Investment Directions RETURN TO THE RING

Transcription

1 FOR PROFESSIONAL CLIENTS/SOPHISTICATED AND QUALIFIED INVESTORS ONLY 2015 Investment Directions RETURN TO THE RING Why is a boxing ring called a ring when it s shaped like a square? Because back in the day, boxers would fight in a circle roughly drawn on the ground. They faced off in circular rings until the square ring was introduced in the 1800s. To this day, the boxing ring is sometimes referred to as the 'square circle.' Left or right-handed? In some sense, the U.S. Federal Reserve (Fed) is in a ring of its own. With most of the world s central banks on the side of easing, the Fed is making the diametric move of raising its benchmark interest rate target to between 0.25% and 0.50%. This step forward in normalizing monetary policy is said to be the first in a series, and the pace of future increases is promised to be gradual and would go alongside a growing U.S. economy. The inflation outlook is another key consideration for the timing of the next increase. Roll With the Punches Divergence in central bank policies remains an important investment theme going into But keep in mind that central banks will likely not provide the same level of market support for asset prices that they have provided in recent years. Case in point: the European Central Bank s (ECB s) much-signaled but slighterthan-expected quantitative easing (QE) upgrade. In fact, the market reaction again shows that conditions outside the United States can drive, or even dominate, U.S. markets. We have already seen the impact of low European rates on the U.S. yield curve and rising volatility driven by China and the collapse in oil prices this year. What s next? Go the Distance We are prepared for more Fed rate hikes next year and are staying with our regimen: a portfolio tilted toward stocks, select credit and tax-exempt bonds. We see interest rates rising but expect them to climb slowly and remain low for a long time. Should policy divergence result in a stronger U.S. dollar, stocks stateside could be put under additional pressure. Our emphasis is on opportunities abroad (such as Europe), and sectors (e.g., financials) that could withstand, or even benefit, from a rising rate environment. WHAT S NEW: Our Views on U.S. Equity Factors Pg. 2 Upgrade Consumer Discretionary to Overweight Pg. 5 Downgrade Utilities to Underweight Pg. 5 Can the Global Economy Keep Growing? Pg. 7 Upgrade South Africa to Neutral Pg. 8 OUTLOOK SUMMARY p OVERWEIGHT q UNDERWEIGHT ADDITIONALLY, FOCUS ON Stocks Japanese & European Equities Cyclical Sectors Municipal & High Yield Bonds Bonds U.S. Equities Defensive Sectors Treasuries Consider currency hedged exposure, given U.S. dollar strength could erode returns in other markets for dollar-based investors. Within factor investing, prefer quality and minimum volatility over momentum.

2 Turning Insight Into Action Many measures of U.S. economic activity have recently disappointed, but there are definitely bright spots. Selectivity is important in the U.S. market, where value will vary by sector and individual company. Consider blending opportunities for core market exposure with highconviction active solutions that focus on finding value in the market. United States We are underweight in U.S. equities. U.S. stocks remain expensive and valuations are not far from their all-time high thanks to multiple expansion, against a backdrop of a decent, but not great economy. Good news continues to flow from the U.S. labor market, where job creation and unemployment are trending favorably with some pickup in wage growth. However, other signs paint a different picture: Industrial activity unexpectedly contracted and fell to the lowest level since 2009, highlighting the adverse combination of a strong U.S. dollar and weak global demand that many manufacturers face. Meanwhile, consumers are still in savings mode, spending has not accelerated and confidence has slipped. The near-zero reading of economic activity as measured by the Chicago Fed National Activity Index (CFNAI) suggests modest growth in the first half of With company earnings growth and profit margins likely to come under pressure, we think U.S. stocks probably will struggle to advance substantially next year, particularly without the Fed s extraordinary support. Better options exist overseas, but within U.S. stocks, we have a slight preference for large- and mega-cap stocks over small caps. Among U.S. equity factors, we prefer quality for its high profitability, low earnings volatility and minimal financial leverage. It offers a combination of growth and stability with relatively low sensitivity to higher interest rates. We also like minimum volatility because market volatility is expected to remain high next year and valuation seems reasonable amid high profits. Plus, it has balanced exposure to cyclical and defensive companies, unlike traditionally defensive sectors, while the total risk is kept low. Conversely, we are cautious of the momentum factor. Years of outperformance has made this trade a crowded one and pushed valuations higher. Momentum tends to perform well under low volatility, and is at risk of a sudden change in market leadership if volatility spikes. For more on our views on U.S. equity factors, please refer to the table on p. 8. ON THE ROPES The strong dollar makes U.S. manufactured goods less competitive, knocking down not only industrial activity overall but also new orders, an indicator for future conditions INDEX LEVEL Institute for Supply Management (ISM) Manufacturing Index ISM New Orders Sources: Thomson Reuters Datastream, ISM, BlackRock Investment Institute, as of 9 December Note: Chart shows the monthly change in manufacturing activity and new orders based on the ISM Manufacturing Index. It is an index based on surveys of more than 300 manufacturing firms. [2] BLACKROCK INVESTMENT DIRECTIONS

