MSCI Minimum Volatility Indices: Track Broad Market Returns with Lower Risk

Transcription

1 MSCI Minimum Volatility Indices: Track Broad Market Returns with Lower Risk July, All rights reserved. msci.com

2 Outline 1. Research background on the Low Volatility Effect 2. How MSCI builds Minimum Volatility indices 3. Benefits of MSCI Minimum Volatility indices All rights reserved. msci.com 2

3 Research background on the Low Volatility Effect Historically we observed a low volatility effect in the superior risk adjusted performance of low volatility stocks This effect has been extensively analyzed by academic research Studies report that the low volatility effect persists across regions and after adjusting for other explanatory variables Explanations of the effect focus on behavioral biases leading to excess demand for high volatility stocks, combined with limits on arbitrage The Minimum Volatility Strategy aims to outperform the broad market under adverse market conditions All rights reserved. msci.com 3

4 MSCI Minimum Volatility Index Methodology Combining expert research with its industry-leading risk modeling capabilities, MSCI applies specific constraints to a broad market index to target a subset of stocks with reduced volatility characteristics. PARENT INDEX MSCI MODELS MINIMUM VOLATILITY INDEX This process is called optimization and maintains the country, sector and style characteristics of the related broad market index. TURNOVER CONSTRAINTS Imposing optimization constraints enables the MSCI Minimum Volatility Indices to obtain the desired low risk while at the same time the Indices are designed to: Capture the broad equity market exposure without significant bias in countries, sectors and styles Ensure replicability and investability All rights reserved. msci.com 4

5 Longest proven track record including the 2008 crisis Launched in May 2008, MSCI Minimum Volatility indices were the first on the market They offer the longest live track record among competing low volatility methodologies MSCI Minimum Volatility indices were the only live indices of the kind during one of the worst financial crisis (2008) The index and its volatility behaved as expected during the financial crisis All rights reserved. msci.com 5

6 Significant historical risk reduction The MSCI World Minimum Volatility Index achieved significant risk reduction throughout the period Ratio of Volatility of MSCI World Minimum Volatility Index / Volatility of MSCI World Index The ratio of volatility indicates that the most significant risk reduction was achieved during the Tech Bust and the recent financial crisis Around 2006/2007 when the volatility of MSCI World was at its lowest, the risk reduction of MSCI World Minimum Volatility was less significant % 25.0% 20.0% Realized Volatility (Rolling 36-Month) 15.0% 10.0% 5.0% 0.0% All rights reserved. MSCI World MSCI World Minimum Volatility msci.com 6

7 Relative Performance of the MSCI World Minimum Volatility Index * Crisis periods are typically characterized by spikes in market volatility MSCI World Minimum Volatility (USD) Relative Eurozone Crisis The MSCI World Minimum Volatility Index has historically outperformed the MSCI World Index across the periods of market crisis Apr-08 Aug-08 Sub Prime Crisis Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 May 2008 to May 2013 Historical Gross Total Returns MSCI World MSCI World Minimum Volatility Annualized Total Return 2.1% 4.7% Annualized Risk 20.6% 14.6% Risk Adjusted Return Active Return 0.0% 2.6% Tracking error 0.0% 9.3% Information Ratio NA 0.28 Historical Beta Turnover * The MSCI World Minimum Volatility Index was launched on 14 th Apr All rights reserved. msci.com 7

8 Minimum Volatility Indices Across Regions Dec 2009 to May 2013 Historical Gross Total Returns MSCI USA MSCI USA Minimum Volatility MSCI ACWI MSCI ACWI Minimum Volatility MSCI EAFE MSCI EAFE Minimum Volatility MSCI EM MSCI EM Minimum Volatility Annualized Total Return 14.2% 15.5% 9.2% 12.3% 6.0% 8.6% 3.3% 13.0% Annualized Risk 14.7% 9.9% 16.4% 9.8% 18.8% 12.4% 20.5% 15.9% Reduction in Risk 32.6% 40.2% 34.1% 22.7% Historically, the MSCI Minimum Volatility Indices demonstrated around % reduction in risk, across regions, during the observed period The most effective risk reduction was in the ACWI Index and the World Index All rights reserved. msci.com 8

