Selecting Appropriate ETFs for Your Portfolio

Transcription

1 MARCH 23, 2016 Selecting Appropriate ETFs for Your Portfolio TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank TD Ameritrade IP Company, Inc. All rights reserved. Used with permission.

2 Important Disclosures MARCH 23, 2016 Carefully consider the investment objectives, risks, charges and expenses before investing in an ETF (Exchange Traded Fund). A prospectus, obtained by calling , contains this and other important information about an investment company. Read carefully before investing. ETFs can entail risks similar to direct stock ownership, including market, sector, or industry risks. Some ETFs may involve international risk, currency risk, commodity risk, and interest rate risk. Trading prices may not reflect the net asset value of the underlying securities. Commission fees typically apply. Stock investments are subject certain risks such as market risk, price volatility and liquidity risk. An investment cannot be made directly in an index. Past performance of a security, strategy or index is no guarantee of future results or success. The material, views and opinions expressed in this presentation are solely those of the presenter and may not be reflective of those held by TD Ameritrade, Inc. The webcast is provided for general information purposes only and should not be considered an individualized recommendation or advice. TD Ameritrade makes no representations or warranties with respect to the accuracy or completeness of the information provided. Examples and recommendations presented by BlackRock should not be considered a recommendation or solicitation by TD Ameritrade to purchase or sell any specific security. TD Ameritrade and BlackRock are separate, unaffiliated companies and not responsible for one another s products, services or policies. This presentation includes a feature that allows recording of electronic (including audio) participant-shared content. By continued participation in this session you automatically consent to such recording, and the subsequent rebroadcast of any recording.

3 Today s Speaker Dominic Maister Managing Director, BlackRock 17-year industry veteran with extensive experience in capital markets and ETFs including: research, model portfolios, messaging and platform placements Joined BlackRock in 2010 on the ishares ETF Due Diligence Team Was previously an Executive Director at Morgan Stanley and Head of ETF and CEF Research

4 Navigating the ETF Landscape March 29, 2016

5 ETF Basics

6 What is an ETF? Two Great Investment Ideas Brought Together Stock Like a mutual fund Tradable during the day Diversified ETFs ETFs Diversified funds that trade like stocks

7 What is an ETF? An Evolution in Investing. Changing the way we communicate. Changing the way Like a stock we invest. Like a mutual fund Image: Salvatore Vuono / computer

8 ishares ETFs and Mutual Funds: Key Differences Criteria ishares ETFs Active Mutual Funds Performance goal Track a benchmark Outperform a benchmark Management Passive Active Performance risks Performance may differ from benchmark. Holdings not altered during rising / falling markets. May not meet performance goal. May underperform due to manager s holdings selection. Buying / selling shares Intraday on exchanges. Once per day via fund company. Price to buy / sell Current market price, which may differ from NAV. End-of-day NAV, less fees. Fees Expense ratio + transaction / brokerage costs. Expense ratio + any sales loads / redemption fees. Tax impact 1 of buyers / sellers Shareholders only impacted by their own action. Holdings disclosure Daily Typically quarterly Shareholders may be impacted by all other shareholders actions. 1. Both vehicles are obliged to distribute capital gains to all shareholders.

9 It s Always Good to Know What You re Buying: Ask Questions. What are you getting? Most ishares ETFs are designed to track market benchmarks What are you holding? ishares ETFs hold stocks and bonds ishares funds publish holdings on a daily basis What does it cost? Typically lower fees than active mutual funds Structured to reduce tax consequences where possible

10 Why do investors Use ETFs? Return Risk Risk Total Performance Costs (and Costs taxes) (and Taxes) Seek to outperform other investments Performance vs. active funds Express a view Seek to Manage risk Diversification Tradability and flexibility Spend less, save more Cost effectiveness Tax efficiency Transparency Transactions in shares of ETFs will result in brokerage commissions and will generate tax consequences. All regulated investment companies are obligated to distribute portfolio gains to shareholders.

