Enhanced Diversification to Help Improve Your Portfolio Strategic Risk Allocation Fund July 2015 FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or

Enhanced Diversification to Help Improve Your PortfolioStrategic Risk Allocation Fund

July 2015

FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to the general public.

2

BlackRock Strategic Risk Allocation Fund:

Seeks consistent long-term returns with protection during market downturns and reduced correlation to traditional investments

A Multi-Asset, Diversified Risk Factor Strategy

1) Growth

Seeks consistent returns throughout a market cycle

2) Lower Volatility

Seeks less volatility than global equities and protection during drawdowns

3) Portfolio Diversification

Seeks lower correlation to equities (0.57) than a traditional 60/40 portfolio (0.99)*

*Source: Morningstar as of 12/31/14. Past correlations are no guarantee of future correlations. Stocks represented by the S&P 500 Index and bonds are represented by the Barclays US Aggregate Bond Index. Based on daily returns from fund inception (12/28/12) to latest quarter end. Example for illustrative purposes only.


Problem #1:Diversification Across Asset Classes Has Limited Benefit

Source: BlackRock. As of 12/31/14. Example for illustrative purposes only. Past correlations are no guarantee of future correlations.

The Diversification Reality of a Traditional Balanced Portfolio

A traditional 60/40 “balanced” portfolio has exhibited limited diversification benefit due to high correlations

Without adequate risk diversification, portfolios aren’t prepared to provide consistency and weather down markets

Stocks

60%

Bonds

40%Asset AllocationDrivesRisk Allocation

Asset Allocation Risk Allocation

3

Correlation

Risk DrivesCorrelations +0.93

Correlation of 60/40 portfolio to S&P 500 Index


Stock Volatility90%

Bond Volatility

10%

4

Problem #2:Diversification Within Asset Classes Delivers Even Less Benefit

Equity Correlations Tend to Spike During Difficult Markets

Source: Morningstar, as of 12/31/14, based on monthly returns. Past correlations are no guarantee of future correlations. US Small Cap represented by the Morningstar US Small Cap Blend category average. International represented by the Morningstar Foreign Large Blend Category Average. Emerging Market Equity represented by the Morningstar Diversified Emerging Markets category average. Credit Crisis defined as 2008-2009.

Market Capitalization Geography

Correlation with S&P 500 Correlation with S&P 500

Last 5 Years Credit Crisis Last 5 Years Credit Crisis

US Large-Cap 1.00 1.00 MSCI EAFE 0.88 0.93

US Mid-Cap 0.97 0.97 MSCI EM 0.80 0.87

US Small-Cap 0.94 0.96

Correlations have continued to rise over the past decade

Diversification benefits are further reduced during periods of market stress, when investors need it the most


http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=IXIFsyIYv-y4NM&tbnid=bpSuT0xwj2MCyM:&ved=0CAcQjRw&url=http://www.kspgroup.ir/&ei=9Uw0VLfNKcmoyAS73oDICQ&bvm=bv.76943099,d.aWw&psig=AFQjCNFIgioVpujQhvUa1Za5HZKLG0iKeQ&ust=1412800120554440

5

… Because Asset Classes Are In Reality, A Composite of Risk Factors

Higher Expected

Return

For illustrative purposes only

Fundamental risk factors drive asset class returns

A risk factor approach provides a different understanding of asset class returns

Risk Factor Decomposition of Selected Asset Classes

Lower Expected

Return

Inflation-protected

bonds

Nominal bonds

Corporate bonds

EmergingBonds

Equities

Interest Rate Premium

InflationPremium

Risk Free Rate

Cash

Risk Free Rate

EmergingEquity

Risk Free Rate Risk Free Rate Risk Free Rate Risk Free Rate Risk Free Rate



InflationPremium


InflationPremium

Credit Premium

Credit Premium

Emerging Premium

InflationPremium

EconomicGrowth Premium

InflationPremium

EconomicGrowth

Premium

Emerging Premium


Risk Factor Investing Offers Enhanced Diversification

Correlations between asset classes are typically high and increase during periods of volatility