9 Summary MSCI is the only index provider who has been offering live minimum volatility indices since 2008 The MSCI indices were stress-tested live during the financial crisis and Euro zone crisis and behaved as expected Proven risk-reduction record,from 20% to 40%,in various countries and regions MSCI has acquired substantial experience in calculating minimum volatility indices Indices can be constructed from the perspective of any base currency Various weight constraints ensure the indices are easily replicable, without concentrated positions Annual turnover constraint facilitates lower cost of implementation Indices can be constructed with relaxed parameters across a variety of single countries and regions All rights reserved. msci.com 9

10 Notice and Disclaimer This document and all of the information contained in it, including without limitation all text, data, graphs, charts (collectively, the Information ) is the property of MSCl Inc. or its subsidiaries (collectively, MSCI ), or MSCI s licensors, direct or indirect suppliers or any third party involved in making or compiling any Information (collectively, with MSCI, the Information Providers ) and is provided for informational purposes only. The Information may not be reproduced or redisseminated in whole or in part without prior written permission from MSCI. The Information may not be used to create derivative works or to verify or correct other data or information. For example (but without limitation), the Information may not be used to create indices, databases, risk models, analytics, software, or in connection with the issuing, offering, sponsoring, managing or marketing of any securities, portfolios, financial products or other investment vehicles utilizing or based on, linked to, tracking or otherwise derived from the Information or any other MSCI data, information, products or services. The user of the Information assumes the entire risk of any use it may make or permit to be made of the Information. NONE OF THE INFORMATION PROVIDERS MAKES ANY EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS WITH RESPECT TO THE INFORMATION (OR THE RESULTS TO BE OBTAINED BY THE USE THEREOF), AND TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH INFORMATION PROVIDER EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES (INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF ORIGINALITY, ACCURACY, TIMELINESS, NON-INFRINGEMENT, COMPLETENESS, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE) WITH RESPECT TO ANY OF THE INFORMATION. Without limiting any of the foregoing and to the maximum extent permitted by applicable law, in no event shall any Information Provider have any liability regarding any of the Information for any direct, indirect, special, punitive, consequential (including lost profits) or any other damages even if notified of the possibility of such damages. The foregoing shall not exclude or limit any liability that may not by applicable law be excluded or limited, including without limitation (as applicable), any liability for death or personal injury to the extent that such injury results from the negligence or wilful default of itself, its servants, agents or sub-contractors. Information containing any historical information, data or analysis should not be taken as an indication or guarantee of any future performance, analysis, forecast or prediction. Past performance does not guarantee future results. None of the Information constitutes an offer to sell (or a solicitation of an offer to buy), any security, financial product or other investment vehicle or any trading strategy. You cannot invest in an index. MSCI s indirect wholly-owned subsidiary Institutional Shareholder Services, Inc. ( ISS ) is a Registered Investment Adviser under the Investment Advisers Act of Except with respect to any applicable products or services from ISS (including applicable products or services from MSCI ESG Research Information, which are provided by ISS), neither MSCI nor any of its products or services recommends, endorses, approves or otherwise expresses any opinion regarding any issuer, securities, financial products or instruments or trading strategies and neither MSCI nor any of its products or services is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. The MSCI ESG Indices use ratings and other data, analysis and information from MSCI ESG Research. MSCI ESG Research is produced by ISS or its subsidiaries. Issuers mentioned or included in any MSCI ESG Research materials may be a client of MSCI, ISS, or another MSCI subsidiary, or the parent of, or affiliated with, a client of MSCI, ISS, or another MSCI subsidiary, including ISS Corporate Services, Inc., which provides tools and services to issuers. MSCI ESG Research materials, including materials utilized in any MSCI ESG Indices or other products, have not been submitted to, nor received approval from, the United States Securities and Exchange Commission or any other regulatory body. Any use of or access to products, services or information of MSCI requires a license from MSCI. MSCI, Barra, RiskMetrics, ISS, CFRA, FEA, and other MSCI brands and product names are the trademarks, service marks, or registered trademarks or service marks of MSCI or its subsidiaries in the United States and other jurisdictions. The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of MSCI and Standard & Poor s. Global Industry Classification Standard (GICS) is a service mark of MSCI and Standard & Poor s MSCI Inc. All rights reserved. Jan All rights reserved. msci.com msci.com 10

