Essentials of ETF

8/8/2019 Essentials of ETF

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EDUCATION CENTRE WEBINAR:

ESSENTIALS OF ETFS


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Agenda

What are ETFs?

Benefits of ETFs

Portfolio Strategies

ETF industry overview


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Best of both worlds

Like an index fund Constructed to reflect performance of a benchmark

Low management costs

Low turnover

Like a share .Trading flexibility intra-day on the exchange

Long or short


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Introducing ETFs

Exchange traded funds (ETFs) are index funds, whichare listed and traded on major stock exchanges around theworld.

An ETF seeks to reflect the performance of a chosen indexthrough holding a diversified underlying basket of assets.


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Unique benefits of ETFs

Precise access to markets

Diversification

Transparency: Price & holdings

Cost effectiveness

Trading: Multi-dealer

Portfolio strategies


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Precise market access

ETFs provide benchmark exposure

Access to variety of asset classes on-

exchange, including less accessible, e.g.emerging markets

Continuous pricing during market hoursprovides competitive and fair pricing


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Diversification

Exposure to the underlying companies in anindex

Reduces concentration risk


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Transparency

Know what you own

Manage costs

Manage portfolio risk

* Broker fees may apply


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Comparing Management Costs

Japanese Market Equities

Market Category iShares fundUniverse of funds

Emerging Market Equities

US Market Equities

Global Large Cap Equities

Of the 15 Japanese Market Equity Funds,the average fee in Australia is 1.78% (ranging from 1.00% to 2.40%)

Of the 54 Emerging Market EquityFunds, the average fee in Australia is1.92% (ranging from 0.56% to 3.20%)

Of the 12 US Equity Funds, the averagefee in Australia is 1.92% (ranging from0.65% to 2.64%)

Of the 1,140 Global Market Equity Funds,

the average fee in Australia is 1.89% (ranging from 0.19% to 4.79%)

iShares MSCI Japan management cost is0.52%

iShares MSCI EmergingMarkets managementcost is 0.72%

iShares S&P 500 management cost is0.09%

iShares S&P Global 100 management cost is0.40%

Management Costs for the iShares funds represent total fund management fees and expenses as a percentage of average net assets,and is equivalent in calculation to the indirect cost ratio (ICR) and the management cost ratio (MER).Analysis and table were prepared by BlackRock Asset Management Australia Limited using information provided byMorningstar Research Pty Limited (Morningstar). The information is as at 2 November 2009.Morningstar takes no responsibility for the analysis, t he accuracy of the information or the way in which the information providedby them has been presented.


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Trading could not be simpler

Equity-like execution:

Shares traded at any time on the ASX

Settle like listed sharesBuy and sell quickly even in market volatility


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Investment strategies using iShares

Category Objective Strategy

Build Strategic asset allocation Core/satelliteUse broad based ETFs as core holdings and add single countryor sector ETFs as satellites

Alternative asset classes

Use ETFs for exposure to difficult-to-access markets

Adjust Active management Cash equitisationInvest extra cash in ETFs to maintain full market exposure,through management transitions or for portfolio completion

Tactical rotationCan easily be applied among countries, styles and market cap

Maintain Risk control Risk managementIncorporating ETFs for index exposure or combining ETFs inmanaging total portfolio volatility, or duration adjustments infixed-income portfolios


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Core - stay true to an asset allocationSatellites - pursue opportunities for outperformance

Building a portfolio core/satellite strategy

Expectedtotalreturn%

Total risk %

Core portfolio

Core plus satellites


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Growth of the global ETF industry

Global ETF assets hit US$933 bn at the end of Q3 2009Over 1,800 ETFs with over 3,200 listings96 providers on 40 exchanges throughout the worldSource: BlackRock ETF Landscape, Industry Preview, as at end Q3 2009


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Agenda

What are ETFs?

Benefits of ETFs

Portfolio Strategies

ETF industry overview


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IMPORTANT INFORMATION

Before investing in an iShares fund, you should carefully consider the appropriateness of such products to your circumstances, read the Australianprospectus and consult an investment adviser. This information is general in nature and has been prepared without taking into account your objectives,financial situation or needs.

This information has been prepared by BlackRock Asset Management Australia Limited ABN 33 001 804 566, AFSL 225 398. BlackRock Asset Management AustraliaLimited is the local agent and intermediary for iShares (iShares, Inc. ARBN 125 632 279 formed in Maryland, USA; iShares Trust ARBN 125 632 411 organised inDelaware, USA. The liability of shareholders is limited.). The information in this document relates to iShares funds quoted on the Australian Securities Exchange (ASX).Trades on ASX in the shares of an iShares fund are settled using CHESS Depositary Interests (or CDIs").

BlackRock Fund Advisors serves as an advisor to the iShares funds that are registered with the United States Securities and Exchange Commission under the InvestmentCompany Act of 1940. BlackRock Asset Management Australia Limited and BlackRock Fund Advisors are wholly-owned subsidiaries of BlackRock, Inc.

International investments such as an iShares fund may have different risk characteristics compared to investments in other securities listed on the ASX that do not haveinternational exposure.

Past performance is not a reliable indicator of future performance.

Shares of an iShares fund trade on an exchange at market price (not, net asset value ("NAV")). Shares may only be redeemed directly from an iShares fund by persons or entities in the United States called 'Authorised Participants', in very large creation/redemption units.

The iShares funds are not sponsored, endorsed, issued, sold or promoted by MSCI, Inc. or Standard & Poors.

Transaction costs are incurred when buying or selling shares of a Fund on the ASX, and brokerage commissions if such trades are done through a broker.The performance of an iShares fund is not guaranteed.

2009 BlackRock Asset Management Australia Limited. All rights reserved. iShares is a registered trademark of BlackRock, Inc.

Slide 9 - Cost Effectiveness: Management Costs comparisons

Each universe consists of retail and wholesale funds . All funds are open funds. Management Expense Ratio ("MER") and Indirect Cost Ratio ("ICR") figures have beenincorporated into the above expense ratios. The universe of Japanese Market Equities is represented by the Morningstar Category Equity Japan. The universe of Emerging Market Equities is represented by the Morningstar Category Equity Emerging Markets. The universe of US Equities is represented by the Morningstar CategoryEquity North America. The universe of Global Market Equity funds is represented by those funds benchmarked to the MSCI World Ex-Australia.

Morningstar Research Pty Ltd ABN 83 062 096 342, AFSL 243161. All rights reserved. To the extent that any of the content above constitutes advice, it is generaladvice that has been prepared by Morningstar, without reference to your objectives, financial situation or needs. Before acting on any advice, you should consider theappropriateness of the advice and we recommend you obtain financial, legal and taxation advice before making any financial investment decision. If applicable, investorsshould obtain the relevant product disclosure statement and consider it before making any decision to invest. Please refer to our Financial Services Guide (FSG) for moreinformation at www.morningstar.com.au/fsg.asp

Management Costs means total fund management fees and expenses as a percentage of average net assets, and is equivalent in calculation to the indirect cost ratio('ICR') and the management expense ratio ('MER'). For the purposes of this analysis, both expenses and fees calculations are referred to as Management Cost or fee.Funds where no Management Cost/MER/ICR was provided were excluded from the analysis. The analysis does not take into account entry/exit fees or other transactioncosts.

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Essentials of ETF