11 Global ETP Assets and Number of Funds A $3 Trillion Industry Total Assets ($bn) 3,000 2,500 Assets Commodities, Currencies, Alternatives Fixed Income Equity 4,311 4,759 5,024 5,431 5,822 #ETPs 6,000 5,000 2,000 3,543 4,000 1,500 1, ,694 2,797 2,960 2,220 2,396 1,541 1, , ,483 1, ,000 2,000 1,000 0 Data is as of December 31, Global ETP flows and assets are sourced using shares outstanding and net asset values from Bloomberg for the US, Canada, Europe, Latin America and some ETPs in Asia. Middle East ETP assets are sourced from the Bank of Israel. ETP flows and assets in China are sourced from Wind. Inflows for years prior to 2010 are sourced from Strategic Insights Simfund. Asset classifications are assigned by BlackRock based on product definitions from provider websites and product prospectuses. Other static product information is obtained from provider websites, product prospectuses, provider press releases, and provider surveys. 11

12 Today s ETP Composition- Breadth of Exposures is Increasing Assets ($BN) Others Commodities Fixed Income Emerging Markets Equity Developed Markets Equity Source: BlackRock ETP Landscape. Data through December Other includes Alternatives, Currencies, and Asset Allocation 12

13 Selecting the Right ETF for your Portfolio 13

14 Key Criteria for Selecting the Right ETF Manager How well do you know your ETF manager? Exposure What s inside your ETF? Structure What are the implications of structure? Liquidity Can you trade when you need to? Costs What does it really cost?

15 1. Manager How well do you know your ETF Manager? Expertise in the ETF market Track record, experience, commitment. It takes size, skill and expertise to realize ETFs benefits for investors. A business model aligned with your needs What insights and tools are available to help you navigate ETFs, build portfolios and execute strategies?

16 2. Exposure What s inside your ETF? Targeted exposure Broad or narrow? Depth of coverage? Overlap or gaps with other index products or active funds? Index name recognition Trackable, comprehensive and representative of the investment opportunity? Industry-standard indexes you want as benchmarks? Frequency of disclosure and level of transparency Infrequent disclosure of holdings exposes investors to risk. Index Methodology Impacts Underlying Economic Exposure

17 Managing Index Exposure Putting Indexes Together Russell 3000 Russell 1000 Russell 200 S&P 1500 S&P 500 MSCI Broad Market Index MSCI Large Cap 300 MSCI Prime Cap 750 Russell Midcap S&P Midcap 400 MSCI Mid Cap 450 Russell 2000 Russell Microcap S&P Small Cap 600 MSCI Small Cap 1750 For illustrative purposes only market cap spectrum not to scale.

18 3. Structure What are the implications of ETF Structure? Designed to maximize potential benefits to shareholders Balancing exposure with cost and tax efficiency and liquidity. Stand-alone, dedicated ETF structure Insulation from the activities of other shareholders only happens with this structure. 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. There can be no assurance that an active trading market for shares of an ETF will develop or be maintained.

19 Structure Impacts Risks, Taxes and Tracking Error 1940 Act 1933 Act Open-end Fund Unit Investment Trust Grantor Trust Exchange Traded Notes Closed-end Fund Other Listed Vehicles Limited Partnership

20 ETFs may offer lower internal costs and greater capital gains efficiency Buyers Mutual Fund Stock Exchange Sellers Investors interact with the fund to buy or sell shares For illustrative purposes only 20

21 ETFs may offer lower internal costs and greater capital gains efficiency Buyers Sellers Stock Exchange Authorized participants In-kind transfer ishares Investors are insulated from each other, and in-kind transfer helps clear low cost basis positions, improving tax-efficiency For illustrative purposes only 21

22 Multi-class Structure: Multiple Interests Mutual fund shareholders interact with the same investment pool underlying the ETF share class Direct investor share Institutional share Mutual fund investment pool Advisorsold share ETF share Actions of Mutual Fund Shareholders may Create Capital Gains Distributions for ETF Shareholders. Additionally, ETF Shareholders may Pay for Potential Costs Incurred by Other Share Classes

23 Taxes: The ishares difference Percentage of funds that paid capital gains in on average over 5 years ( ) Mutual Funds* ishares ETFs Vanguard 40% 3% 15% * Represented by the oldest share class of each Open-End Mutual Fund available in the United States that incepted on or before 12/31/2015. Sources: BlackRock, Morningstar as of 12/31/15. Past distributions are not indicative of future distributions. Transactions in shares of the ishares Funds will generate tax consequences. ishares Funds are obliged to distribute portfolio gains to shareholders. Information on Vanguard ETFs 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 funds, other than ishares ETFs, that are described in this material. 23

24 Investment Growth (8% Return Assumption) Taxes are a Cost of Investing Growth of $100,000, with and without Tax Costs (10 Years) $250,000 $225,000 $200,000 Total tax impact $20,643 $175,000 $150,000 Annual Tax Cost: 1% $125,000 $100,000 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Source: BlackRock. For illustrative purposes only. Does not include commissions or sales charges or fees.