Conversely, risk factors exhibit lower correlations, making them potentially more effective in enhancing diversification

Source: BlackRock. Correlations measured over the period 8/88 to 12/14. Past correlations are no guarantee of future correlations. Factor returns are annualized returns to investable portfolios (in excess of one-month T-Bills) that mimic the fundamental risk factors, adjusted to ex-ante annualized risk level of 10%. Diversification does not ensure profit or protect against a loss. Correlation is A statistical measure of how two securities move in relation to each other. A perfect correlation of +1 implies movement in lockstep, -1 implies movement in the opposite direction, while a correlation of 0 implies completely random movement. Correlations near zero (from +0.6 to -0.6) enhance diversification.

Lower Correlation for Enhanced Diversification

Correlations among risk factors

6

Economic Credit Real Rates Inflation

Emerging Markets

Liquidity

Economic 1

Credit 0.62 1

Real Rates 0.14 -0.09 1

Inflation -0.41 -0.35 -0.16 1

Emerging Markets 0.59 0.57 0.11 -0.32 1

Liquidity 0.50 0.44 0.11 -0.33 0.44 1


Strategic Risk Allocation Fund 2014 – Q2 2015 Monthly Performance

BlackRock Strategic Risk Allocation Fund – Performance Attribution

Source: BlackRock. Institutional shares performance as of 6/30/15Data represents past performance and is no guarantee of future results. Investment returns and principal values may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. All returns assume reinvestment of dividends and capital gains. Current performance may be lower or higher than that shown.

7

Factor Economic Credit Emerging Markets Liquidity Real Rates Inflation

Factor Portfolio

Developed equities, commodities, and property

Corporate bonds versus government bonds

Emerging markets versus developed markets

Small cap equity versus large cap equity

Globally diversified inflation-linked government bond portfolio

Nominal bonds versus inflation-linked bonds

Jan-

14

Feb-1

4

Mar

-14

Apr-1

4

May

-14

Jun-

14

Jul-1

4

Aug-1

4

Sep-1

4

Oct

-14

Nov-1

4

Dec-1

4

Jan-

15

Feb-1

5

Mar

-15

Apr-1

5

May

-15

Jun-

15

-6%

-4%

-2%

0%

2%

4%

6%

-0.1%

3.1%

0.5%1.0%

2.2%

1.5%

-0.7%

2.4%

-3.2%

1.6%1.3%

-0.7%

1.4%2.2%

0.6%

-0.2%

-1.1%

-2.4%


Economic Risk Dominates An Institutional Portfolio

Typical Investor 60/40 PortfolioBlackRock Strategic Risk Allocation

Fund

6% 10%3%

10%16%

10%9%

25%3%

10%

62%

35%

A traditionally-balanced, institutional portfolio is heavily dependent on economic risk

Investing across a more diverse & balanced set of risk factors may help lower volatility through diverse markets

8

Most Diversified Portfolios Aren’t Diversified From a Risk Allocation Standpoint

Source: BlackRock. As of 6/30/15. Typical Investor Portfolio consists of 46% S&P 500, 8% MSCI World ex. US, 4% Russell 2000, 2% MSCI EM, 13% Barclays Intermediate Government Bond, 9% Barclays US Aggregate Bond, 9% Barclays MBS, 2% Barclays High Yield Bond, 2% Citigroup WGBI Index and 5% cash.

Economic Credit Real Rates InflationEmerging Markets

Liquidity

VS.=

Typical Investor 60/40 Portfolio


9

Risk Factor Exposure Capital Allocation

As of 6/30/2015. Allocation to asset classes is subject to changes through time and is left at BlackRock’s discretion. Asset classes may be added or removed over time.