11 Minimum Volatility Investing: A Smoother Ride Todd W. Mathias, CFA ishares Product Management & Consulting

12 The Minimum Volatility Anomaly Higher return for higher risk? Modern portfolio theory tells us that there is an equity risk premium higher risk portfolios should earn a higher return. The optimal portfolio is the efficient market portfolio the highest return that can be earned for that level of risk. But there seems to be an anomaly Empirically we observe that Minimum Volatility portfolios can provide more return per unit of risk than cap-weighted portfolios. Research 1 suggests existence of investors overpaying for higher beta stocks. Asset managers have little incentive to prefer low beta stocks given the level of Active Risk created. Efficient Frontier and Minimum Volatility Index Portfolio Return Efficient Market Portfolio Minimum Volatility Portfolio Cap-weighted Market Index Markets do not price risk efficiently For illustrative purposes only. Volatility 1. Baker, Malcolm P., Bradley, Brendan and Wurgler, Jeffrey A., Benchmarks as Limits to Arbitrage: Understanding the Low Volatility Anomaly (March 2010). NYU Working Paper No. FIN Available at SSRN: 12

13 ishares Suite of Minimum Volatility ETFs ACWV EFAV EEMV USMV ishares MSCI ACWI Minimum Volatility ETF ishares MSCI EAFE Minimum Volatility ETF ishares MSCI EM Minimum Volatility ETF ishares MSCI USA Minimum Volatility ETF A suite overview 1 ishares MSCI ACWI MV ETF MSCI ACWI Index ishares MSCI EAFE MV ETF MSCI EAFE Index ishares MSCI EM MV ETF MSCI EM Index ishares MSCI USA MV ETF S&P 500 Index Ticker ACWV NDUEACWF EFAV NDDUEAFE EEMV NDUEEGF USMV SPXT Net Exp. Ratio 20 bps 2 N/A 20 bps 3 N/A 25 bps 4 N/A 15 bps N/A Beta to the S&P Standard Deviation 9.1% 15.3% 11.0% 17.7% 13.9% 18.8% 10.2% 14.0% 1. Beta and standard deviation are based on weekly returns since fund inception (10/18/11). 2. Effective May 16, 2012, the investment adviser to the ishares MSCI All Country World Minimum Volatility ETF has voluntarily agreed to waive a portion of its management fees in order to reduce the total fund operating expenses from 0.34% to 0.20%. Without such waivers the Fund s performance would have been lower. This voluntary fee waiver may be eliminated at any time. 3. BlackRock Fund Advisors, the investment adviser to the ishares MSCI EAFE Minimum Volatility ETF and an affiliate of BlackRock Investments, LLC, has contractually agreed to waive a portion of its management fees in order to limit Total Annual Fund Operating Expenses to 0.20% of average daily net assets until December 31, BlackRock Fund Advisors, the investment adviser to the ishares MSCI Emerging Markets Minimum Volatility ETF and an affiliate of BlackRock Investments, LLC, has contractually agreed to waive a portion of its management fees in order to limit Net Expenses to 0.25% of average daily net assets until December 31, S&P 500 Index is the S&P 500 Total Return Index in all examples. Sources: Blackrock, Morningstar and MPI Stylus, as of 6/30/13. 13

14 Performance Characteristics Downside Protection, Upside Participation Downside Upside 100% 50% 0% -50% -100% 64% 63% 34% MSCI ACWI MV Index vs. MSCI ACWI Index 90% 46% 54% MSCI EAFE MV Index vs. MSCI EAFE Index MSCI EM MV Index vs. MSCI EM Index 73% 39% MSCI USA MV Index vs. S&P 500 Index Since inception, the MSCI MV Indices have captured more upside than downside relative to their benchmarks. The chart at left displays the percentage of the upside and downside (relative to benchmark returns) that the MV indices have captured since December Source: Morningstar. Based on monthly index returns from 12/1/09 6/30/13. MSCI USA MV Index incepted: 5/30/08, all other MSCI MV Indices above incepted: 11/30/09. Volatility Case Study: Rolling Standard Deviation Relative to the S&P 500 S&P 500 MSCI USA MV Index 9/15/08: Collapse of Lehman Brothers 8/5/11: S&P downgrades US Debt 5/08 11/08 5/09 11/09 5/10 11/10 5/11 11/11 5/12 11/12 5/13 30-day rolling std. dev. of the MSCI USA MV Index 1. Relative standard deviation defined as: 30-day rolling std. dev. of the S&P 500 Source: Morningstar and MPI Stylus, as of 6/30/13. Index returns are for illustrative purposes only and do not represent actual ishares Fund performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. 100% 75% 50% Since inception, the relative 30-day rolling standard deviation 1 of the MSCI USA MV Index has been 23.2% lower than that of the S&P 500 on average. Chart at left plots the 30-day rolling standard deviation of the MSCI USA MV Index as a percentage of the 30-day rolling standard deviation of the S&P