3 International Developed Markets We are overweight Japanese equities, which have the most attractive valuation of any major developed market. As the economy flirts with recession and inflation falls way below target, more support from the government and the Bank of Japan (BoJ) is expected. For Japan Inc., corporate governance reform has steadily improved shareholder returns (see the chart below), and we expect it to continue. That said, further Chinese yuan devaluation could spell trouble for Japanese exporters. Whereas the weak yen bodes well for earnings growth, it has had limited success in boosting exports. Not to mention that it hampers consumption by inflating import prices. All in all, we believe that investors should consider at least a partial hedge on yen exposure because the U.S. dollar is likely to strengthen against the yen in the longer term amid central bank and growth divergence. We like European equities. The eurozone economy is in the early phase of a slow but steady recovery: upswing in activity and sentiment indicators, great company earnings growth and improving credit conditions. While reform momentum may take a backseat to the refugee crisis and the response to terrorism threats in the wake of the Paris attack, we see a modest growth boost next year as governments step back from austerity. Monetary conditions remain very accommodative despite market disappointment with the ECB s latest deposit rate cut, but there is room for more easing if needed. As with Japan, we also think employing a currency hedge here could be prudent. Turning Insight Into Action Earnings growth and valuations of European and Japanese companies are more compelling than for U.S. companies. However, strength in the U.S. dollar could erode returns in international markets for U.S. dollarbased investors, boosting the allure of currency hedged exposure. Consider using an active manager with strong stock selection expertise or be selective with index-based exposures. We are neutral in Australia and Canada. The collapse in oil and other commodity prices and China s transition away from investment-led growth hurt these commodity-linked markets. Although price-to-book valuations have come down following significant underperformance this year, they are still more expensive than their developed-market peers. Also, currency volatility has risen sharply this year and could remain elevated in In Australia, the property market is at risk of a price correction as supply starts to outpace demand. Household budgets are stretched, leaving local banks vulnerable to bad property loans and losses. Canada unfortunately suffers some of the same problems with its housing market. MORE PUNCHING POWER Better corporate governance has led to a steady increase in return on equity, driven by record-high dividend payouts and rising share buybacks YEN (IN TRILLIONS) RETURN ON EQUITY (%) Return on Equity Buybacks Dividends Sources: BlackRock Investment Institute and Nomura, November Note: The 2015 and 2016 fiscal years are based on Nomura estimates. RETURN TO THE RING [3]

