WEATHERING uncertain. weathering. UNCERTAIN markets MARKETS LEARNING FROM THE PAST, POSITIONING FOR THE FUTURE

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1 weathering WEATHERING uncertain UNCERTAIN markets MARKETS LEARNING FROM THE PAST, POSITIONING FOR THE FUTURE

2 Managing an investment portfolio has always been challenging, and the most recent market cycle has tested investors commitment to their long-term investment plans. At BlackRock, we believe investors should maintain their long-term view, using lessons from the past to help position their portfolios for the future. weathering uncertain markets

3 Learning from the past UNdERSTANd MARkET cycles ANd POSITION FOR GROwTH Although markets have typically followed long-term up-and-down patterns, upturns tend to last longer than downturns. AvOId MARkET TIMING When trying to jump in and out of the market, investors run the risk of missing some of the best days. THINk LONG-TERM Although markets tend to be highly volatile over the short term, over the long term they have historically produced strong results. Past performance is not a guide to future returns and should not be the sole factor of consideration when selecting a product. Positioning for the future FOcUS ON diversification Investing in a broad range of asset classes and styles can help overall portfolio returns while reducing risk. POUNd-cOST AvERAGE Employing regular investment programs like pound-cost averaging can potentially smooth out some of the market s inherent volatility. REBALANcE YOUR PORTFOLIO Periodic portfolio readjustments can help make sure long-term investment goals remain on track. You should remember that all financial investments involve an element of risk. The value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed. BlackRock is a registered trademark of BlackRock, Inc BlackRock, Inc. All Rights Reserved. learning from the past, positioning for the future [1]

4 Recognising opportunity amid market cycles LEARNING FROM THE PAST Frequently, market sentiment is lowest when the opportunity is strongest, meaning that investors should not overreact to market downturns. While most investors recognise that, over the long term, markets move up and down, there is also a relationship between overall market sentiment and market cycles. In rising markets, more people tend to invest as they chase returns (similar to what happened during the technology boom of the late 1990s), while in declining markets, many people tend to sell (as we saw in 2008 and early 2009). By doing this, however, many investors are buying at market highs and selling at market lows. It is actually when market sentiment is at its worst that markets are set to rebound and, historically, extreme pessimism often coincides with market bottoms. In fact, bearishness is at its worst just before conditions begin to improve. This does not suggest investors should try to time market peaks and valleys, but rather they should understand there is often an inverse relationship between sentiment and opportunity. As such, we believe investors should avoid overreacting to market cycles or volatility. AvOId OvERREAcTING TO volatility growth of 10,000 in the ftse all-share index over the last 20 years ( ) 50,000 40,000 30,000 20,000 10,000 0 Best opportunity to make money, but many sell here Jan 94 Jan 96 Jan 98 Jan 00 Jan 02 Jan 04 Jan 06 Jan 08 Jan 10 Jan 12 Jan 14 Source: BlackRock; Thomson Reuters Datastream. Data as at 31 December FTSE All-Share Index (total return). It is not possible to invest directly in an index. Past performance is no guarantee of future results. The information provided is for illustrative purposes only and is not meant to represent the performance of any particular BlackRock investment. [2] weathering uncertain markets

5 Upturns have been stronger than downturns Significant market downturns can be rapid and difficult to endure, but history suggests markets will eventually recover. Over the past 48 years, we have seen a number of significant market declines. As the chart below illustrates, however, the upturns that follow have on lasted longer and been of greater scale. This trend helps explain why stocks have historically exhibited relatively strong long-term performance. Always remember that past performance is not a guide to future performance and should not be the sole factor of consideration when selecting a product. LEARNING FROM THE PAST When compared to downturns, market upturns historically have lasted longer and have been stronger. UPTURNS HAvE BEEN LONGER ANd STRONGER Downturns and upturns ( ) loss during downturn (cumulative % return) gain during upturn (cumulative % return) Dates of downturn Duration of downturn (months) Dates of upturn Duration of upturn (months) Jan-70/May-70 4 May-70/Apr Apr-73/Sep Sep-74/Apr Apr-76/Oct-76 6 Oct-76/Aug Aug-81/Sep-81 1 Sep-81/Sep Sep-87/Nov-87 2 Nov-87/Jun Jun-90/Sep-90 3 Sep-90/May May-92/Aug-92 3 Aug-92/Jan Jan-94/Jun-94 5 Jun-94/Jul Jul-98/Sep-98 2 Sep-98/Aug Aug-00/Mar Mar-03/May May-07/Feb Feb-09/Dec Sources: BlackRock; Thomson Reuters Datastream. Data as at 31 December FTSE All-Share Index (total return). It is not possible to invest directly in an index. The information provided is for illustrative purposes only and is not meant to represent the performance of any particular investment. Downturns are defined by a period when the stock market value declined by 10% or more from its peak, while the recovery period indicates the number of months from the trough of the downturn to the subsequent peak. learning from the past, positioning for the future [3]