BlackRock Strategic Risk Allocation Fund – Portfolio Breakdown

Real Rates; 25%

Inflation; 10%

Credit; 10%Economic;

35%

Emerging Markets;

10%

Liquidity; 10%

Sovereign

Nominal Debt37%

Real Assets

26%

Equities

12%

Credit 　　

26%

Instrument Capital allocation Risk contribution

Developed Sovereign Debt Futures 31.37% 13.07%

Emerging Sovereign Debt Total return swaps / CDS 5.23% 8.10%

Investment Grade Credit Credit default swaps 20.09% 4.81%

High Yield Credit Credit default swaps 5.57% 6.03%

Developed Equity Futures 3.24% 7.56%

Developed Small Cap Equity Total return swaps 4.18% 12.65%

Emerging Equity Total return swaps / Futures 3.64% 14.28%

Volatility Futures 0.46% 8.63%

Inflation Linked Debt Bonds 19.34% 9.75%

Property Total return swaps 2.24% 7.51%

Commodities Ex Energy Total return swaps 3.10% 4.63%

Energy Total return swaps 1.55% 2.98%

Total 100% 100.00%

Leverage (for the 10% volatility strategy) 2.45x n/a


Tactical Lever #1 – Tilts Across Factor Exposures

Source: BlackRock as of 6/30/2015 Red = factor is expensive Blue = factor is fairly valued Green = factor is cheap

When factors are extremely over- or under-valued: Increase or decrease an individual factor exposure

Macro-economic & risk factor valuation data help identify bubbles or buying opportunities

Risk Factor Valuations

Number of standard deviations away from the long-term average risk factor as of 6/30/15

10

Lever #1:

Factor-Level Tilts

Example: Real Rates

• Currently underweight Real Rates exposure vs. our long-term strategic allocation

Real Rates


-3

-2-1 0 1

2

3

Eco-nomic

-3

-2-1 0 1

2

3

Liquid-ity

-3

-2-1 0 1

2

3

Credit

-3

-2-1 0 1

2

3

Emerg-ing

Mar-kets

-3

-2-1 0 1

2

3

Inflation

-3

-2-1 0 1

2

3

Tactical Lever #3 - Reduce Overall Volatility

Non-market / cash exposure

For illustrative purposes only

When diversification fails: Reduce risk pro-rata across the whole portfolio to limit drawdown

A proprietary risk tolerance indicator help guide risk exposures

Reduce Overall Volatility In The Portfolio

C A S H

Lever #3:

Reduce Overall Volatility

Example: De-Risk

11FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or distributed to the general public.

So What Do I Do With My Money?®

Investors are using this strategy for:

Equity Substitute Seek to reduce risk without sacrificing long-term

returns

Add diversification to an existing portfolio

Designed to lessen the blow from extreme drawdowns

Liquid Alternative Differentiated source & pattern of risk-adjusted returns

Returns driven by beta, not alpha

12

Blending a Risk Factor Strategy into a Traditional Portfolio Increased Risk-Adjusted Returns

Hypothetical Risk Parity

Portfolio 50%

Traditional 60/40 Portfolio

Replacing 20% of Equities with Hypothetical Risk Factor Strategy

Return = 8.84%

Volatility = 7.64%

Return & risk 12/31/89 – 12/31/14

Return = 8.52%

Volatility = 8.82%

Equity40%

Fixed Income

40%

Hypo. Risk

Factor Strategy

20%Tickers A: BSTAX C: BSTCX I: BSTIX

Source: BlackRock as of 12/31/14. The hypotheticals are provided for illustrative purposes only as the results are not based on a single actual investment. Performance data quoted represents past performance and does not guarantee future results. US Federal Reserve, Ibbotson, Datastream, Bloomberg, Standard & Poor’s, Goldman Sachs, National Bureau of Economic Research. The hypothetical strategy is a 22%/62%/16% allocation of the S&P 500, Ibbotson Intermediate-Term Treasury Index and the GSCI Commodity Index with notional exposure of 1.8x capital invested. The strategy targets a risk level of 10% and equal risk allocation among all three components, assuming zero correlations at volatilities of 15%/5%/20%. Thirty percent of capital is invested in T-bills to meet margin calls. Notional exposure is greater than capital invested. We assume a 50-bps spread over T-bills for derivatives financing. Index performance is for illustrative purposes only. You cannot invest directly in an index. Performance returns for strategies do not reflect any management fees, transaction costs or non-financial expenses.