15 Risk Adjusted Return Index Profiles Minimum Volatility Strategies seek to provide Downside protection while maintaining some exposure to upside price movement. Targeted equity market returns with less variability. Annualized Return (%) 16% 12% 8% 4% MSCI USA Minimum Volatility Index (related ishares ETF: USMV) Risk: 10.0% Return: 11.1% MSCI All Country World Minimum Volatility Index (related ishares ETF: ACWV) MSCI EAFE Minimum Volatility Index (related ishares ETF: EFAV) Risk: 11.6% Return: 15.3% Risk: 11.8% Return: 7.2% Risk: 15.7% Return: 12.1% MSCI USA MSCI EM Minimum Volatility Index (related ishares ETF: EEMV) MSCI ACWI MSCI EAFE MSCI EM 0% 8% 10% 12% 14% 16% 18% 20% 22% Annualized Risk (%) Source: Morningstar and MPI Stylus. MSCI Minimum Volatility indexes incepted 5/30/08 (USA) and 11/30/09 (EM, EAFE, ACWI). Data shown based on index returns from 12/1/09 6/30/13. Index data are for illustrative purposes only and do not represent actual ishares Fund performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. For actual ishares Fund performance, please visit or request a prospectus by calling iShares ( ). 15

16 Emerging Markets MSCI Min Vol vs MSCI Standard Indices 22 Annualized Standard Deviations Month Rolling Beta Total Annualized StdDev, % Beta Sharpe Ratio Year 3 Years Since 12/01/09 MSCI EMMinimum Volatility NR USD MSCI EM NR USD Annualized Sharpe Ratios 1 Year 3 Years Since 12/01/ /30/10 12/31/10 06/30/11 12/30/11 06/29/12 12/31/12 06/28/13 MSCI EM Minimum Volatility NR USD MSCI EM NR USD Annualized Returns MSCI EMMinimum Volatility NR USD MSCI EM NR USD MSCI EM Minimum Volatility NR USD MSCI EM NR USD The MSCI Emerging Markets Minimum Volatility Index incepted on November 30, Index returns are for illustrative purposes only and do not represent actual ishares Fund performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. Source: MPI Stylus, as of 6/30/13. Annualized Return, % Month 3 Months 6 Months 1 Year 3 Years Since 12/01/

17 USA MSCI Min Vol vs MSCI Standard Indices Annualized Standard Deviations 3 Month Rolling Beta Total Annualized StdDev, % Beta Year 3 Years 5 Years Since 06/02/08 MSCI USA Minimum Volatility GR USD MSCI USA GR USD Annualized Sharpe Ratios /31/08 06/30/09 12/31/09 06/30/10 12/31/10 06/30/11 12/30/11 06/29/12 12/31/12 06/28/13 MSCI USA Minimum Volatility GR USD MSCI USA GR USD 26 Annualized Returns Sharpe Ratio Annualized Return, % Year 3 Years 5 Years Since 06/02/08 MSCI USA Minimum Volatility GR USD MSCI USA GR USD The MSCI USA Minimum Volatility Index incepted on May 30, Index returns are for illustrative purposes only and do not represent actual ishares Fund performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. Source: MPI Stylus, as of 6/30/ Month 3 Months 6 Months 1 Year 3 Years 5 Years Since 06/02/08 MSCI USA Minimum Volatility GR USD MSCI USA GR USD 17

18 MSCI USA Minimum Volatility Index - S&P 500 Performance vs VIX Index Monthly Difference in Returns (June 2008 June 2013) Minimum Volatility indices have performed best when market volatility was high. 8% 9/5/08: Lehman Brothers Files for Bankruptcy 60,00 6% 8/5/11: S&P Downgrades U.S. Debt 50,00 Difference in Monthly Returns 4% 2% 0% -2% 4/2/10: BP Oil Spill 40,00 30,00 20,00 VIX Index Level -4% 10,00 MSCI USA Minimum Volatility Index - S&P 500 Index (LHS) VIX Index Level (RHS) -6% 0,00 Source: Bloomberg, as of 6/30/13. Index returns are for illustrative purposes only and do not represent actual ishares Fund performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. 18