6 Bull markets are often stronger than bear markets LEARNING FROM THE PAST It is important to stay invested through difficult times and through periods of uneven growth since knowing in advance when a long-term market upturn might start is challenging, if not impossible. Investors should be mindful of the risks that markets may fall further from today s levels. Studying these market cycles also shows that market recoveries tend to be uneven in terms of when the best returns can be found and that bull markets tend to be longer lasting. Bull markets (market upturns ) can start quickly and then shift into periods of slower, but sustainable, growth. Over the last 48 years, in the 16 bull markets we identified, markets on recovered strongly, and managed to post gains for at least two years. Remember, past performance is not a guide to future performance and should not be the sole factor of consideration when selecting a product. STRENGTH IN BULL MARkETS cumulative return of the ftse all-share index RETURN (%) Average bear market return Average return in second 6-mth period Average return in first 6-mth period Average return in third 6-mth period Average return in fourth 6-mth period Dates of bear market peak to trough decline 6 months later 12 months later 18 months later 24 months later Sources: BlackRock; Thomson Reuters Datastream. Data as at 31 December Bear markets (market downturns ) are defined by a time period when the stock market value declined by 10% or more from its peak. Index is FTSE All-Share Index (total return). It is not possible to invest directly in an index. The information provided is for illustrative purposes only and is not meant to represent the performance of any particular investment. % % % % % Jun-66 / Aug Jan-69 / May Apr-72 / Nov Sep-77 / Feb Apr-79 / Dec Aug-81 / Sep Apr-84 / May Sep-87 / Nov Aug-89 / Oct Dec-89 / Sep May-92 / Aug Jan-94 / Jun May-98 / Sep Dec-99 / Jan Oct-07 / Feb Apr-11 / Sep Average [4] weathering uncertain markets

7 419,464 Missed opportunities can be costly Every market cycle has both up days and down days. Often, a few very good days account for a large part of the total return. Staying the course ensures investments will be in the market on the good days. Some people try to time market movements by selling stocks when they think the market is about to decline and buying stocks when they think the market is about to rise. Consistently predicting which days will move in which direction, however, is virtually impossible and can be very costly. LEARNING FROM THE PAST Market timing runs the risk of missing out on some of the best-performing days. As the accompanying chart shows, missing only a few of the best days over the last 20 years would have had an adverse effect on an investor s return. A hypothetical 10,000 investment in the FTSE All-Share Index held over the entire period of 1 January 1994, through 31 December 2014, would have grown to 41,946. Missing just the five best days would have reduced the ending value by 13,088. Missing out on additional days would have affected returns even more significantly. MISSING TOP-PERFORMING days can HURT YOUR RETURN hypothetical investment of 10,000 in the ftse all-share index over the last 20 years ( ) 50,000 45,077 40,000 Ending Value ( ) 30,000 20,000 31,012 24,393 19,645 16,100 13,375 10,000 0 Stay Invested Missing 5 Days Missing 10 Days Missing 15 Days Missing 20 Days Missing 25 Days Sources: BlackRock; Thomson Reuters Datastream. Data as at 31 December FTSE All-Share Index (total return). Past performance is not a guide to future performance and should not be the sole factor of consideration when selecting an asset class. It is not possible to invest directly in an index. The information provided is for illustrative purposes only and is not meant to represent the performance of any particular BlackRock investment, it does not take into account the impact of fees and taxation. learning from the past, positioning for the future [5]

8 Despite volatility, markets have appreciated over the long term LEARNING FROM THE PAST As those who have watched their stock portfolios through the past couple of years can attest, markets can move quickly in either direction, which can unnerve even the most stalwart of investors. Economic crises, recessions, geopolitical incidents or companyspecific events can cause sharp market disruptions. But, over time, markets have tended to recover. How Stocks, Bonds and Cash have Grown Over Time 10,000 hypothetical investment ( ) Past performance is not a guide to future performance and should not be the sole factor of consideration when selecting a product. Asian currency crisis 1997 Establishment of the ECB 1998 LTCM failure 1998 Do Maastricht Treaty ,000 FTSE ftse All-Share all share annualised Annualised 5 Year 5 Year returns Returns % % 9.7% 20.3% EQUITIES 9.72% 20.8% 20.49% 28.39% 5.85% 23.85% 16.7% 23.56% 13.77% 24.20% BONDS 9.61% 16.17% 18.66% 21.01% 6.27% 16.43% 7.3% 14.14% 18.93% 0.88% CASH 14.89% 11.56% 9.70% 5.99% 5.55% 6.74% 6.16% 6.92% 7.42% 5.55% [6] weathering uncertain markets