4 Turning Insight Into Action It may be time to consider a benchmark exposure in emerging markets, but investors should remain selective. Consider accessing specific countries or regions, or use an active manager with expertise to identify potential opportunities. Emerging Markets Emerging market (EM) stocks have underperformed developed markets for five years now. Positioning and valuations are at extreme levels as the EM pack continues to struggle with an appreciating U.S. dollar, falling commodity prices and flagging exports, which only add to their medium-term challenges, such as dwindling corporate profits, sluggish productivity and a dispirited investor base. China s slowdown has a disproportionately large impact on EM stocks; all the more reason for investors to find countries and industries that can retool themselves away from supplying what China used to need to what it will need in the future. Along those lines, resource importers could benefit from downtrodden commodity prices at the cost of resource producers. Despite these structural challenges, we are not writing off the asset class, which can turn around if global growth picks up or EM currencies rise next year (see the chart below). For investors who have little or no EM exposure, this may be a reasonable time to start slowly re-establishing positions. Using an active manager could be particularly helpful for investing in this out-of-favor category. An active manager can drill down and identify more granular opportunities, by pinpointing companies that can thrive in this 'new normal.' We maintain a benchmark weight in China. We expect a soft Chinese economic landing in 2016, cushioned by strength in sovereign and household balance sheets. We think the yuan will weaken further next year, but authorities will likely try to avoid another sharp devaluation over concerns it could prompt additional capital outflows. Despite some setbacks, policymakers demonstrated their conviction in stabilizing markets this year. The ability to strike a balance between reform and growth will be crucial to how Chinese stocks perform next year. That said, we prefer exposures to services and consumption segments over those that heavily rely on the manufacturing engine. We are market weight Brazil. Valuation remains significantly below its historical norm and that of the broader emerging market. Plenty of bad news has been built into the prices: a deepening recession, the potential for further ratings downgrades, and a host of structural problems. Any capitulation in the country s political gridlock could help stocks, but the chance of a government change is relatively low. DON'T THROW IN THE TOWEL JUST YET EM currencies had a terrible year amid fears of a Fed rate hike. History shows, however, that once the tightening starts, U.S. dollar appreciation against other currencies tends to slow Chinese Yuan Taiwanese Dollar Indian Rupee Singapore Dollar South Korean Won EXCHANGE RATE AGAINST THE USD (%) Indonesian Rupiah Peruvian Nuevo Sol Chilean Peso Russian Ruble Mexican Peso Polish Zloty Malaysian Ringgit Turkish Lira South African Rand Brazilian Real Source: Bloomberg, as of 11 December Note: Chart shows EM currency performance against the U.S. dollar in [4] BLACKROCK INVESTMENT DIRECTIONS

5 Global Sectors We are raising global consumer discretionary from neutral to overweight despite its relatively high valuation. A healthy labor market, rising wages, reduced debt burdens and solid earnings growth all play to our upgraded outlook for the sector and could put it in a leadership position again in We believe consumers could become more willing to spend, and that it is just a matter of time before they put the gas savings from low energy prices to work. We are overweight financials. Financials, particularly banks and insurers, are the cheapest among cyclical sectors that stand to benefit from a stronger economy and a rising rate environment. Higher interest rates typically help boost banks net interest margins and discount rates for insurance portfolios. One area of caution: real estate investment trusts (REITs) are likely to underperform amid rising rates given their relatively high dividend yields. Turning Insight Into Action Consider cyclical sectors over defensive and high dividend-paying sectors. Consumer staples looks particularly unattractive and vulnerable to rising rates. Look into potential opportunities in the technology and financials sectors and consider a long/short approach to potentially benefit from any continued market volatility. We have a benchmark weight in health care. With fast innovation and drug approval rates close to an all-time high, the sector s earnings growth for next year looks promising. However, years of outperformance have made this trade a crowded one, with earnings multiples already elevated. Increased scrutiny over drug pricing and a possible exit tax from large-scale mergers and acquisitions are additional headwinds. Still, we see opportunities in medical device and managed care companies, which can probably better weather these challenges. We are neutral energy. After recent sharp falls in oil prices, a muted recovery seems to be a best-case scenario now considering the supply glut. With the sector trading at rock-bottom valuations, new investment or growth is hard to come by. In a low oil price environment, the ability to cut costs is a key differentiator; we prefer companies that can cut deeper to protect their bottom lines. We are underweight consumer staples, and downgrade utilities from neutral to underweight. The low growth prospects of these bond proxies are increasingly unattractive as economic growth gathers speed. More importantly, dividend-paying stocks today have an unusually high negative correlation to bond yields (see the chart below), which render them vulnerable to Fed liftoff. TRIUMPHS AND KNOCKOUTS U.S. bond proxy sectors have fared much worse than other sectors this year as interest rates are set to rise Banks Insurance Energy Materials Technology CORRELATION (%) Industrials Consumer Discretionary Health Care Telecoms Consumer Staples REITs Utilities Current Pre-Crisis Sources: BlackRock Investment Institute, S&P and Thomson Reuters, November Notes: The bars are correlations based on daily sector relative performance (versus the S&P 500) and changes in 10-year U.S. Treasury yields in the past 12 months. The dots show the correlations from 2005 to RETURN TO THE RING [5]

