors that have historically driven investment performance Quality Stable earning quality stocks Value Inexpensive stocks Size Smaller companies Momentum Stocks on an upswing These strategies can be used as a replacement for underperforming style box managers or as a complement to your high conviction strategies. Smart Beta Seek outperformance: single factors Equity style box Morningstar category Large Cap Value Large Cap Blend Large Cap Growth Value Blend Growth Large VLUE 15 bps QUAL 15 bps MTUM 15 bps Mid Value Quality Momentum Small Overall Morningstar rating 2 3-year performance rank 3 58 out of 1,215 (8th percentile) 75 out of 1,326 (7th percentile) 29 out of 1,371 (3rd percentile) Past performance does not guarantee future results. Multifactor ETFs Consider a diversified long-term allocation ishares Edge Multifactor ETFs seek to track indexes that are optimized to provide exposure to the four factors above that have historically outperformed the broad market. They offer efficient, single-ticker exposure to a balanced set of historically favorable investment characteristics. LRGF ishares Edge MSCI Multifactor USA ETF INTF ishares Edge MSCI Multifactor Intl ETF EMGF ishares Edge MSCI Multifactor EM ETF
3 Dividend-paying strategies can help meet income goals In a world of low yields, investors are seeking new sources of income. And after a run-up in the stock market, many are seeking other ways to pursue growth. Dividend-oriented investing can potentially address both challenges. For higher income, dividend yields are potentially attractive relative to bond yields, which are near record lows. But smart investors seeking higher income look for sustainable dividends that means higher quality companies, not necessarily the highest yielding stocks. For long-term growth and income, companies that grow dividends can be especially appealing. First, these stocks can potentially provide a growing stream of income to overcome inflation. Second, companies that grow dividends are often fiscally disciplined, shareholder focused and have generated strong returns over time as shown in the figure below. Dividend payers and growers have rewarded investors Value of hypothetical $100 investment (1972-2016) $8,240 $5,215 $12,867 Non-dividend paying stocks All dividend paying stocks Dividend growers and initiators Source: Ned Davis Research, based on data between 1/31/72-12/31/16 represents stocks within the S&P 500 Index. Dividend Growers and Initiators are a subset of dividend-paying stocks within the S&P 500 Index that increased their dividends anytime in the last 12 months. Index returns are for illustrative purposes only. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged. How to use in a portfolio Seek additional income by focusing on: High-quality dividend-paying companies Companies with dividend growth HDV ishares Core High Dividend ETF Expense ratio: 0.08% IDV ishares International Select Dividend ETF Expense ratio: 0.50% DGRO ishares Core Dividend Growth ETF Expense ratio: 0.08% Why ishares dividend ETFs? Investors can seek to meet a variety of income and growth needs with the suite of ishares Dividend ETFs, all of which seek to track indexes that are designed with rigorous stock screens to seek sustainable dividends rather than focusing solely on high current yields: HDV screens for U.S. dividend-paying companies with sustainable competitive advantages and within the top two quartiles of financial health. IDV screens for international companies with strong profitability and the ability to maintain dividend distributions. DGRO screens for U.S. companies with five years of uninterrupted annual dividend growth and the capacity to continue growing distributions.
Why ishares for smart beta? BlackRock is a pioneer in smart beta with decades of expertise in research and implementation. The comprehensive suite of ishares smart beta ETFs provides investors the flexibility to target specific outcomes using low cost funds. Leader Over $130 billion in smart beta products and strategies globally Over 45 ishares smart beta ETFs with more than $70 billion in assets in the U.S. 4 Expert 30+ years of experience in smart beta investing backed by rigorous research Proprietary Aladdin platform drives risk, return and cost evaluations Partner Strive to deliver the outcomes investors need with low cost and transparency Partner with advisors to provide guidance on integrating smart beta ETFs into client portfolios
Standardized performance as of 3/31/2018 1 year 5 year Since inception Gross Exp Ratio % Net Exp Ratio % NAV % Price % NAV % Price % NAV % Price % USMV 0.15 0.15 10.98 10.89 11.97 11.98 14.09 14.05 EFAV 0.32 0.20 14.18 14.51 7.39 7.41 9.09 8.81 EEMV 0.71 0.25 18.42 19.40 2.96 3.08 6.15 6.53 Inception date for USMV, EFAV and EEMV is 10/18/11. Index performance data as of 3/31/2018 1 year 5 years Launch date MSCI USA Minimum Volatility Index 11.2% 12.2% 2-Jun-08 MSCI EAFE Minimum Volatility (USD) Index 14.2% 7.5% 1-Dec-09 MSCI EM Minimum Volatility (USD) Index 18.9% 3.2% 1-Dec-09 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 visiting www.ishares.com or www.blackrock.com. Shares of ETFs are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Market returns are based upon the midpoint of the bid/ask spread at 4:00 p.m. eastern time (when NAV is normally determined for most ETFs), and do not represent the returns you would receive if you traded shares at other times. Want to know more? Learn more about the complete suite of ishares smart beta ETFs at ishares.com/smartbeta 1 Source: Morningstar. Based on fund and index returns from 11/1/11 3/31/2018. Data compares USMV to the S&P 500, EFAV to the MSCI EAFE Index, and EEMV to the MSCI Emerging Markets 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. 2 Source: Morningstar as of 3/31/18. Morningstar ratings based on risk-adjusted returns. For each fund with a 3-year history, a Morningstar Rating TM is calculated based on risk-adjusted returns that account for variations in a fund s monthly performance (including sales charges and redemption fees) placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and bottom 10% receive 1 star. VLUE received a Morningstar Rating of 5 stars for the 3-year period rated against 1,215 U.S. Large Value funds. QUAL received a Morningstar Rating of 5 stars for the 3 year period against 1,326 U.S. Large Blend funds. MTUM received a Morningstar Rating of 5 stars for the 3-year period rated against 1,371 U.S. Large Growth funds. Past performance does not guarantee future results. 3 Source: Morningstar for the 3-yr period ended 3/31/17. 4 Bloomberg, ishares Global Business Intelligence. Data as of Dec 31, 2017 Carefully consider the Funds investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds prospectuses or, if available, the summary prospectuses which may be obtained by visiting www.ishares.com or www.blackrock.com. Read the prospectus carefully before investing. Investing involves risk, including possible loss of principal. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. These risks often are heightened for investments in emerging/developing markets and in concentrations of single countries. There is no guarantee that any fund will pay dividends. Diversification and asset allocation may not protect against market risk or loss of principal. There can be no assurance that performance will be enhanced for funds that seek to provide exposure to certain quantitative investment characteristics ( factors ). Exposure to such investment factors may detract from performance in some market environments, perhaps for extended periods. In such circumstances, a fund may seek to maintain exposure to the targeted investment factors and not adjust to target different factors, which could result in losses. The ishares Edge Minimum Volatility ETFs 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. Transactions in shares of ETFs will result in brokerage commissions and will generate tax consequences. All regulated investment companies are obliged to distribute portfolio gains to shareholders. Diversification and asset allocation may not protect against market risk or loss of principal. The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective. 2018 BlackRock. All rights reserved. ishares, ALADDIN and BLACKROCK are registered trademarks of BlackRock. All other marks are the property of their respective owners. Prepared by BlackRock Investments, LLC, member FINRA. Not FDIC Insured May Lose Value No Bank Guarantee Lit. No. IS-SBIG-0318 103100-0418