Transcript State of the nation for exchange traded funds (ETFs)

State of the Nation for Exchange
Traded Funds (ETFs)
Trevor Cummings
Vice President
Growth of Exchange-Traded Funds Worldwide
Growth of Exchange-Traded Funds Worldwide
2200
2000
ETF Commodity Assets
ETF Fixed Income Assets
ETF Equity Assets
1800
1600
1400
# of ETFs
1200
1000
800
600
400
200
Q1 2011
2010
2009
2008
74
2007
40
2006
18
2005
2000
8
2004
1999
5
2003
1998
2
2002
1997
1
2001
1996
0.8
1995
ETF Assets Total ($M)
1994
1993
0
105 142 212 310 412 566 797 710 1,032 1,311
Source: ETF Landscape, Industry Highlights, Q1 2011, BlackRock Canada.
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U.S. Exchange Traded Products - Assets Under Management
U.S. Exchange Traded Products - Assets Under Management
10%
1%
Domestic Equity
17%
45%
International Equity
Fixed Income
Commodities
Currency
27%
Source: BlackRock Asset Management Canada Limited. Data as of 31 August 2010
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Canada ETFs - Assets Under Management
Canada ETFs - Assets Under Management
4%0%
22%
Domestic Equity
International Equity
Fixed Income
11%
61%
Commodities
Balanced
Source: BlackRock Asset Management Canada Limited. Data as of 29 April 2011
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Net Inflows into Canadian ETFs
YTD Net Inflows into Canadian ETFs
50.0%
45.0%
40.0%
Percentage
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Balanced
Domestic Equity Commodities
Fixed Income
International
Equity
Source: BlackRock Asset Management Canada Limited. Data as of 29 April 2011.
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Why Have Investors Embraced
ETFs?
Portfolio Applications
The Unique Value in Total Portfolio Management
Value is a process of evaluation and implementation based on the relationship between
return and risk, executed in a cost- and tax-efficient manner
Taxes
Return
CLIENT
PORTFOLIO
Risk
Cost
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Investment Needs and Familiarity with ETFs
“How familiar are you with exchange traded funds or ETFs? Please tell us using a
scale of one to nine where one means not at all familiar and nine means very familiar.”
Total
Under 35
40
20
40
19
36
45
35-50
51-64
16
65+
16
64
20
71
13
0%
47
22
31
$750k+
20%
Very familiar
34
19
47
$500k-$750k
21
15
64
40%
60%
Somewhat familiar
80%
100%
Not very familiar
Source: The Gandalf Group
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Key Findings About ETFs Relative to Mutual Funds
Investors familiar with ETFs are very positive about them
However, few investors in this group hold ETFs
Awareness is low among those aged 50+
Only 27% say their advisor has recommended an ETF
ETFs are seen to provide advantages over mutual funds of:
• Transparency
• Rate of return
• Preservation of capital
• Management fees
Source: The Gandalf Group
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9
ETFs and mutual funds: various differences
ETFs
Mutual Funds
 Hold baskets of securities
 Obliged to distribute portfolio gains to shareholders
 Trade on exchanges intraday at market
price, which may be greater or less
than Net Asset Value (NAV)
 Shares are not individually redeemed
from the fund
 Transactions in shares of ETFs result in
brokerage commissions and generate
tax consequences
 ETFs generally seek to track a market
index, before fees and expenses
 Accessed directly from the fund
company or through a select broker
and pricing generally occurs once a day
 Investors buy or redeem shares at the
end-of-day net asset value, less any
applicable fees
 Some mutual funds may charge sales
loads or redemption fees
 Most mutual funds are actively
managed, seeking to outperform
market indexes
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How To Take Advantage of ETFs Immediately?
• Fixed Income
• Active/Passive Mix
• Tactical Rotation Strategy
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Fixed Income
Dispersion of Fixed Income Asset Class Performance
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
9.4%
15.3%
13.3%
17.5%
15.2%
5.9%
4.4%
9.0%
18.9%
12.5%
9.3%
11.1%
11.2%
10.3%
13.8%
4.4%
4.1%
8.6%
16.3%
11.4%
8.1%
8.8%
9.1%
10.2%
6.6%
4.1%
3.7%
6.4%
14.5%
11.1%
7.7%
8.7%
8.5%
7.3%
6.5%
4.1%
3.4%
2.7%
5.5%
7.3%
6.1%
8.6%
6.7%
7.1%
6.0%
4.0%
2.5%
0.4%
5.4%
6.7%
0.5%
7.0%
6.0%
7.1%
5.1%
3.9%
1.8%
0.2%
4.5%
6.5%
N/A
6.3%
5.1%
5.1%
2.4%
-2.9%
1.6%
-0.9%
1.6%
3.6%
Short Term
Universe
Long Term
Corporate
Government
Real Return
HYBrid
Dispersion of performance represents opportunity to manage risk,
to enhance returns or income
Source: PC-Bond, a business unit of TSX Inc. 12/31/10.
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Use the building blocks to exploit the opportunities
Over the past 5 years, sector returns within the index hover around 5.5%