25 4. Liquidity Can You Trade when You Need to? Liquidity is like oxygen: You don t notice it until it s gone Credit crisis of 2008 placed a premium on liquid investments and liquid investment vehicles. Provider support for liquidity Tight bid / ask spreads in conjunction with deep, liquid markets are ideal for all investors. There can be no assurance that an active trading market for shares of an ETF will develop or be maintained

26 Bid/Offer Spread (Bps) ishares ETFs offer low-cost, market access ishares ETFs generally offer price improvement, making the ETF less expensive to trade than the underlying securities of the respective index IWM EFA EEM EWZ FXI CSJ LQD HYG TLT EMB ishares Bid/Offer Basket Bid/Offer* (est.) ishares ETF Name ishares ADV ($M**) ishares AUM ($M) Russell 2000 MSCI EAFE MSCI Emerging Markets MSCI Brazil Capped China Large-Cap 1-3 Year Credit iboxx $ Investment Grade Corporate Bond iboxx $ High Yield Corporate Bond 20+ Year Treasury Bond J..P Morgan USD Emerging Markets Bond 3,401 1,239 2, , ,917 57,422 29,575 2,987 6,183 10,893 22,418 16,712 6,506 4,529 *Market Bid/Offer spread refers to the underlying securities of the respective index **20-day average daily volume, as of 3/31/15. For illustrative purposes only. Source: BlackRock, Bloomberg, Barclays, NYSE Arca, as of 3/31/15. 26

27 What s Behind ishares ETF Tax Efficiency? Index funds = lower portfolio turnover Protection from shareholder activity Experienced portfolio management ETFs can produce capital gain distributions. For example, capital gains distributions are produced during an underlying index reconstitution or corporate actions (especially foreign). Trading shares of ETFs will also generate tax consequences and transaction expenses. Certain traditional mutual funds can be tax efficient as well.

28 ETF Portfolio Management Strategy Drives Tracking Error Replication vs. optimization Full replication No asset-specific tracking error. Required for Unit Investment Trusts (UITs). Optimization Often employed to meet 1940 Act or other regulatory requirements. Fund holds a representative sample. Designed to maintain similar industry and risk characteristics to the benchmark index. Balance exposure with liquidity and tax management. Tracking error measures the standard deviation of excess returns from one investment to another investment.

29 Lower investing costs Morningstar Category Average Active Fund Fees (%) 1 ishares ETFs Mgmt. Fees (%) 2 Corresponding ishares ETFs Large Cap Blend ishares Core S&P 500 ETF Small Cap Blend ishares Core S&P Small-Cap ETF International Blend ishares Core MSCI Total International Stock ETF Diversified Emerging Markets ishares Core MSCI Emerging Markets ETF Intermediate Term Fixed Income ishares Core U.S. Aggregate Bond ETF 1. Average fees represent the average net expense ratio for active, open-end US mutual funds on December 31, Management Fees are fees paid to BlackRock Fund Advisors, the Funds investment advisor. A Fund may also incur indirect expenses on its investments, if any, in other investment companies. Please see the Funds prospectuses for more information on such expenses. 3. Gross expense ratio is 0.09%. BlackRock Fund Advisors ("BFA"), the investment adviser to the Fund and an affiliate of BlackRock Investments, LLC, has contractually agreed to waive a portion of its management fees through June 30, The annual management fees of ishares Funds may be substantially less than those of most mutual funds. Buying and selling shares of ishares Funds will result in brokerage commissions, but the savings from lower annual fees can help offset these costs Sources: BlackRock and Morningstar, as of 12/31/15

30 Selecting the Right ETF: Key Takeaways Manager How well do you know your ETF manager? Exposure What s inside your ETF? Structure What are the implications of structure? Liquidity Can you trade when you need to? Costs What does it really cost?