19 Implementation Strategies Sample: No Minimum Volatility Indexes Sample: Minimum Volatility Indexes 40% 5% 15% MSCI Index MSCI EM Minimum Volatility Related ishares ETF EEMV 40% 5% 15% 40% MSCI EM MSCI EAFE MSCI US Barclays US Agg MSCI EAFE Minimum Volatility MSCI USA Minimum Volatility EFAV USMV 40% MSCI EM Minimum Volatility MSCI EAFE Minimum Volatility MSCI US Minimum Volatility Barclays US Agg Sample Portfolio No Minimum Volatility Indexes Sample Portfolio With Minimum Volatility Indexes Annualized return (Since inception) Annualized standard deviation (Since inception) Sharpe ratio Max drawdown return # Max drawdown months 5 2 Potentially reduce risk of the overall portfolio. Portfolio Inception Date 12/1/09. Sources: BlackRock, Morningstar and MPI. December 1, 2009 June 30, Sample portfolios are for illustrative purposes only, and do not represent a recommendation of any security or asset allocation strategy. Returns are hypothetical are not representative of any funds of investments. Index data are for illustrative purposes only and do not represent actual ishares Fund performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. For actual ishares Fund performance, please visit or request a prospectus by calling iShares ( ). This information should not be relied upon 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. Retain risk budget and allocate additional assets to high conviction exposures. Introduce new assets classes to risk averse clients. 19

20 Implementation Strategies (Cont d) Sample: Replace 10% of equity exposure with MSCI EM Minimum Volatility Index MSCI World 60% Barclays US Agg 40% MSCI World 50% MSCI EM Minimum Volatility 10% Barclays US Agg 40% Sample Portfolio: No EM Exposure Sample Portfolio: with EM Min Vol Exposure Annualized return (since inception) Annualized standard deviation (Since inception) Sharpe ratio Sample Portfolio Inception Date: 12/1/09. Sources: Morningstar and MPI, as of 6/30/13. Potential Benefits MSCI Index MSCI EM Minimum Volatility Related ishares ETF EEMV Implement high conviction areas for up-capture, such as Emerging Markets. Expose a conservative portfolio to a new asset class, while seeking to maintain same risk budget. Further diversify with unique exposures to additional countries. This information should not be relied upon 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. Sample portfolios are for illustrative purposes only, and do not represent a recommendation of any security. Index returns are for illustrative purposes only and do not represent actual ishares Fund performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. For actual ishares Fund performance, please visit or request a prospectus by calling iShares ( ). 20

21 Demand for Minimum Volatility Products is on the Rise Perspective from the ishares Capital Markets team Minimum Volatility continues to be a popular theme for institutional investors who seek to increase exposure to equities but remain concerned about rising volatility in Europe, a slowdown in China and a sluggish recovery in the US. The chart on the right shows the growth in shares outstanding over the past year in the ishares Minimum Volatility ETF suite, illustrating the investor interest in these products. The liquidity of the underlying baskets has allowed for institutional-sized trades with minimal market impact. The ishares Capital Markets team can assist with trading strategy and limit order guidance. ADV (shares) AUM ($M) ishares ETF Name Ticker Q Q % Change Q Q % Change MSCI All Country World Minimum Volatility ETF ACWV 89,381 87,683 2% $1,013 $928 9% MSCI EAFE Minimum Volatility ETF EFAV 174, ,641 35% $665 $452 47% MSCI Emerging Markets Minimum Volatility ETF EEMV 500, ,302 8% $2,223 $1,770 26% MSCI USA Minimum Volatility ETF USMV 1,286, ,630 88% $3,573 $2,586 38%.Sources: BlackRock, Bloomberg and Morningstar, as of 6/30/13. 21