6 Turning Insight Into Action With interest rates likely to rise in the United States, fixed income investors could face challenges yet again. Manage Interest Rate Duration Consider a flexible strategy with the ability to actively manage duration. Manage Interest Rate Risk Seek to reduce interest rate risk through time by using a diversified bond ladder and matching term maturity to specific investing needs. Seek Income Cast a wider net for income while seeking to carefully balance the tradeoffs between yield and risk. Build a Diversified Core Consider using core bonds for potential diversification benefits and possible protection from unforeseen shocks to equity markets. Fixed Income We are underweight Treasuries and at benchmark weight on Treasury Inflation- Protected Securities (TIPS). Shorter-maturity Treasury yields increased meaningfully in anticipation of the Fed liftoff, but longer-maturity Treasury yields remained anchored by weak global growth expectations and lower energy prices. Treasuries were also hit by European rates, which climbed sharply after recent ECB policy actions fell short of market expectations but stabilized somewhat after additional comments from ECB President Mario Draghi (see the chart below). We still prefer duration exposure from TIPS over Treasuries given what appear to be unrealistically low inflation expectations priced into the market. We remain overweight high yield but are cognizant of downside volatility. As oil prices tumbled, high yield debt sold off and credit spreads widened considerably. Sentiment worsened on energy and commodity sectors, but the fall has also extended beyond the energy-related despite intact fundamentals of non-energy sectors. Our standing overweight in the overall asset class is based on a fundamental view, but it has struggled. While investors should continue to expect high levels of volatility, we believe that the current drop is more technically driven. At current spreads, the implied levels of default risk appear to be much greater than what would be expected at this point in the credit cycle. Finally, high yield bonds have historically performed well during periods of modestly rising interest rates. We have a neutral position in EM debt but favor those denominated in hard currencies. Although EM assets in general have had a tough year, EM debt in U.S. dollars has surprisingly outperformed other fixed income segments despite being under a cloud of negative sentiment regarding emerging markets overall. High yield countries, which are significantly less leveraged than their U.S. credit counterparts, drove the segment s outperformance. Hard-currency EM debt has also benefited from a positive correlation with U.S. Treasuries, but this could potentially detract from performance if U.S. rates move higher. MARIO IN YOUR CORNER Disappointment with the ECB s recent QE extension pushed the yield of the 10-year German Bund sharply higher until it later stabilized on supportive comments from Mario Draghi YIELD (%) Nov 25, 2015 Dec 1, 2015 Dec 7, 2015 Dec 11, 2015 Sources: Thomson Reuters Datastream, BlackRock Investment Institute, as of 14 December Note: Chart shows the yield of the 10-year German Bund during the two-week period. [6] BLACKROCK INVESTMENT DIRECTIONS