31 Building a Low-Cost Core Portfolio with ETFs 31

32 ishares Core suite offers comprehensive coverage to key U.S. Stocks, International Stocks and U.S. Bond categories U.S. Stocks Trading Symbol Expense Ratio (%) U.S. Bonds Trading Symbol Expense Ratio (%) ishares Core S&P Total U.S. Stock Market ITOT 0.07 ishares Core S&P 500 IVV 0.07 ishares Core S&P Mid-Cap IJH 0.12 ishares Core S&P Small-Cap IJR 0.12 ishares Core U.S. Growth IUSG 0.09 ishares Core U.S. Value ISGV 0.09 ishares Core High Dividend HDV 0.12 ishares Core U.S. Aggregate Bond AGG 0.08 ishares Core 1-5 Year USD Bond ISTB 0.12 ishares Core 10+ Year USD Bond ILTB 0.12 ishares Core Total USD Bond Market IUSB 0.15 ishares Core U.S. Credit Bond CRED 0.15 ishares Core U.S. Treasury Bond GOVT 0.15 ishares Core GNMA Bond GNMA 0.15 ishares Core Dividend Growth DGRO 0.12 International Stocks Trading Symbol Expense Ratio (%) ishares Core MSCI Total International Stock IXUS 0.14 ishares Core MSCI EAFE IEFA 0.12 ishares Core MSCI Emerging Markets IEMG 0.18 ishares Core MSCI Europe IEUR 0.14 ishares Core MSCI Pacific IPAC 0.14 Expense Ration as of 06/30/15 The net expense ratio is shown for these funds. BlackRock Fund Advisors ("BFA"), the investment adviser to the Fund and an affiliate of BlackRock Investments, LLC, has contractually agreed to waive a portion of its management fees through the following dates: AGG: 6/30/16; IUSB: 2/29/16; GNMA: 2/29/16. Gross expense ratios for these funds are 0.09%, 0.16% and 0.18% respectively. 32

33 ishares Core suite offers a modular way to invest in markets Broad Markets Comprehensive coverage across U.S. equities, international equities and fixed income can be achieved with three ETFs Specialized Markets Diversification within each category can be customized based on an investor s needs and individual market views ITOT IUSB IJH IVV S&P 500 ISTB 1-5 Year USD Bond ILTB 10+ Year USD Bond Total U.S. Stock Market Total U.S. Bond Market S&P Mid-Cap GOVT U.S. Treasury IJR S&P Small-Cap CRED U.S. Credit IXUS World Ex-US IEFA Developed Markets IEMG Emerging Markets This information should not be relied upon as research, investment advice or a recommendation regarding the 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. Diversification may not protect against market risk or loss of principal. 33

34 ishares Core suite: U.S. Stock ETFs ishares Core U.S. Stock ETFs provides flexibility by providing a simple way to customize portfolios 1. Customization by Market Capitalization 2. Further customization by style of investment or income generation Style IVV 500 IUSG ishares Core U.S. Growth U.S. growth stocks based on an index capturing ~99% of the market ITOT [VALUE] IJH 400 IVV [VALUE]% IUSV ishares Core U.S. Value U.S. value stocks in a low-cost, tax-efficient fund IJR Income Generation 600 IJH [VALUE]% IJR 3% HDV ishares Core High Dividend High-quality U.S. dividend-paying companies screened for financial health Total U. S. Stock Market IVV (S&P 500) IJR (S&P Small Cap) # of Holdings % of Total U.S. Stock Market* IJH (S&P Mid Cap) ITOT (Total U.S. Stock Market) DGRO ishares Core Dividend Growth U.S. companies with sustainable dividend growth, balanced across sectors * Percentages reflect U.S. Stock Market and do not represent S&P Indices nor ishares ETFs. ETF tickers shown for illustrative purposes. 34

35 ishares Core suite: International Stocks ishares Core International Stock ETFs offers investors access to 99% of the investable international market: MSCI indices: a dominant international equity benchmarks for institutional and retail investors, with over $9.5 trillion * benchmarked globally MSCI investable market indices: access to approximately 99% of the market (large, mid-and small-cap) versus MSCI standard indexes which only covers 85% of the market (large- and mid-cap) 1 ishares Core International Stock ETFs provides simple modular customization: Easy way to tailor-fit portfolios without the worry of overlap in selective markets IEUR IEMG IXUS IEFA IPAC IEUR Total International Market Regional Markets Developed Markets IXUS ishares Core MSCI Total International Stock Broad international developed & emerging market stocks IEMG ishares Core MSCI Emerging Markets Emerging market companies IPAC ishares Core MSCI Pacific Large-, mid-, and small-cap stocks in Australia, Hong Kong, Japan, New Zealand and Singapore ishares Core MSCI EAFE IEFA Developed international market stocks, including small-caps * As of 06/30/14, as reported on 09/30/14 based on evestment, Morningstar, and Bloomberg data. 1 Source: MSCI IEUR ishares Core MSCI Europe European companies, including mid-, and small-caps 35