22 Appendix

23 ACWI MSCI Min Vol vs MSCI Standard Indices Annualized Standard Deviations 3 Month Rolling Beta Total Annualized StdDev, % Beta Year 3 Years Since 12/01/ /30/10 12/31/10 06/30/11 12/30/11 06/29/12 12/31/12 06/28/13 MSCI ACWI Minimum Volatility NR USD MSCI AC World NR USD MSCI ACWI Minimum Volatility NR USD MSCI AC World NR USD 2.0 Annualized Sharpe Ratios 18 Annualized Returns Sharpe Ratio Year 3 Years Since 12/01/09 MSCI ACWI Minimum Volatility NR USD MSCI AC World NR USD MSCI ACWI Minimum Volatility NR USD MSCI AC World NR USD The MSCI All Country World Minimum Volatility Index incepted on November 30, Index returns are for illustrative purposes only and do not represent actual ishares Fund performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. Source: MPI Stylus, as of 6/30/13. Annualized Return, % Month 3 Months 6 months 1 Year 3 Years Since 12/01/

24 EAFE MSCI Min Vol vs MSCI Standard Indices Annualized Standard Deviations 3 Month Rolling Beta Total Annualized StdDev, % Beta Year 3 Years Since 12/01/ /30/10 12/31/10 06/30/11 12/30/11 06/29/12 12/31/12 06/28/13 MSCI EAFE Minimum Volatility NR USD MSCI EAFE NR USD MSCI EAFE Minimum Volatility NR USD MSCI EAFE NR USD 2.0 Annualized Sharpe Ratios 20 Annualized Returns Sharpe Ratio Year 3 Years Since 12/01/ Month 3 Months 6 Months 1 Year 3 Years Since 12/01/09 MSCI EAFE Minimum Volatility NR USD MSCI EAFE NR USD MSCI EAFE Minimum Volatility NR USD MSCI EAFE NR USD The MSCI EAFE Minimum Volatility Index incepted on November 30, Index returns are for illustrative purposes only and do not represent actual ishares Fund performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. Source: MPI Stylus, as of 6/30/13. Annualized Return, %

25 MSCI Min Vol Indices country weights vs. MSCI Standard Indices Top ten overweights/underweights Relative Country Weights MSCI ACWI Min Vol. vs. MSCI ACWI Standard Relative Country Weights MSCI EAFE Min Vol. vs. MSCI EAFE Standard Relative Country Weights MSCI EM Min Vol. vs. MSCI EM Standard Japan 5,2% Japan 5,6% Taiwan 5,5% Canada 4,7% United Kingdom 4,8% Malaysia 5,1% United States 2,9% Hong Kong 4,6% Indonesia 4,5% Taiwan 2,8% Singapore 3,3% Chile 3,6% Hong Kong 2,1% Switzerland 2,7% Thailand 3,3% Korea -1,7% Finland -0,6% Mexico -3,2% Australia -2,9% Australia -1,5% China -3,9% Germany -3,2% Netherlands -1,7% Brazil -4,4% France -3,4% France -5,0% India -4,5% United Kingdom -4,3% Germany -5,1% Korea -5,3% Index constituents are subject to change. Source: MSCI, as of 6/30/13. 25

26 MSCI Min Vol Indices country weights vs. MSCI Standard Indices Top ten overweights/underweights Relative Sector Weights MSCI ACWI Min Vol. vs. MSCI ACWI Standard Relative Sector Weights MSCI EAFE Min Vol. vs. MSCI EAFE Standard Relative Sector Weights MSCI EM Min Vol. vs. MSCI EM Standard Relative Sector Weights MSCI US Min Vol. vs. MSCI US Standard Consumer Staples 5,3% Telecom Services 5,1% Health Care 5,2% Consumer Staples 5,3% Utilities 4,9% Consumer Staples 5,0% Telecom Services 5,1% Health Care 5,1% Health Care 4,9% Health Care 5,0% Utilities 4,8% Utilities 5,0% Telecom Services 4,9% Utilities 4,6% Consumer Staples 4,5% Telecom Services 1,8% Consumer Discretionary 0,9% Industrials -1,0% Financials 0,0% Materials -0,5% Industrials -2,2% Consumer Discretionary -1,4% Industrials -0,1% Financials -0,6% Materials -3,7% Information Technology -3,1% Energy -4,7% Industrials -3,2% Energy -4,8% Materials -4,3% Consumer Discretionary -4,7% Consumer Discretionary -3,6% Information Technology -5,0% Energy -4,6% Materials -4,8% Energy -4,6% Financials -5,3% Financials -5,4% Information Technology -5,2% Information Technology -4,7% Index constituents are subject to change. Source: MSCI, as of 6/30/13. 26