7 Hot Topic: Can the Global Economy Keep Growing? While investors have spent much of 2015 focused on the Fed and the monetary cycle, next year the business cycle is likely to be the primary driver of markets. As we head into 2016, BlackRock's base case is a continued modest expansion. Despite the conflicting signals coming in about the state of the global economy, we do not see a global recession ahead. Instead, we believe that global growth, at the aggregate level, will remain steady, albeit slow, and our outlook for the U.S. economy is similar. While 2015 will likely turn out to be an uninspiring year, with global growth close to 3%, there are few signs of an imminent recession. It is true that many cyclical commodities are deep in a bear market, normally a warning sign for the global economy (see the chart below). However, the collapse in commodity prices is primarily a function of oversupply and a shift in the composition of Chinese growth toward consumption. Apart from commodity prices, most global indicators and surveys are still in expansionary territory, with services sectors generally doing better than manufacturing ones. Looking more closely at the U.S., this trend is evident. The U.S. manufacturing sector is clearly struggling under the weight of the emerging market slowdown, a strong U.S. dollar and the collapse in energy-related activity. However, broader measures of the economy are more robust, and the U.S. labor market is in good health. Though the recovery is now relatively established, the good news is that sluggish growth has not led to an inventory buildup, excess capital spending or a consumer debt binge. This suggests that the expansion can continue. That said, there will probably be pockets of weakness, mostly confined to commodity-sensitive emerging markets and manufacturing sectors. DOWN FOR THE COUNT? Commodities have taken a beating this year, but it is presumptuous to call a 'knockout' on the global economy ANNUAL CHANGE (%) S&P GSCI Energy Index S&P GSCI Metals Index <2.5% Global GDP Growth Sources: Thomson Reuters Datastream, S&P, Oxford Economics, BlackRock Investment Institute, as of 11 December Note: Chart shows the rise and fall of energy and metals stocks in relation to periods of slow global growth. RETURN TO THE RING [7]

8 DRILLING DOWN: EQUITY AND FIXED INCOME OUTLOOKS CURRENT ENVIRONMENT Risk/ Global Region Valuations Growth Profitability Sentiment DEVELOPED MARKETS North America United States + Canada + Europe Eurozone Switzerland + United Kingdom + + Asia Pacific Japan Australia + EMERGING MARKETS Asia Pacific China + India + + South Korea + + Latin America Brazil + Mexico Emerging EMEA Russia + South Africa + Global Sector & Style Valuations Growth Profitability CYCLICAL SECTORS Risk/ Sentiment Consumer Discretionary Energy + Financials + + Industrials Information Technology Materials + OUR VIEW AND OUTLOOK Price Trend underweight neutral overweight Price Trend underweight neutral overweight DEFENSIVE SECTORS Consumer Staples Health Care Telecommunications Utilities U.S. Equity Factors Valuations Growth Profitability Risk/ Sentiment Value + + Size + Quality + + Momentum + Minimum Volatility + + Fixed Income Sector Valuations Economics Risk/ Sentiment U.S. Treasuries + U.S. TIPS U.S. Investment Grade Credit + + U.S. High Yield Credit + + U.S. Municipals + U.S. Mortgage-Backed Securities + Non-U.S. Developed Markets Emerging Markets Supply & Demand Opportunity Holding Cost Safe Haven Demand Inflation Hedge Demand Gold* Price Trend underweight neutral overweight Price Trend underweight neutral overweight Price Trend underweight neutral overweight unattractive neutral + attractive underweight outlook slightly underweight outlook current neutral outlook slightly overweight outlook overweight outlook Underweight: Potentially decrease allocation Neutral: Consider benchmark allocation Overweight: Potentially increase allocation * See the appendix for an explanation of the methodology for our gold views and other outlooks. Note that the time frame for these views is generally three to 12 months. Please note that the views expressed above in the factor table are for time frames of at least three months. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research, investment advice or a recommendation regarding the ishares Funds or any security in particular. This information is strictly for illustrative and educational purposes and is subject to change. This information does not represent the actual current, past or future holdings or portfolio of any BlackRock client. [8] BLACKROCK INVESTMENT DIRECTIONS