36 ishares Core suite: U.S. Bonds ishares Core Bond ETFs offer ways to capture the broad market or express a personalized view on a specific component of the bond market 1. Start broad 2. Tilt based on personalized views Total U.S. Bond Market Term Credit exposure AGG ishares Core U.S. Aggregate Bond Invest in 2,000+ U.S. investment-grade bonds in a single fund ISTB ishares Core 1-5 Year USD Bond Seek potential protection against rising interest rates while aiming to generate income CRED ishares Core U.S. Credit Bond Access to the broad domestic credit market IUSB ishares Core Total USD Bond Market Get comprehensive exposure to USD bonds, including high yield and emerging markets ILTB ishares Core 10+ Year USD Bond Seek income with a diversified portfolio of long-term bonds GOVT ishares Core U.S. Treasury Bond Capture the broad U.S. Treasury yield curve across 1-30 year maturities GNMA ishares Core GNMA Bond Invest in U.S. residential mortgage-backed bonds, which carry the full faith and credit guaranty of the U.S. Government 36

37 BlackRock s ishares Platform ishares make investing simple, easy and efficient for investors of all sizes ishares is a leading ETF provider, with more than a decade of expertise and commitment to investors. 1 ishares consistently delivers quality funds that clients globally rely on to invest for the future. 2 ishares harnesses the insights and experience of Blackrock, trusted to manage more money for investors than any other firm in the world. 3 1 Blackrock, as of 9/30/15. Based on 746 ETFs and $1.02 trillion in assets under management globally. 2 ishares Index Funds seek to track the investment results of their underlying benchmark, less fees and expenses. Tracking error is a measure of how closely a Fund follows the index to which it is benchmarked. Over a three year period, as of 06/30/15, 68% of global ishares Funds were within 25 bps and 84% were within 50 bps of their benchmarks, based on the Net Asset Value of the Funds. Past performance is no guarantee of future results. 3 Based on $4.52 trillion in assets under management as of 09/30/15. 37

38 Retirement Income with ETFs

39 Potential Yield Bond Ladders Just Got Easier to Manage with ibonds ETFs ibonds ETFs offer investors an easy way to build and maintain bond ladders, and are designed to: Mature, like a bond. Investment grade bond portfolios with a specified maturity date. Like individual bonds, investors are exposed to less interest rate risk over time as ibonds ETFs approach maturity. Trade, like a stock. ibonds ETFs trade throughout the day on the exchange, so you are not subject to trading in the over-the-counter (OTC) bond market. Diversify, like a fund. Exposure to hundreds of bonds in a single fund. Designed to: MATURE, like a bond TRADE, like a stock DIVERSIFY, like a fund Manage a 5 Year Bond Ladder with just 5 ibonds ibonds ETF ibonds ETF ibonds ETF ibonds ETF ibonds ETF Create new bond ladders with ibonds ETFs Plug holes in existing ladders when bonds mature, get called or default Reinvest bond coupons into ibonds ETFs Year 1 Year 2 Year 3 Year 4 Year 5 For illustrative purposes only. Not meant to portray any specific fund yield. Suite Corporate IBDF IBDJ IBDH IBDK IBDL IBDM IBDN IBDO IBDP IBDQ Municipal IBME IBMF IBMG IBMH IBMI 39

40 ibonds ETF Mechanics The lifecycle explained How it works during the life of the ETF Like an individual bond, you are exposed to less and less interest rate risk over time as ibonds ETFs approach maturity At maturity, investors receive a final distribution which is similar in experience to receiving a bond s principal repayment ibonds investors can observe the approximate average yield to maturity of the underlying bond portfolio at the time of purchase. ibonds ETFs are open-ended funds, and an exact yield cannot be guaranteed, but should be comparable to that of the underlying bonds How it works at maturity Each ETF will terminate on or about its expiration date in the year of the fund name. In the final 12 months of the ETF, as the bonds held mature, the portfolio will transition to cash and cash equivalents. After all of the bonds in the portfolio mature, the ETF will delist from the exchange and make a final distribution to shareholders, which is similar in experience to owning an individual bond where the investor would receive principal payment when the bond matures. Monthly Distributions Yield to Maturity driven by monthly income distributions and end-date distribution End Date Distribution Bonds As bonds mature, the ETF will transition to cash and cash equivalents 1 Bond 1 Bond 2 Bond 3 Bond 4 Cash As periodic distributions decrease, end-date payouts tend to increase Investor YTM As periodic distributions increase, end-date payouts tend to decrease Maturity Maturity Maturity Maturity Maturity Transition Period End Date Distribution 1 Proceeds are expected to be distributed to investors shortly after all of the underlying bonds have matured. During maturity transition period, some portion of the Fund s assets will be in cash and cash equivalents, and is therefore subject to potential reinvestment risk. 40

41 Fixed Income Structure Comparison Structure Comparison ibonds Individual Bond Bond Portfolios Traditional Fixed Income ETFs Diversified Portfolio Yes No Yes Yes Distributions Monthly Semi-annual (Fixed) Throughout the year Monthly Set Maturity Date Yes Yes Depends on structure of portfolio No Trading Exchange OTC OTC Exchange Transparent intraday prices Yes No No Yes 41

