INTRODUCING ishares AND ETFs

Transcription

1 INTRODUCING ishares AND ETFs

2 Exchange Traded Funds (ETFs) have revolutionised the way investors manage their portfolios. ETFs are simple, flexible, cost-effective and offer opportunities to spread risk. These benefits have driven the popularity of ETFs with some of the most demanding investors, from private banks and pension funds, to government agencies, professional investment managers and private investors. This guide provides information to help you understand ETFs and how they can be included in your portfolio. INTRODUCING ishares AND ETFs

3 Join the investment revolution ETFs SIMPLE, TRANSPARENT AND EFFICIENT ETFs are the most popular type of Exchange Traded Products (ETPs), which also include various investment vehicles such as Exchange Traded Commodities (ETCs) and Exchange Traded Notes (ETNs). An ETF is a pooled investment fund, similar to a unit trust or mutual fund, which can be bought and sold on a stock exchange, like a share in a company. For investors, ETFs blend the benefits of pooled funds and shares. MUTUAL FUND ishares ETFs SHARE ishares ETFs are a type of index-tracking fund they aim to replicate the performance of a specified index, such as the EURO STOXX Index of leading Eurozone company shares. This means that the aim of an ETF is to provide investors with the same return as the underlying market. For example, if the EURO STOXX 50 Index goes up by 10% during a year, an ETF tracking this index aims to provide investors with the same return, minus fees, which in the case of an ETF is called the Total Expense Ratio (TER). To deliver the same return as the market index, ETFs hold all the index constituents, or a subset of the index constituents, to replicate the performance of the index. ETFs are available that track most major indices for stocks and shares, bonds, commodities and other asset types, providing efficient access to many markets for investors. INTRODUCING ishares AND ETFs [1]

4 ETF benefits The growing popularity of ETFs demonstrates the value investors place upon the following benefits: LOWER COSTS CHF ``ETFs can be cheaper than many traditional pooled funds. SPREAD RISK ``ETFs provide diversification they avoid putting all your eggs in one basket. TRANSPARENCY ``ETFs offer a high degree of transparency regarding the ETF portfolio holdings, the ETF performance and costs. FLEXIBILITY ``There is a wide choice of ETFs available, and they can be bought and sold simply and quickly. Please remember that as with all investments there are risks involved with buying and selling ETFs. Your investment can go up and down and your capital and any income is at risk. The liquidity of your investments is not guaranteed. ishares is the provider of the world s leading ETF fund range. ishares funds are managed to consistently provide these benefits and their growth in assets, industry awards and leading market position reflect a proven record of delivering what investors expect. [2] INTRODUCING i SHARES AND ETFs

5 ETF industry growth The growth in the ETP industry has been phenomenal. Since the launch of the first ETF in 1993, the ETP industry has grown to over US$2.92 trillion in Assets Under Management (AUM) with 5,462 ETPs available worldwide 1. The chart below shows the global growth in ETP assets since GLOBAL GROWTH IN ETP ASSETS 1 3,000 6,000 2,500 5,000 2,000 4,000 ASSETS 1,500 1,000 3,000 2,000 NUMBER OF ETPs 500 1, Feb-15 0 Assets USDbn Number of ETPs LOWER COSTS WITH ETFs Keeping the cost of an investment down is important. Many investment products promise to beat the market, and these are often accompanied by higher costs. In reality the majority of investment products do not consistently beat the market and your returns can be eroded over time by higher fees. ishares ETFs aim to deliver the performance of the market and charge for delivering just that no more, no less. The cost of owning an ETF is measured by the TER, which shows the total cost to the investor over a year. There are no hidden costs ishares ETFs are totally transparent and all TERs are available at ishares.com. 1 Source: BlackRock, ETP Landscape, Industry Highlights, February INTRODUCING ishares AND ETFs [3]

6 BUYING AND SELLING ETFS Buying and selling costs also need to be considered with any investment. Just like a company share traded on a stock exchange, buying or selling an ETF incurs a transaction fee. Your stock broker or financial adviser will be able to guide you through this straightforward process and detail the transaction costs. Again, there are no hidden charges and you have the assurance of knowing the exact price you pay when buying an ETF. Purchases and sales can be made instantly on-exchange, avoiding the possible delays and generally wide spreads that are still common with other types of pooled investments. Spreads are the difference between the price of buying and the price of selling units in a pooled vehicle and are calculated on a daily basis. As with all investments, your investments can go up and down and your capital is at risk. [4] INTRODUCING i SHARES AND ETFs