Equity60%

Fixed Income

40%


13

Source: Envestnet, as of 9/30/14

Large Institutions Outsource This To Firms Like BlackRock

Risk factor strategies are increasingly gaining the attention and assets of institutional investors

BLK’s Market Advantage Team has run risk-factor strategies for over 5-years with over $9B in AUM. See prospectus

Firms Offering Risk Factor Approach Client Types / Examples

1. Bridgewater - $81B

2. AQR - $31B

3. Invesco - $10B

4. BlackRock - $9B

Texas Teachers Retirement System

Adopted a new 5% strategic allocation of their $130B portfolio to risk-parity strategies

Pensions & Investments 9/14

It takes advanced research, technology, infrastructure & expertise to identify & access discrete risk factor exposures & blend them in an optimal portfolio


BlackRock Strategic Risk Allocation Fund - Performance

14

1 Performance is cumulative, not annualized. 2. The Blended Benchmark represents 60% MSCI World Index/40% Barclays U.S. Aggregate Bond Index.

Average annual total returns (%)(as of 6/30/15) 2Q151 YTD 1-year

Since inception(12/27/12)

BLK Strategic Risk Allocation Fund (Institutional) -3.60% 0.51% 1.13% 2.88%

Morningstar World Allocation Category Average -0.68 1.21 -2.34 -

Blended Benchmark2 -1.10 2.44 5.72 -

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Refer to website at www.blackrock.com to obtain performance data current to the most recent month-end. Returns include reinvestment of dividends and capital gains. Morningstar category returns are based on total return and do not reflect sales charges. Total/net expenses including investment related/net excluding investment related expenses as stated in this fund’s most recent prospectus are 1.66%/1.10%/1.00% for Institutional shares as of the fund's most recent prospectus. Investment dividend expense, interest expense, acquired fund fees and expenses and certain other fund expenses are included in the Net, Including Investment Related Expenses and excluded from the Net, Excluding Investment Related Expenses. Institutional share class has a contractual waiver with an end date of 12/1/15 terminable upon 90 days’ notice.

Important Notes

Please ask your clients to consider the investment objectives, risks, charges and expenses of the fund carefully before investing. The prospectus and, if available, the summary prospectus contain this and other information about the fund and are available, along with information on other BlackRock funds, by calling 800-882-0052 or at www.blackrock.com/funds. The prospectus and, if available, the summary prospectus should be read carefully before investing.

Important Risks: The fund is actively managed and its characteristics will vary. Holdings shown should not be deemed as a recommendation to buy or sell securities. Stock and bond values fluctuate in price so the value of your investment can go down depending on market conditions. International investing involves special risks including, but not limited to currency fluctuations, illiquidity and volatility. These risks may be heightened for investments in emerging markets. Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments. Non-investment-grade debt securities (high-yield/junk bonds)may be subject to greater market fluctuations, risk of default or loss of income and principal than higher-rated securities. Asset allocation strategies do not assure profit and do not protect against loss. Short-selling entails special risks. If the fund makes short sales in securities that increase in value, the fund will lose value. Any loss on short positions may or may not be offset by investing short-sale proceeds in other investments. Investing in commodity-linked derivatives and commodity-related companies may increase volatility. Non-diversification of investments means that more assets are potentially invested in fewer securities than if investments were diversified, so risk is increased because each investment has a greater effect on performance. The fund may use derivatives to hedge its investments or to seek to enhance returns. Derivatives entail risks relating to liquidity, leverage and credit that may reduce returns and increase volatility.