42 Challenges with Traditional Bond Ladders and How ibonds Can Help Challenges Traditional Bond Ladders Benefits Ladders using ibonds Not Scalable: Difficult to manage Time consuming to research & monitor issuers Coupons, calls and maturities require reinvestment Diversification: ibonds ETFs provide exposure to a diversified pool of investment grade bonds in both municipals and corporates Hard to Diversify: Requires bonds across sectors / credit ratings Selecting different bonds for each client leads to varied performance across accounts Access: gain efficient access to bonds through ibonds ETFs Declining Access to Bonds: Broker-dealers are holding less inventory on their balance sheets due to the regulatory environment The strategies discussed are strictly for illustrative and educational 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. 42

43 Dividends in the Core

44 Dividend payers have outperformed non-dividend payers DIVIDEND PAYERS WEATHER DIVERSE MARKET CONDITIONS Average returns from 12/31/78 12/31/14 Bull Markets 25% Bear Markets 5% Overall 25% 20% 15% 18.1% 16.0% 18.2% 20.0% 0% -0.2% 20% 15% 14.4% 11.7% 13.3% 13.5% 10% -5% -3.6% 10% 5% -5.7% 5% 0% -10% -8.1% 0% Dividend Growers & Initiators Divided Growers & Eliminators Equal-weighted Universe Non-dividend Payers Source: BlackRock. Data from 12/31/1978 through 12/31/2014. The investment universe is the 500 largest U.S. stocks by market cap. Dividend policy constituents are calculated on a rolling 12-month basis and are rebalanced monthly. Category returns are calculated on a monthly basis. Shown for illustrative purposes only. Past performance is not indicative of future returns. The Dividend Growers & Initiators category represents performance for companies which either increased or initiated their dividend distribution. The Dividend Cutters & Eliminators category represents performance for companies which either cut or eliminated their dividend distribution. The Equal Weighted category represents performance for the 500 largest U.S. stocks by market cap, calculated by assigning the same weighting (0.20%) to each constituent. The Nonpayers category represents performance for companies which do not pay a dividend. Past performance is no guarantee of future results

45 Cumulative Returns Returns of stocks by dividend policy Dividend growers and initiators have demonstrated a history of outperformance Returns of the 500 largest U.S. stocks by dividend policy from 12/31/78 12/31/ Dividend Growers & Initators Equal Weighted Universe No Change Non-Dividend Payers Dividend Cutters & Eliminators Source: BlackRock. Data from 12/31/1978 through 12/31/2014. The investment universe is the 500 largest U.S. stocks by market cap. Dividend policy constituents are calculated on a rolling 12-month basis and are rebalanced monthly. Category returns are calculated on a monthly basis. Shown for illustrative purposes only. Past performance is not indicative of future returns. The Dividend Growers & Initiators category represents performance for companies which either increased or initiated their dividend distribution. The Equal Weighted category represents performance for the 500 largest U.S. stocks by market cap, calculated by assigning the same weighting (0.20%) to each constituent. The No Change category represents performance for companies which pay a dividend but have not increased nor decreased their dividend distribution. The Nonpayers category represents performance for companies which do not pay a dividend. The Dividend Cutters & Eliminators category represents performance for companies which either cut or eliminated their dividend distribution.

46 Key considerations for dividend investing Income Is the yield level sufficient given income needs? What measures are used to evaluate a constituent s ability to continue to pay attractive yields? Is the screening methodology forward or backward looking? Are there any special tax considerations for using this product that would affect realized yield? (Capital Gains History/Estimates, Qualified Dividend Eligible Income Levels / Screens, Level of Foreign Tax Withholding, etc.) Quality Is the fund specifically designed to screen for quality constituents? How is the dividend yield mandate of the fund captured? Risk Does the fund have any explicit risk control mechanisms? How is risk defined and measured? What, if any, process is used to remove companies that are in distress? Are there risks or biases that are present in the fund due to the index methodology? (Sector / Market Cap / Stock Concentration, Nature of Companies in this Strategy, Potential Hidden Risk Factors, etc.)