27 Standardized Performance as of June 30, 2013 Sources: BlackRock as of 6/30/13. Name ishares MSCI All Country World Min Vol ishares MSCI EAFE Min Volatility ishares MSCI Emerging Mkt Min Vol Index ishares MSCI USA Min Volatility Ticker ACWV EFAV EEMV USMV Inception Date 10/18/ /18/ /18/ /18/2011 Total Ret 1 Year (Qtr-End) USD 13.91% 14.64% 9.09% 15.10% Total Ret Annlzd 3-Year (Qtr-End) USD Total Ret Annlzd 5-Year (Qtr-End) USD Total Ret Annlzd 10-Year (Qtr- End) USD Total Ret Inception (Qtr-End) USD 13.67% 10.68% 12.41% 18.12% Market Ret 1 Year (Qtr-End) USD 12.89% 13.89% 6.95% 15.02% Market Ret Annlzd 3-Year (Qtr- End) USD Market Ret Annlzd 5-Year (Qtr- End) USD Market Ret Annlzd 10-Year (Qtr- End) USD Market Ret Inception (Qtr-End) USD 13.57% 10.95% 11.83% 18.10% SEC Yield % 2.87% 3.53% 2.71% 2.78% SEC Yield Date 6/30/2013 6/30/2013 6/30/2013 6/30/2013 The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. Performance data for ishares Funds current to the most recent month end may be obtained by calling toll-free iShares ( ) or by visiting Shares of ETFs are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Market returns are based upon the midpoint of the bid / ask spread at 4:00 p.m. eastern time (when NAV is normally determined for most ETFs), and do not represent the returns you would receive if you traded shares at other times. 27

28 Carefully consider the ishares Funds investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds prospectuses, which may be obtained by calling iShares ( ) or by visiting Read the prospectus carefully before investing. Investing involves risk, including possible loss of principal. Investment comparisons are for illustrative purposes only and are not meant to be all-inclusive. To better understand the similarities and differences between investments, including investment objectives, risks, fees and expenses, it is important to read the products prospectuses. Information on funds 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 the ishares Funds, that are described in this material. 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. The Funds may experience more then minimum volatility as there is no guarantee that the underlying index s strategy of seeking lower volatility will be successful. 28

29 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. Asset allocation models and diversification do not promise any level of performance or guarantee against loss of principal. Shares of ishares Funds are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. There can be no assurance that an active trading market for shares of an ETF will develop or be maintained. 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. 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. Index returns are for illustrative purposes only and do not represent actual ishares Fund performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. BlackRock does not provide tax advice. Please note that (i) any discussion of US 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. 29

30 The ishares Funds are distributed by BlackRock Investments, LLC (together with its affiliates, BlackRock ). The ishares Funds are not sponsored, endorsed, issued, sold or promoted by Cohen & Steers Capital Management, Inc., LLC, European Public Real Estate Association ( EPRA ), FTSE International Limited ( FTSE ), JPMorgan Chase & Co., MSCI, Inc., Markit Indices Limited, Morningstar, Inc., The NASDAQ OMX Group, Inc., National Association of Real Estate Investment Trusts ( NAREIT ), New York Stock Exchange, Inc., Russell Investment Group or S&P Dow Jones Indices LLC, 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. Neither FTSE nor NAREIT makes any warranty regarding the FTSE NAREIT Real Estate 50 / Residential / Retail / Mortgage or Industrial / Office Index; all rights vest in NAREIT. Neither FTSE nor NAREIT makes any warranty regarding the FTSE EPRA / NAREIT Developed Real Estate ex-us / North America / Europe / Asia Index; all rights vest in FTSE, NAREIT and EPRA. All rights in the FTSE Developed Small Cap ex-north America Index vest in FTSE. FTSE is a trademark jointly owned by the London Stock Exchange plc and The Financial Times Limited and is used by FTSE under license BlackRock. All rights reserved. ishares and BLACKROCK are registered trademarks of BlackRock. All other marks are the property of their respective owners Not FDIC Insured No Bank Guarantee May Lose Value 30

31 For more information, visit Get started Education center Product information Document library Tools and charts Track-based learning Watch, listen, get credit Holdings, price and return information Client presentations and materials Portfolio modeling tools and reports iShares 31

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