9 Appendix The analysis behind our equity views: Our approach in deriving country/sector views is both quantitative and qualitative. In the quantitative framework, we take into account valuation, profitability, growth, risk/sentiment and price trend, among other factors, in deciding how attractive or unattractive a country or sector is. In the qualitative approach, we consider economic/political/policy event catalysts that can have a potential impact on financial market conditions. The variables included in the table are indicative of key considerations behind our investment views, and should not be viewed in isolation. Valuations: We measure a country s price-to-book ratio premium/discount to its own trading history, and compare the premium/discount to that of other emerging or developed countries. If a country s valuation is at a discount to its own historical average and the discount is greater than that of other countries, we assign "+," and vice versa. Growth prospects: We assign a + to countries that are growing faster (as measured by leading indicators and earnings growth prospects) than their past trends and a - to countries growing slower. Corporate sector profitability: A country with a relatively profitable corporate sector (as measured by ROA) is assigned a + and we give a - to countries growing more slowly. Risk/Sentiment: A country that is perceived as relatively safe (according to historical volatilities and credit default swap (CDS) spreads) is assigned a + ; a risky country is assigned a -. Price Trend: An asset with a relatively good return performance within the previous year is assigned a + ; an asset with relatively poor returns is assigned a -." The factors are not equally important in driving returns at a given point in time. As a result, when it comes to formulating our final views, the various factor readings are not additive. For example, a + value factor may overshadow negative readings in other factors, leading us to still like the country. We use a similar methodology for coming up with our sector and equity factor views, focusing on valuations (P/B and P/E), profitability (ROA and ROE), expected profitability (ROA and ROE) improvements as a proxy for future growth, risk/ sentiment (historical volatilities and sector spreads) and past price trends. In addition, we consider the global growth outlook for cyclical and defensive sectors. In addition, our view on gold is similarly based on the macroeconomic factors that historically impact gold returns. These include the opportunity cost of holding gold (real interest rates); supply and demand; inflation (gold as a real asset tends to act as an inflation hedge); safe haven demand (during periods of high financial stress, demand for gold tends to increase) and momentum. The analysis behind our fixed income views: In general, when formulating our fixed income views, we put more weight on the Valuations bucket than on either the Economics or Risk/Sentiment buckets. Valuations: We focus on discounted risk-adjusted cash flows relative to market prices. When a sector exhibits market prices well above what our model sees as fair, we assign the sector a - ; we assign a + when the opposite is true. Economics: In general, when the overall economic environment (as measured by basic economic and/or aggregate balancesheet fundamentals) is particularly favorable for a given fixed income sector, we assign a + ; we assign a - when the opposite is true. Risk/Sentiment: When a sector has exhibited strong positive returns/risk appetite (as measured by trailing returns) over the previous several months, we score it a + ; we assign a - when the opposite is true. Price Trend: An asset with a relatively good return performance within the previous year is assigned a + ; an asset with relatively poor returns is assigned a -." Less Risk Appetite Risk Appetite Index RISK APPETITE DIAL last month More Risk Appetite Investor risk appetite dipped amid an intensifying commodity rout. Worries were compounded by less-than-anticipated easing by the ECB and higher interest rates in the United States. Credit markets followed commodities and equities down: High yield spreads surged and the gap with investment grade debt widened further, with energy issuers struggling the most. Growth remains uneven across geographical regions and across different segments. Within the United States, the labor market is clearly gaining pace, which could support consumption, but the manufacturing sector is flagging under the weight of a strong dollar and weak external demand. RETURN TO THE RING [9]

10 Contributors Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock, and Chief Investment Strategist for ishares. He is a founding member of the BlackRock Investment Institute, delivering BlackRock s insights on global investment issues. Stephen Laipply is Product Strategist for BlackRock s Model-Based Fixed Income Portfolio Management Group. Shannon Morton, CFA, is a Global Investment Strategist for BlackRock, where her responsibilities include relating the Investment Strategy Team s research and investment views to key institutional and financial advisor clients. Nelli Oster, PhD, is a Global Investment Strategist for BlackRock, where her responsibilities include relating the Investment Strategy Team s research and investment views to key institutional and financial advisor clients, and developing the tactical country, sector and asset allocation models. Kurt Reiman is a Global Investment Strategist for BlackRock, where his responsibilities include relating the Investment Strategy Team s research and investment views to key institutional and financial advisor clients. Heidi Richardson is a Global Investment Strategist for BlackRock and Head of Investment Strategy for U.S. ishares. Terry Simpson, CFA, is a Global Investment Strategist for BlackRock, where his responsibilities include relating the Investment Strategy Team s research and investment views to key institutional and financial advisor clients. Matt Tucker, CFA, is the Head of North American Fixed Income ishares Strategy within BlackRock s Fixed Income Portfolio Management team. Ruiling Zeng, CFA, is an Investment Strategist and Researcher for BlackRock, where her responsibilities include researching and communicating investment views across countries, sectors and asset classes. LET US KNOW How do you use this market commentary and do you find it useful? Please share your feedback and any questions or concerns you have at blackrockinvestments@blackrock.com. You also can find the latest market commentary from the Investment Strategy Group at BlackRockblog.com, BlackRock.com and ishares.com. [10] BLACKROCK INVESTMENT DIRECTIONS