47 Morningstar U.S. Dividend Growth Index methodology Initial Universe Targets 97% of U.S. Market Cap Coverage, excluding non-qdi eligible, ADRs, LPs Dividend History Screen At least five years of uninterrupted annual dividend growth If dividend remained constant but company executed share repurchases the company is included Dividend Sustainability Screen Security Weighting Companies in top decile by dividend yield are excluded Earnings payout ratio must be less than 75% Weighted by dividend dollars Max security weight +/- 3% Morningstar US Dividend Growth Index A broadly diversified portfolio that focuses on companies that have begun to sustainably grown their dividends. Source: Morningstar, view the index methodology at

48 Morningstar Dividend Yield Focus Index methodology Initial Universe: Morningstar US Market Index Targets 97% of U.S. Market Cap Coverage, excluding non-qdi eligible, ADRs, LPs Moat Classification Screen Measures the sustainability of a company s future economic profits. Securities are placed in to 3 categories: wide, narrow, or none Distance to Default Screen Measures the financial health of a company and the probability of default Security Weighting Top 75 stocks Weighted by dividend dollars Max security weight 10% Morningstar Dividend Yield Focus Index Forward-looking methodology focuses on dividend-paying U.S. companies that have been screened for superior company quality and financial health. Source: Morningstar, view the index methodology at

49 Cyclical ishares Core - Dividend Solutions DGRO ishares Core Dividend Growth ETF Expense Ratio: 0.12% GICS Sector Diversification HDV Access to portfolio of dividend-paying US companies that seeks to balance current yield, dividend growth, and sector diversification 300+ dividend-paying stocks, weighted by dividend dollar value, capped at 3% per holding Focus on potential GROWTH of dividends (e.g., 5-year history of dividends with screen for sustainability) and maintains broad sector diversification ishares Core High Dividend Equity ETF Expense Ratio: 0.12% Access to high-quality, dividend-paying US companies that have been screened for superior company quality and financial health Top 75 dividend-paying US stocks, weighted by dividend dollar value, capped at 10% per holding Focus on QUALITY (e.g., moat / distance to default) which lends itself to be dominated by the mega cap and defensive names 5.2% 6.6% 13.6% 14.7% 4.2% 16.2% 11.2% 14.6% 13.3% 9.9% 20.8% 7.8% 5.6% 17.5% 3.6% 9.1% 23.0% 2.2% 0.1% Semi-cyclical Defensive Cons Staples Health Care Telecom Utilities Info Tech Financials Energy Industrials Materials Cons Disc 1. Source: BlackRock, Bloomberg, Morningstar, S&P, as of 12/31/15. Super sector composition: Defensive = Utilities, Telecom, Healthcare, Consumer Staples; Semi-Cyclical = Financials, Technology; Cyclical = Materials, Consumer Discretionary, Industrials, Energy. Subject to change.

50 Cyclical Semi-cyclical Defensive Balancing Income, Quality, and Risk: ishares Core Dividend Growth ETF (DGRO) DGRO ishares Core Dividend Growth ETF Expense Ratio: 0.12% Access to portfolio of dividend-paying US companies that seeks to balance current yield, dividend growth, and sector diversification 300+ dividend-paying stocks, weighted by dividend dollar value, capped at 3% per holding Focus on potential GROWTH of dividends (e.g., 5-year history of dividends with screen for sustainability) and maintains broad sector diversification GICS Sector Diversification 5.2% 6.6% 13.6% 14.7% 16.2% 4.2% 11.2% 14.6% 13.3% Energy Info Tech Cons Staples Industrials Materials Cons Disc Financials Health Care Telecom Utilities 1. Source: BlackRock, Bloomberg, Morningstar, S&P, as of 12/31/15. Super sector composition: Defensive = Utilities, Telecom, Healthcare, Consumer Staples; Semi-Cyclical = Financials, Technology; Cyclical = Materials, Consumer Discretionary, Industrials, Energy. Subject to change.

51 Important Notes Carefully consider the Funds investment objectives, risk factors, charges and expenses before investing. This and other information can be found in the Funds prospectuses, and, if available, the summary prospectuses which may be obtained by visiting or Read the prospectus carefully before investing. Investing involves risk, including possible loss of principal. Bonds and bond funds will decrease in value as interest rates rise and are subject to credit risk, which refers to the possibility that the debt issuers may not be able to make principal and interest payments or may have their debt downgraded by ratings agencies. High yield securities may be more volatile, be subject to greater levels of credit or default risk, and may be less liquid and more difficult to sell at an advantageous time or price to value than higher-rated securities of similar maturity. An investment in the Fund(s) is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Securities with floating or variable interest rates may decline in value if their coupon rates do not keep pace with comparable market interest rates. NEAR and ICSH are actively managed and do not seek to replicate the performance of a specified index. The Fund may have a higher portfolio turnover than funds that seek to replicate the performance of an index. None of these funds are money market funds, subject to the strict rules that govern the quality, maturity, liquidity and other features of securities that money market funds may purchase. See the funds prospectuses for specific risk information. In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume.