9 4,000 3, ,000 t Com peak 2000 European M&A surpasses US 2007 Subprime loan problems emerge 2007 Lehman Brothers collapses 2008 European sovereign debt crisis 2010 US loses its AAA credit rating ,602 68,125 80,000 September 11th ,000 Invasion of Iraq ,908 40,000 20, % % % 3.0% 6.5% 8.7% % 13.29% 22.68% 20.86% 12.84% 22.04% 16.75% 5.32% 29.93% 30.12% 14.51% 3.46% 12.30% 20.81% 1.18% 8.75% 3.04% 9.25% 2.10% 6.6% 7.93% 0.7% 5.27% 12.81% 1.16% 7.20% 15.56% 2.69% 3.95% 13.85% 6.17% 5.07% 4.06% 3.74% 4.65% 4.75% 4.83% 6.03% 5.52% 1.21% 0.70% 0.87% 0.83% 0.51% 0.54% Source: Thomson Reuters Datastream. All data from 31 December 1989 to 31 December The information provided is for illustrative purposes only and is not meant to represent the past or future performance of any particular investment. It is not possible to invest directly in an index. Equities are represented by the FTSE All-Share Index (total return). Bonds are represented by the FTSE Actuaries UK Gilts All Stocks Index (total return). Cash is represented by threemonth LIBOR rates. All returns are in sterling terms and are based on monthly closing prices of the respective indices. The above graph is provided for illustrative purposes only and does not take into account the impact of fees and taxation. learning from the past, positioning for the future [7]

10 Diversification may reduce risk and enhance returns positioning For the future Building a Diversified Portfolio can Smooth the Ride As investors look to position their portfolios for the future, we would encourage them to stick with one of the most basic tenets of investing: Work with a financial professional to develop a sound asset allocation and diversification strategy designed to correspond with their long-term goals. Best emerging markets 50.46% 30.23% 23.04% 22.40% 20.78% 19.27% 30.21% 20.59% emerging markets 16.30% 14.43% 11.66% 11.41% emerging markets 37.43% 7.72% 7.36% 6.12% 5.88% 4.70% 13.59% 6.90% 9.94% 17.39% 19.98% 27.37% 59.48% emerging markets 59.39% 54.27% 50.64% 31.56% 27.33% e w corporate Bonds 8.79% 5.83% 2.16% 28.33% 16.45% 8.00% 4.81% 0.43% emerging markets 35.18% 15.10% 4.90% 0.83% 2.46% 38.15% 2.21% g worst 4.80% 0.50% 10.55% 43.91% 0.81% Remember, past performance is not a guide to future performance and should not be the sole factor of consideration when selecting a product. Diversification and asset allocation may not protect you fully against market risk. Be aware that all financial investments involve an element of risk. The value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed. [8] weathering uncertain markets