1 Institutional shares are sold to a limited group of investors, including certain retirement plans. Institutional shares also are sold to certain investment programs. See prospectus for details. Since inception performance less than one year not annualized. 2 The Blended Benchmark is 60% MSCI World Index and 40% Barclays US Aggregate Bond. The unmanaged, market-capitalization weighted Morgan Stanley Capital International (MSCI) World Index consists of a representative sampling of stocks of large-, medium- and small-capitalization companies in 23 countries, including the United States. The unmanaged, market-weighted Barclays US Aggregate Bond Index comprises investment-grade corporate bonds (rated BBB or better), Mortgages and US Treasury and government agency issues with at least 1 year to maturity.

Prepared by BlackRock Investments, LLC, member FINRA.

FOR MORE INFORMATION: www.blackrock.com

©2015 So What Do I Do With My Money?® BlackRock, Inc. All Rights Reserved. BLACKROCK is a registered trademark of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners.

USR-6921


Multi-Asset Strategies

() reflects years investment experience. Team is based in San Francisco and London

Portfolio ManagementInvestment Strategy ResearchRQA — Risk and

Quantitative Analysis

Risk & QuantitativeAnalysis

+500 professionals partner with investment teams to monitor and analyze risk

Multi-assetResearch

+150 investors dedicated to multi-asset investing

Global Investment Teams

+1,600 investment professionals with specialties

across all asset classes

BlackRockSolutions

Proprietary Aladdin® platform integrates portfolio

management, risk analytics, trading and operations

BlackRock Global Investment Platform

BlackRock

Investment Institute

Internal forum facilitates idea sharing and debates insights

Chief Risk Officer

Ked Hogan, PhDManaging Director (30)

Team HeadPhilip Hodges, PhDManaging Director (8)

Head of Research

Vincent de Martel, CFA Managing Director (16)

Head of Investment Strategy

Ben Golub, PhDBlackRock

Chief Risk Officer (30)

Kristin FergisAssociate (3)

+ 2 TBAsRobert Holmes, CQFVice President (6)

Shinda BickhamDirector (15)

Kris KeltnerAssociate (7)

Ted DavermanVice President (8)

Garth FlanneryDirector (16)

Stefan SlukeVice President (5)

Justin PetersonAssociate (4)

Ron Ratcliffe, PhD Director (25)

Nicky LaiAssociate (5)

Paolo MirandaAssociate (3)

Jack DaviesAssociate (4)

Drawing From Specialized Knowledge & Market Insights Across BLK


Traditional Portfolios Appear Diversified

Diversification seeks to provide consistency through diverse markets

A traditionally 60/40 institutional portfolio appears diversified from a capital allocation standpoint

17

Capital Allocation of a Traditional 60/40 Institutional Portfolio

Source: BlackRock.

23% U.S. Large-Cap Growth

23% U.S. Large-Cap Value

2% U.S. Small-Cap Growth

2% U.S. Small-Cap Value

8% International Developed

2% International Emerging

13% Treasuries, CDs & GSEs

9% Mortgage Backed

9% Investment Grade Corporate Bonds

2% High Yield

2% International Bonds

5% Cash

5%Cash

35% Bonds

60%Stocks


Research-Driven Investment Process

Risk factor tilts (under / over

weights)

Optimal combination of

fundamental risk factors

Identify fundamental risk factors

Implementation of risk factors

Economic

Credit

Emerging Markets

Liquidity

Real Rates

Inflation

Investment Process

Strategic Allocation Tactical Overlay

Extreme risk Management to

lower overall volatility

Inflation Linked Debt

Developed Equity

Infrastructure

Developed Sovereign Debt

Developed Small-Cap Equity

Property

Investment Grade Debt

Emerging Equity

Commodities Ex-Energy

Emerging Sovereign Debt

Volatility Strategies

Energy

High Yield Credit

Private Equity

14 different asset classes24 DMs & 21 EMs

18

Cash


Risk Factors Drive Investment Returns…

Risk Exposures

Inflation Bearing inflation exposureExample: Supply shock causes expected inflation to rise