7 HELPING INVESTORS BALANCE RISK, COST AND RETURN Historically, many investment decisions have focused on return in isolation. But there is growing recognition that return must be considered in the context of risk and cost. This more comprehensive approach to investing may sound complex, but it offers the prospect of more reliably meeting financial goals. PORTFOLIO A: CONCENTRATED The benefits of ETFs mean they are the ideal investment tools to build highly effective portfolios that balance risk, cost and return. DIVERSIFICATION WITH ETFs Understanding risk is fundamental to successful investing. A return of 10% per annum with a high level of risk is less attractive than the same return but with lower risk. The highest return for the lowest risk is the ideal balance that investors seek. Achieving this ideal is not easy, but diversification is a widely recognised and highly effective tool that you can use. Diversification relies upon the age-old wisdom of not putting all your eggs in one basket. By spreading investments across various assets, the expected return can be achieved with less risk. The table opposite illustrates the benefits of diversification for a simple portfolio of stocks and shares. The diversified portfolio B targets a similar level of return to portfolio A, but importantly does this with considerably lower risk, potentially making it a more attractive investment. ``4 shares ``7% expected return per annum ``14% expected risk per annum PORTFOLIO B: DIVERSIFIED ishares ETFs offer you the benefits of diversification in two ways: ``ETFs typically hold large numbers of individual securities (for example, stocks and shares), which are the constituents of the index they track. This means ETFs are inherently diversified and offer an attractive balance of risk and return. ``There is a broad range of ishares ETFs easily available, providing you with access to many different markets and asset types around the world. ``45 shares ``6% expected return per annum ``9% expected risk per annum For illustrative purposes only. Past performance is not a guide to future performance and may not be repeated. INTRODUCING ishares AND ETFs [5]

8 Transparency with ETFs At ishares, we make no secret of how well our ETFs are tracking their benchmark indices. Performance information on ishares.com allows you to follow the daily performance of your ishares ETFs With many types of investment, there is a lack of clarity as to exactly where your money is actually invested. There may also be considerable uncertainty as to the investment meeting its targets, with little transparency to see how the investment is performing on a daily basis. ishares ETFs offer you transparency and aim to closely track the performance of the market they follow. Every physical ETF 2 publishes a full list of the securities (for example, stocks and shares or bonds) that it holds on a daily basis. For derivative replicating ishares ETFs 3, ishares publishes names of counterparties, collateral levels, collateral holdings and the most recent swap spreads. This allows you to see exactly where your money is invested. These details are easily accessible at ishares.com. For those ETFs participating in securities lending, ishares also discloses all relevant information on its website 4. You also have the confidence of knowing that the investment manager aims to mirror the performance of the index that the ETF follows nothing more, nothing less. On the other hand, actively managed funds target returns that are greater than the returns from the underlying market, but many of them have consistently disappointed investors by missing their targets. 2 Physically replicating ETFs hold the assets of the index that is being tracked. There are two tracking techniques: full replication, where all the stocks are held in the weighting defined by the index, or an optimised approach, where the ETF holds only some of the index constituents. 3 A derivative replicating ETF seeks to deliver the performance of an index through the use of derivative contracts (total return index swaps). 4 Securities lending involves a transfer of securities to a third party (the borrower), who gives the lender collateral in the form of shares, bonds or cash and pays the lender a fee. [6] INTRODUCING i SHARES AND ETFs

9 Flexible solutions The wide range of ishares ETFs available allows you and your adviser to build portfolios that aim to fulfill many investment goals. The ability to simply and efficiently invest in many different asset types, from stocks and shares, bonds, commodities, property and so on has never been more accessible to investors. You can also invest around the world, via ETFs that provide global coverage or by bringing together separate funds that follow individual markets, from the major economies of the US and Europe, to Asia and many more exotic emerging markets. This level of choice gives you the power to build a portfolio that targets your specific goals. And if these goals change over time as your circumstances alter, the portfolio of ETFs can easily be altered so it continues to suit you. The ability to buy and sell ETFs as and when needed enables this flexibility, while also keeping transaction costs low. ishares ETFs are ideal portfolio building blocks, giving you access to a wide range of asset types and markets. BUYING ishares ETFs ishares ETFs are listed on the various European exchanges, such as the ATX, Euronext, SIX Swiss Exchange and Xetra and are purchased as you would any single company stock. A stock broker or financial adviser will be able to explain how to set limits on the purchase and sale prices that transactions are completed at. They can also advise on other features and benefits of ETFs. INTRODUCING ishares AND ETFs [7]