11 WHY BLACKROCK BlackRock helps people around the world, as well as the world s largest institutions and governments, pursue their investing goals. We offer: } A comprehensive set of innovative solutions, including mutual funds, separately managed accounts, alternatives and ishares ETFs } Global market and investment insights } Sophisticated risk and portfolio analytics We work only for our clients, who have entrusted us with managing $4.5 trillion, earning BlackRock the distinction of being trusted to manage more money than any other investment firm in the world.* Want to know more? blackrock.com * Source: BlackRock. Based on $4.5 trillion in AUM as of 30 September RETURN TO THE RING [11]

12 Want to know more? Austria +49 (0) France +33 (0) Luxembourg +32 (0) Switzerland +41 (0) Belgium +32 (0) Germany +49 (0) Netherlands +31 (0) UK +44 (0) Denmark +45 (0) Israel +44 (0) Norway +47 (0) Finland +358 (0) Italy +39 (0) Sweden +46 (0) blackrock.com 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. For your protection, calls are usually recorded. For investors in Israel BlackRock Advisors (UK) Limited is not licensed under Israel's Regulation of Investment Advice, Investment Marketing and Portfolio Management Law, This document has not been approved by the Israel Securities Authority and will only be distributed to Israeli residents in a manner that will not constitute "an offer to the public" under sections 15 and 15a of the Israel Securities Law, (the "Securities Law") or section 25 of the Joint Investment Trusts Law, as applicable. The document is being offered to those categories of investors listed in the First Addendum (the "Addendum") to the Securities Law, ("Institutional Investors"); in all cases under circumstances that will fall within the private placement or other exemptions of the Joint Investment Trusts Law, the Securities Law and any applicable guidelines, pronouncements or rulings issued from time to time by the Israel Securities Authority. This document may not be reproduced or used for any other purpose, nor be furnished to any other person other than those to whom copies have been sent. Nothing in this document should be considered investment advice or investment marketing as defined in the Regulation of Investment Counselling, Investment Marketing and Portfolio Management Law, This document does not constitute an offer to sell or solicitation of an offer to buy any securities, nor does it constitute an offer to sell to or solicitation of an offer to buy from any person or persons in any state or other jurisdiction in which such offer or solicitation would be unlawful, or in which the person making such offer or solicitation is not qualified to do so, or to a person or persons to whom it is unlawful to make such offer or solicitation. For investors in Switzerland The ishares ETFs are domiciled in Ireland, Switzerland and Germany. BlackRock Asset Management Schweiz AG, Bahnhofstrasse 39, CH-8001 Zurich is the Swiss Representative and JPMorgan Chase Bank, National Association, Columbus, Zurich branch, Dreikönigstrasse 21, 8002 Zurich, the Swiss Paying Agent for the foreign ishares ETFs registered in Switzerland. From 1st February 2016 JP Morgan Chase Bank is replaced as the Swiss Paying Agent by State Street Bank GmbH, Munich, Zurich Branch, Beethovenstrasse 19, CH-8002 Zürich. The Prospectus, the Prospectus with integrated fund contract, the Key Investor Information Document, the general and particular conditions, the Articles of Incorporation, the latest and any previous annual and semi-annual reports of the ishares ETFs domiciled or registered in Switzerland are available free of charge from BlackRock Asset Management Schweiz AG. 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 the manager. 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 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, ishares, BUILD ON BLACKROCK, SO WHAT DO I DO WITH MY MONEY and the stylized i logo 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 l-IS-SNUGLIFABIsIr-DeFiNoSw-DEC15-EN-EMEAiS