The dispersion over shorter periods offers the opportunity to achieve higher returns
ETF Index Total Returns (%)
Hybrid
Corporate
Long
Short
Universe
Real Return
Government
-2.0%
0.0%
2.0%
4.0%
YTD
6.0%
1 YR
8.0%
10.0%
12.0%
14.0%
5 YR
Source: PC-Bond, a business unit of TSX Inc. Data for month ending 29 April 2011.
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Duration Management
Adjust duration exposure to manage interest rate risk
10
9
8
Duration
7
6
5
4
3
Core Bond Portfolio
2
iShares DEX Short Term Bond Index Fund (XSB)
1
iShares DEX Long Term Index Fund (XLB)
0
Decreasing Duration
Increasing Duration
Alter the duration of a portfolio:
• Efficiently adjust risk to reflect your market view – increase to reflect bullish fixed income
market sentiment or reduce to implement defensive position
• Portfolio of several iShares ETFs with different duration
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Fixed Income ETFs Offer Price Improvement
8,000
0.60%
7,000
0.50%
6,000
0.40%
5,000
4,000
0.30%
3,000
0.20%
Spread (%)
Monthly Shares Traded (thousands)
iShares DEX All Corporate Bond Index Fund
2,000
0.10%
1,000
-
0.00%
2007
2008
Monthly Volume
2009
2010
ETF Closing Spread
Source: Bloomberg, BlackRock Asset Management Canada Limited . As of 31-May-2010.
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Using iShares Fixed Income ETFs as Building Blocks
Modular family of fixed income ETFs enable investors to express views on:
• Credit
• Yield
• Duration
Components of various DEX Indexes
Relationship Between Yield, Duration and Credit Risk
Weighted Average Yield to
Maturity (%)
6
HYBrid
5
Long
4
Corporate
Universe
3
Government
Short
2
Real Return
1
0
0
2
4
6
8
10
12
14
16
18
Weighted Average Duration (Yrs)
Source: PC-Bond, a business unit of TSX Inc. Data as of 5 May 2011.
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Opportunities in the Canadian Fixed Income ETF Market
Investors are embracing fixed income ETFs in record numbers
Corporate
0%
22%
Total Market
32%
Government
US Credit
2%
Emerging Markets Credit
7%
Real Return
0%
7%
Long Term Broad
12%
18%
Short Term Broad
US Treasuries
Total Canadian-listed Fixed Income ETFs: $9.0 billion
Source: Bloomberg, BlackRock. As of 29 April 2011.
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Active & Passive
Core/Satellite Approach:
Blending Index and Active Investments
• Lower overall costs
Emerging
Markets
• Access an institutional investment
process
Canadian
Small-cap
• Implement tactical calls
• Refine rebalancing opportunities
Canadian
Large Cap
U.S. Equities
Fixed Income
Index Investments
International
Active Investments
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Creating a smoother ride: hypothetical active manager performance
Creating a smoother ride: hypothetical active manager performance
Quarterly Active Return (%)
10
8
60% active/40% index
6
100% Active
4
2
0
-2
-4
-6
-8
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year
Source: BlackRock Asset Management Canada Limited.
For illustrative purposes only; not meant to represent any specific investment. This chart shows under- and outperformance relative to a benchmark. Performance may have
been positive or negative during any period.
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Tactical Rotation Strategy
iShares Sector Breakdown
iShares Sector Breakdown (as of 31 March 2011)
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Percentage (%)
30
25
20
15
10
iShares S&P/TSX Capped Composite Index Fund (XIC)
iShares MSCI EAFE Index Fund (EFA)
Utilities
Telecommunication
Services
Energy
Industrials
Health Care
Financials
Consumer Staples
Consumer
Discretionary
Materials
0
Information
Technology
5
iShares MSCI Emerging Markets Index Fund (EEM)
Source: BlackRock Asset Management Canada Limited.
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S&P Global Healthcare Sector Index: Country Breakdown
S&P Global Healthcare Index – Country Breakdown
(as of 31 March 2011)
United States
Switzerland
United Kingdom
France
Japan
Germany
Denmark
Australia
Canada
Belgium
Ireland
Source: BlackRock Asset Management Canada Limited.
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S&P Global Healthcare Sector Index - Top Companies
S&P Global Healthcare Sector Index - Top Companies (%)
(as of 31 March 2011)
Pfizer Inc
7.6
Johnson & Johnson
7.6
Novartis AG-Reg
6.7
Merck & Co Inc.
Roche Holding AG - Genusschein
48.1
4.8
4.7
GlaxoSmithKline PLC
Sanofi-Aventis
Abbott Laboratories
4.6
3.6
3.0 3.0
Bayer AG
AstraZeneca PLC
3.6
Other
Source: BlackRock Asset Management Canada Limited.
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Sector Perspectives
iShares Sector Perspectives – April 2011
Outlook
Global Sector
Positive
Neutral
Consumer Discretionary