11 % merging markets 22.94% 19.52% 15.87% 15.00% eighted portfolio 14.47% 12.62% 8.67% overnment Bonds 7.26% 0.95% 16.90% 5.40% 2.94% 1.22% 2.18% 2.24% 4.31% 10.06% 12.53% emerging markets 17.57% 27.82% 26.11% 18.74% 15.61% 14.13% emerging markets 13.42% 11.42% 9.97% 2.73% 1.39% 32.77% 32.27% 25.00% 18.66% 14.92% 12.25% 12.07% 5.79% emerging markets 4.29% 12.26% 7.31% 1.93% 0.55% emerging markets 4.08% 4.09% 3.66% 2.71% 0.89% 0.74% 0.62% Large Cap (shares) is represented by the FTSE 100 Index Mid Cap (shares) is represented by the FTSE 250 Index Small Cap (shares) is represented by the FTSE Small Cap Index International (shares) is represented by the MSCI World Index Emerging Markets (shares) are represented by the MSCI Emerging Markets Index Government Bonds are represented by the Citi Group World Government Bond UK All Maturities Index Corporate Bonds are represented by the iboxx Corp Index Cash is represented by the JPM UK Cash (3 Months) Index High Yield Bonds are represented by the Bank of America Merrill Lynch Global High Yield Index Average Weighted Portfolio is composed of equal weightings of all other represented indices The is for illustration purposes only to show the effect on returns of investing in a combination of asset classes, rather than a single asset class. It is not a recommendation for diversified portfolio construction. Large Cap is represented by the FTSE 100 Index Mid Cap is represented by the FTSE 250 Index Small Cap is represented by the FTSE Small Cap Index International is represented by the MSCI World Index Emerging Markets investments are represented by the MSCI Emerging Markets Index Government Bonds are represented by the Citi Group World Government Bond UK All Maturities Index Corporate Bonds are represented by the iboxx Corp Index Cash is represented by the JPM UK Cash 3-Month Index High Yield is represented by the Bank of America Merrill Lynch Global High Yield Index Average Weighted Portfolio is composed of equal weightings of all other represented indices Source: BlackRock, Datastream. Data as at 31 December Total Return Indices shown. The is used to illustrate the effects of rudimentary diversification on returns and should not be construed as investment advice or recommendation as to any particular asset allocation or course of action. learning from the past, positioning for the future [9]

12 Pound-cost averaging can improve long-term returns POSITIONING FOR THE FUTURE Pound-cost averaging can help smooth out long-term returns and can potentially lower the share price of investments. As we have seen, choosing the exact best time to invest is very difficult or even impossible. Pound-cost averaging, in which a fixed amount of money is invested at regular intervals, ensures purchasing more shares of an investment when prices are low and fewer when they are high. Ultimately, a lower cost translates to a higher return when the market swings back up. In Strategy 1 of the hypothetical example below, an investor used a pound-cost averaging strategy, making regular investments of 1,000 per month. When the share prices were higher, the investor bought fewer shares and when the share prices were lower, the investor bought more shares. As a result, the investor s cost per share ( 19.44) was lower than the market price over the same time period. Additionally, this same investor purchased more shares with the same amount of money than he or she would have made with a lumpsum investment at the beginning of the year (Strategy 2). You should be aware that regular investing does not guarantee a profit and does not protect against loss in declining markets. Regular investing involves continuous investing so investors should consider their ability to make periodic payments in all market environments. You should remember that all financial investments involve an element of risk. The value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed. REdUcE THE IMPAcT OF PRIcE volatility BY POUNd-cOST AvERAGING Strategy 1: systematically invest 1,000 per month every month for a year regardless of share price STOCK SHARE PRICE shares shares shares shares shares 56 shares 25 shares shares shares shares shares shares Jan. Feb. Mar. Apr. May. Jun. Jul. Aug. Sep. Oct. Nov. Dec. 27 total shares purchased: 618 cost/share: Strategy 2: invest 12,000 as a lump sum at the beginning of the year STOCK SHARE PRICE shares Jan. Feb. Mar. Apr. May. Jun. Jul. Aug. Sep. Oct. Nov. Dec. total shares purchased: 480 cost/share: 25 Source: BlackRock. These illustrations do not include any dealing charges that might be due. You should be aware that regular investing does not guarantee a profit and does not protect against loss in declining markets. Regular investing involves continuous investing so investors should consider their ability to make periodic payments in all market environments. You should remember that all financial investments involve an element of risk. The value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed. The information provided is for illustrative purposes only and is not meant to represent the performance of any particular investment. 27 [10] weathering uncertain markets