Economic Economic growthExample: US GDP unexpectedly rises

EmergingMarkets

Investing in EM equities, bonds & currenciesExample: Modi implements reforms in India

CreditLending money to corporationsExample: High yield default rates remain low

Liquidity Financial market & asset class liquidityExample: Small-caps trade at a premium to large-caps

Real Rates Lending money for a period of timeExample: Fed lowers interest rates

The returns of every asset class are driven by a combination of multiple sources of risk

Diversifying the sources of risk is key to more effective portfolio construction

19

What Drives Risk


20

Solution: Diversify Risk Factors for Better Risk-Adjusted Returns

GA_2

Hypothetical Risk Factor Strategy Combined With a Traditional 60/40 Portfolio

Add a different approach to asset allocation that breaks down investments by their sources of return

This approach can complement a traditional portfolio to enhance overall diversification

Performance data quoted represents past performance and does not guarantee future results.As of December 31, 2014. Sources: BlackRock, US Federal Reserve, Ibbotson, Datastream, Bloomberg, Standard & Poor’s, Goldman Sachs, National Bureau of Economic Research. The hypothetical strategy is a 22%/62%/16% allocation of the S&P 500, Ibbotson Intermediate-Term Treasury Index and the GSCI Commodity Index with notional exposure of 1.8x capital invested, respectively. The strategy targets a risk level of 10% and equal risk allocation among all three components, assuming zero correlations at volatilities of 15%/5%/20%. Thirty percent of capital is invested in T-bills to meet margin calls. Notional exposure is greater than capital invested. We assume a 50-bps spread over T-bills for derivatives financing. Index performance is for illustrative purposes only. You cannot invest directly in an index. Performance returns for strategies do not reflect any management fees, transaction costs or non-financial expenses.

4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0%5.0%

6.0%

7.0%

8.0%

9.0%

10.0% 100% Stocks

Traditional 60% / 40%Balanced

100% Bonds

Standard Deviation

An

nu

aliz

ed R

etu

rn

Risk and Returns over 25 years (12/31/89 to 12/31/14)

Sourcing 20% from stocks Hypothetical

Diversified Risk Factor Strategy


Diversifying Risk Factors To Enhance Performance

Source Blackrock. Chart is for illustrative purposes only. Pie charts indicate portfolio risk exposures and are for illustrative purposed only.

21

Diversified Beta Frontier

Risk Free Cash

Exp

ecte

d R

etu

rn

Risk (standard deviation)

Some LeverageBetter risk/return trade-offtargeted for equity return

No LeverageBest risk/return

trade-off portfolio

Capital Market Line

Equity portfolio

Unnecessary risk

We define an optimal portfolio as the one with the highest expected Sharpe Ratio

A truly diversified portfolio with modest leverage is more efficient

Concentration Risk vs. Leverage Risk


22

Tactical Lever #2 – Tilts Within Factor Exposures

Real Rates Tactical Allocation Change by Geography

When implementation methods are over/under priced: Tilt factor exposures to assets, geographies & vehicles that offer better valuations

Risk factor exposures utilize 14 different asset classes in 24 DMs & 21 EMs

Lever #2:

Tilts Within Each Factor

Example: Real Rates

• We are currently underweight JGBs versus our long-term strategic allocations

Underweight Japanese Government Bonds

• Low yields; with a curve that is not any more attractive than other major markets

• Large tail risk; skewed return distributions issued by a country that is committed to raising the inflation rate

• Return exposure; when the yield offered is more in-line with the associated risks

Source: BlackRock as of 9/30/14


Documents

Enhanced Diversification to Help Improve Your Portfolio Strategic Risk Allocation Fund July 2015 FOR FINANCIAL PROFESSIONAL USE ONLY. Not to be shown or