Consumer Staples

Energy


Financials
Healthcare

Industrials

Information Technology

Materials

Telecoms

Utilities
Negative

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THANK YOU
For more information, visit
www.iShares.ca
1-866-486-4874
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This presentation is intended for accredited investors in Canada only.
iShares® Funds are managed by BlackRock Asset Management Canada Limited. Commissions, management fees and expenses all
may be associated with investing in iShares Funds. Please read the relevant prospectus before investing. The indicated rates of return
are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take
into account sales, redemption, distribution or operational charges or income taxes payable by any securityholder that would have
reduced returns. The funds are not guaranteed, their values change frequently and past performance may not be repeated. Tax,
investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional.
DEX Universe Bond Index™, DEX All Corporate Bond Index™, DEX All Government Bond Index™, DEX HYBrid Bond IndexTM, DEX
Long Term Bond Index™, DEX Real Return Bond Index™, and DEX Short Term Bond Index™ are trademarks of TSX Inc. and have
been licensed for use for certain purposes to BlackRock Asset Management Canada Limited by PC-Bond, a business unit of TSX Inc.
XBB, XCB, XGB, XHB, XLB, XRB and XSB are not sponsored, endorsed, sold or promoted by PC-Bond, TSX Inc., its affiliates or third
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applicable, the EAFE mark pursuant to a license agreement between MSCI and BlackRock Institutional Trust Company, N.A., relating
to, among other things, the license granted to BlackRock Institutional Trust Company, N.A. to use the indices. BlackRock Institutional
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and XWD are not sponsored, endorsed, sold or promoted by MSCI and MSCI makes no representation, condition or warranty regarding
the advisability of investing in XBZ, XEM, XIN and XWD.
© 2011 BlackRock Asset Management Canada Limited. All rights reserved. iShares® is registered trademark of BlackRock Institutional
Trust Company, N.A. Used under license. BlackRock® is a registered trademark of BlackRock, Inc. Used with permission. All other
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