13 Portfolio rebalancing can keep your goals on track All of the work that goes into getting an asset allocation strategy right would be wasted if it were not maintained. Over time, some asset classes may outperform or underperform and alter a portfolio s overall allocation. Rebalancing is a way to reset a portfolio to its original allocation to keep it consistent with the initial investment strategy. Using several hypothetical portfolios as examples, the graph below shows how annual rebalancing over the last 20 years would have changed each portfolio s risk and return characteristics. POSITIONING FOR THE FUTURE Regular portfolio rebalancing can potentially help improve long-term returns and reduce volatility. For example, annual rebalancing of Portfolio I (50% stocks, 50% bonds) improved annual return while also reducing risk. Similar results can be seen for other portfolio allocations. REBALANcING can IMPROvE PORTFOLIO EFFIcIENcY the effect of annual rebalancing on diversified portfolios over the last 20 years ( ) % 12 RETURN (AVERAGE ANNUAL TOTAL RETURN) 10 8 Portfolio I 50% Stocks 50% Bonds Portfolio I 50% Stocks 50% Bonds Portfolio II 60% Stocks 40% Bonds Portfolio II 60% Stocks 40% Bonds Portfolio III 70% Stocks 30% Bonds Portfolio III 70% Stocks 30% Bonds Portfolio IV 80% Stocks 20% Bonds Portfolio IV 80% Stocks 20% Bonds Portfolio V 90% Stocks 10% Bonds Portfolio V 90% Stocks 10% Bonds Portfolio VI 100% Stocks Portfolio VI 100% Stocks RISK (STANDARD DEVIATION OF MONTHLY RETURNS) Rebalanced Not rebalanced Source: BlackRock; Thomson Reuters Datastream. Data as at 31 December Past performance is no guarantee of future results. The information shown does not reflect the past performance of actual accounts, but rather the past performance of portfolios of indices. The rebalanced portfolios assume rebalancing of their component indices to their established percentages on January 1 of each year. Stocks are represented by an equal allocation to the FTSE 100, FTSE 250 and FTSE Small Cap indices. Bonds are represented by the CitiGroup World Government Bond Index Europe. All figures are in total return terms. Assumes reinvestment of all distributions. It is not possible to invest directly in an index. learning from the past, positioning for the future [11]

14 Weathering market cycles Investing over the long term has always been challenging, and recent market cycles have again tested investors fortitude. Getting and staying prepared for difficult times, however, is often a determining factor in longterm success. History has shown that market cycles can be extreme, but you do not have to navigate these challenging times alone. BlackRock has the expertise, global market insight and risk management to help you stay the course and meet your financial goals. Through our strengths as well as our partnership with financial professionals you can feel confident that your assets are being managed by some of the most experienced and trusted investment professionals in the industry. INvESTORS NEEd TO TURN THE LESSONS FROM THE PAST INTO OPPORTUNITIES FOR THE FUTURE BY: Establishing, and sticking with, a long-term investment plan. Staying in contact with their financial professional. Remaining prepared: be informed, invested, resolute, opportunistic and diversified. [12] weathering uncertain markets

15 TALk TO YOUR FINANcIAL PROFESSIONAL TOdAY uncertain markets reinforce the need to be prepared and the value a financial professional can offer, including: review your long-term investment goals, time horizon and appetite for risk; development of an individual asset allocation strategy; and periodic portfolio reviews to ensure that your expectations, as well as investments, align with long term plans and goals. most importantly, a financial professional can provide individual guidance in all market conditions, which is essential during uncertain times. contact your financial professional today about Blackrock s investment solutions. learning from the past, positioning for the future [13]

16 why BLAckROck As the world s largest investment manager, we believe it s our responsibility to help investors of all sizes succeed in the New World of Investing. We were built to provide the global market insight, breadth of capabilities and deep risk management expertise these times require. the resources you need for a new world of investing Investing with BlackRock gives you access to every asset class, geography and investment style, as well as extensive market intelligence and risk analysis, to help build the dynamic, diverse portfolios these times require. the best thinking you need to uncover opportunity With deep roots in all corners of the globe, our 120+ investment teams in over 30 countries share their best thinking to translate local insight into actionable ideas that strive to deliver better, more consistent returns over time. the risk management you need to invest with clarity With more than 1,000 risk professionals and premier risk management technology, BlackRock digs deep into the data to understand the risk that has to be managed for the returns our clients need and bring clarity to the most daunting financial situations. BlackRock. Investing for a new world. Source: BlackRock, data as at 31 December want to know more? Broker services +44 (0) uk.investor@blackrock.com blackrock.co.uk The opinions expressed are those of BlackRock as at December 2014 and are subject to change at any time due to changes in market or economic conditions. This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any strategy. BlackRock has not considered the suitability of investment against your individual needs and risk tolerance. We strongly recommend that you seek professional advice prior to investing. All fi nancial investments involve an element of risk. The value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed. Past performance is not a guide to future performance and should not be the sole factor of consideration when selecting a product. Diversifi cation and asset allocation may not protect you fully against market risk. Issued by BlackRock Investment Management (UK) Limited (authorised and regulated by the Financial Conduct Authority). Registered offi ce: 12 Throgmorton Avenue, London, EC2N 2DL. Registered in England No Tel: For your protection, telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, ALADDIN, ishares, LIFEPATH, SO WHAT DO I DO WITH MY MONEY, INVESTING FOR A NEW WORLD and BUILT FOR THESE TIMES are registered and unregistered trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners. RSM-0729 (Splash/275859/Jul15)