52 Important Notes Shares of ETFs trade at market price, which may be greater or less than net asset value. Diversification and asset allocation may not protect against market risk or loss of principal. 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. There is no guarantee that any fund will pay dividends. The ishares ibonds ETFs ( Funds ) will terminate within the month and year in each Fund s name. An investment in the Fund(s) is not guaranteed, and an investor may experience losses and/or tax consequences, including near or at the termination date. In the final months of each Fund's operation, its portfolio will transition to cash and cash-like instruments. As a result, its yield will tend to move toward prevailing money market rates, and may be lower than the yields of the bonds previously held by the Fund and lower than prevailing yields in the bond market. 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. During the final months prior to the Fund s planned termination date, its yield will generally tend to move toward prevailing taxexempt money market rates, and may be lower than the yields of the bonds previously held by the Fund and lower than prevailing yields for bonds in the market. The rate of Fund distribution payments may adversely affect the tax characterization of an investor s returns from an investment in the Fund relative to a direct investment in municipal bonds. If the amount an investor receives as liquidation proceeds upon the Fund s termination is higher or lower than the investor s cost basis, the investor may experience a gain or loss for tax purposes. Shares of ishares Funds are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Mutual funds and ishares Funds are obliged to distribute portfolio gains to shareholders by year-end. These gains may be generated due to index rebalancing or to meet diversification requirements. Trading shares of the ishares Funds will also generate tax consequences and transaction expenses. Certain traditional mutual funds can be tax efficient as well. Not FDIC Insured No Bank Guarantee May Lose Value

53 Important Notes When comparing stocks or bonds and ishares Funds, it should be remembered that management fees associated with fund investments, like ishares Funds, are not borne by investors in individual stocks or bonds. The annual management fees of ishares Funds may be substantially less than those of most mutual funds. Buying and selling shares of ishares Funds will result in brokerage commissions, but the savings from lower annual fees can help offset these costs. BlackRock does not provide tax advice. Please note that (i) any discussion of U.S. tax matters contained in this communication cannot be used by you for the purpose of avoiding tax penalties; (ii) this communication was written to support the promotion or marketing of the matters addressed herein; and (iii) you should seek advice based on your particular circumstances from an independent tax advisor. The ishares Funds and BlackRock Mutual Funds are distributed by BlackRock Investments, LLC (together with its affiliates, BlackRock ). The ishares Funds are not sponsored, endorsed, issued, sold or promoted by JPMorgan Chase & Co., MSCI Inc., Markit Indices Limited, Morningstar, Inc., S&P Dow Jones Indices LLC or Standard & Poor s, nor are they sponsored, endorsed or issued by Barclays Capital Inc. None of these companies make any representation regarding the advisability of investing in the Funds. BlackRock is not affiliated with the companies listed above BlackRock. All rights reserved. ishares and BLACKROCK are registered trademarks of BlackRock. All other marks are the property of their respective owners. is-14707

54 MARCH 23, 2016 Selecting Appropriate ETFs for Your Portfolio Up next: Fixed Income Trends in 2016, and Their Potential Impact on Your Portfolio TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank TD Ameritrade IP Company, Inc.

55 Important Disclosures MARCH 23, 2016 Carefully consider the investment objectives, risks, charges and expenses before investing in an ETF (Exchange Traded Fund). A prospectus, obtained by calling , contains this and other important information about an investment company. Read carefully before investing. ETFs can entail risks similar to direct stock ownership, including market, sector, or industry risks. Some ETFs may involve international risk, currency risk, commodity risk, and interest rate risk. Trading prices may not reflect the net asset value of the underlying securities. Commission fees typically apply. Stock investments are subject certain risks such as market risk, price volatility and liquidity risk. An investment cannot be made directly in an index. Past performance of a security, strategy or index is no guarantee of future results or success. The material, views and opinions expressed in this presentation are solely those of the presenter and may not be reflective of those held by TD Ameritrade, Inc. The webcast is provided for general information purposes only and should not be considered an individualized recommendation or advice. TD Ameritrade makes no representations or warranties with respect to the accuracy or completeness of the information provided. Examples and recommendations presented by BlackRock should not be considered a recommendation or solicitation by TD Ameritrade to purchase or sell any specific security. TD Ameritrade and BlackRock are separate, unaffiliated companies and not responsible for one another s products, services or policies. This presentation includes a feature that allows recording of electronic (including audio) participant-shared content. By continued participation in this session you automatically consent to such recording, and the subsequent rebroadcast of any recording.