10 ishares the world s No. 1 ETF provider 5 ishares is the leading ETF provider globally with over US$1,085B in AUM. ishares pioneered making ETFs accessible to all types of investors. With 726 ETPs listed on exchanges worldwide and 37% market share globally, ishares has been championing ETFs as a better way of investing for the past 18 years 5. For further information on ishares ETFs visit ishares.com where you will find fund data, fund factsheets, tools, more detailed information on ETFs and how to purchase ishares ETFs. Tools available to help you make investment decisions: PERFORMANCE CHART ` `Measure ishares ETFs fund performance relative to its index. INDEX RETURNS CHART ``Access ETF indices and their performance. FUND SEARCH TOOL ``Search for a specific fund. ETFs are not risk free and before investing we recommend you: ``Assess your investment objectives. ` `Select investments to match these or consult an adviser to help you do this. ``Spend time understanding your investment choices and read the relevant prospectuses before investing. Please remember that as with all investments there are risks involved with buying and selling ETFs. Your investment can go up and down and your capital is at risk. 5 Source: BlackRock Investment Institute, Bloomberg. Data as at February [8] INTRODUCING i SHARES AND ETFs

11 WHAT TO DO NEXT To find about more about how these versatile, cost-efficient funds can help you achieve your investment goals, visit ishares. com. Alternatively you can speak to your financial adviser or visit the following websites: ``ATX: ``Borsa Italiana: ``Euronext: ``London Stock Exchange: ``SIX Swiss Exchange: ``Xetra: We recommend you seek independent professional advice prior to investing. INTRODUCING ishares AND ETFs [9]

12 Want to know more? Austria +49 (0) France +33 (0) Luxembourg +32 (0) Spain +34 (0) Belgium +32 (0) Germany +49 (0) Netherlands +31 (0) Sweden +46 (0) Denmark +358 (0) Israel +44 (0) Norway +47 (0) Switzerland +41 (0) Finland +358 (0) Italy +39 (0) Portugal +34 (0) UK +44 (0) ishares.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. ishares plc, ishares II plc, ishares III plc, ishares IV plc, ishares V plc, ishares VI plc and ishares VII (together the Companies ) are open-ended investment companies with variable capital having segregated liability between their funds organised under the laws of Ireland and authorised by the Financial Regulator. For your protection, calls are usually recorded. For investors in Denmark The funds mentioned are registered for public distribution in Denmark and are authorised by Finanstilsynet, the Danish Financial Supervisory Authority. Any application for shares in the funds is on the terms of the prospectus, complete, simplified or Key Investor Information Documentation, for the Companies. Any application for shares in the funds is on the terms of the Company s Prospectus, Key Investor Information Document and the latest half-yearly report and unaudited accounts and/or annual report and audited accounts. Investors should read the fund specific risks in the Key Investor Information Document and the Company s Prospectus. The Danish FSA has introduced rules on risk labelling for investment products pursuant to which various categories of investment product have been assigned a risk label. The shares of ishares have the yellow risk label pursuant to the Danish FSA s rules on risk labelling. The risk labelling is based on the possibility of losing the invested amount based on the product type and not the actual likelihood of this happening. The risk labelling system is based on the colours of a traffic light. Green: Investment products labelled green refer to those where the risk of losing the invested amount is considered very limited and where the product type is not difficult to understand. Examples include Danish government bonds, EU governments bond and Danish mortgage bonds. Yellow: Investment products labelled yellow refer to those where there is considered to be a risk of losing the entire or a part of the invested amount and where the product type is not difficult to understand. Examples include listed shares, corporate bonds and shares of UCITS funds. Red: Investment products labelled red refer to those where there is considered to be a risk of losing more than the invested amount or the product type is difficult to understand. Examples include unlisted shares, options, futures, swaps and structured bonds. Important information on the Companies is contained in the relevant Prospectus and other documents, copies of which can be obtained free of charge from (i) offices of the local agent in Denmark, Nordea Bank Danmark A/S, Strandgade 3, DK 0900 Copenhagen C, Denmark Tel: Fax: issuerservice.dk@nordea.com and (ii) on the Companies internet website at the address www. ishares.com ( and document is strictly confidential and may not be distributed without authorisation from BlackRock Advisors (UK) Limited. In line with most other non-danish funds, the ishares range will not have distributor status under Danish tax law, for which reason investors will generally be subject to tax based on the annual change in value of their investment irrespective of whether ishares are sold or not (mark-to-market taxation). For individuals this may be less tax efficient than upon investment in a comparable Danish investment fund with distributor status. 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 Swiss Investors 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. 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 a-IS-SNUGLABPIsSpIr-DeNoSw-R-APR15-EN-EMEAis