Investor Guide

to ETFs
Join the investment revolution
Exchange Traded Funds (ETFs) can help change
the way you manage your investments.
ETFs combine the benefits of investment funds
and shares, offering you diversified, efficient,
cost-effective and transparent access to the
world’s investment markets.

Institutional investors – such as pension funds, government

agencies and private banks – have been using ETFs for
many years. Now, individual investors are also able to
access the same investment opportunities as these
sophisticated and demanding investors – with access to
precisely the same funds, at the same costs

This ‘Investor Guide to ETFs’ has been designed to help

you discover more about the benefits of using ETFs and
how they can form a key part of your investment portfolio.

The guide also explains the benefits of partnering with

iShares® for your ETF investments. iShares is a
trusted ETF leader, has a sustained record of
performance and is powered by BlackRock, the asset
manager trusted with more assets than any other in
the world.

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 What is an ETF?
An ETF is an index fund that is traded
on a stock exchange.
The aim of an ETF is to track the
performance of a specified index
and to provide you with the same
return as that index, less fees.
Like a fund, an ETF investment gives
access to a portfolio of companies
(shares), bonds or other asset types
(such as commodities or property).
Like a share, an ETF is bought and
sold on a stock exchange. Consequently,
ETFs offer you the best of both worlds –
the diversification of an investment
fund, with the easy tradability of a share.
Like all investments, your capital and
income is at risk. The liquidity of the
products is not guaranteed.

EXCHANGE
MUTUAL TRADED
SHARE
FUND FUND
(iSHARES)

2
Are ETFs popular?
Yes.
Since the launch of the first ETF back Pension funds, government agencies
in 1993, the growth of the ETF industry and private banks have been
has been phenomenal, as you can see investing in ETFs for many years.
from the chart. Globally, there is now Now, ETFs are becoming increasingly
around $2.9 trillion invested in ETFs. popular with private investors,
keen to take advantage of the many
Within Asia, the popularity of ETFs
benefits offered by this cost-effective
has soared over the past five years,
and flexible investment solution.
with around $215 billion invested in
ETFs today.

Assets US$ Bn Number of ETPs

3,000 6,000

2,500 5,000 ETFs

2,000 4,000 offer
1,500 3,000
you the
1,000 2,000
best
500 1,000

of both
worlds.
0 0
Mar-15
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Assets US$ Bn Number of ETPs

Source: BlackRock ETP Landscape, as at end of March 2015.

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 iShares ETFs seek to track a benchmark and holdings are not altered during rising or falling
markets. Some iShares ETFs are optimised and therefore may not hold all securities within
the benchmark index. Performance may differ from the underlying benchmark index.
iShares ETFs trade on exchanges intraday at the current market price which may
differ from net asset value. Transaction or brokerage fees will apply.
Liquidity is not guaranteed.

Liquidity
ETFs are traded on stock exchanges, Cost effectiveness
so you can easily make or add to an ETFs often have lower costs than
investment, or sell your investment. other types of investment funds.
It’s as easy to get out as it is to get in.

What are
the benefits
of ETFs?
Transparency Diversification
ETFs give you greater control of
and Access
your investments and you know ETFs give you access to a whole
exactly what you’re investing world of investment options,
in. With ETFs, you have daily covering a broad range of asset
visibility as t o what securities the classes, sectors and geographies.
fund holds, how it’s performing This can help to spread risk and
and costs. avoids putting all your eggs in 
one basket.
 Diversification essentially means ‘don’t put all your eggs in one basket’.
If you can spread your investments over a number of different asset classes
(shares, bonds, property etc.), you provide greater opportunity to achieve
more consistent returns, often with a lower level of risk.

AB
PORTFOLIO A PORTFOLIO B
– CONCENTRATED* – DIVERSIFIED*

EXPECTED RISK
14%

EXPECTED RISK
9%
EXPECTED RETURN
7% EXPECTED RETURN
6%

No. of No. of
Shares Shares

4 45

* % per annum. For illustrative purposes only. Past performance is not a guide to future performance
and may not be repeated.
Diversification and Access
UNDERSTANDING RISK AND RETURN
In the past, many
investors concentrated
solely on the ‘return’ on
their investment –
i.e. whether they made
a profit or a loss.
However, there is a growing acceptance
that you should concentrate on both
return and risk – i.e. whether or not
the investment has provided you with
the actual return you expected when
you first invested, and to what degree
your initial investment (your capital)
has been subjected to the chance of
losing money.
With this in mind, the aim of your
investment should be to obtain the
highest return on your investment,
for the lowest risk. Diversification
can help you reach this optimum
balance of risk and return, as it
spreads your investments over a
* iShares ETFs seek to track a benchmark and holdings are not altered during rising or falling markets. Some iShares ETFs are optimised and therefore
may not hold all securities within the benchmark index. Performance may differ from the underlying benchmark index. iShares ETFs trade on exchanges
intraday at the current market price which may differ from net asset value. Transaction or brokerage fees will apply. Liquidity is not guaranteed.
wider range of asset types, countries diversified and consequently can
and sectors. The theory behind this is offer you an attractive risk/return
that at different points in time, different balance*.
asset types (or countries, or sectors)
Moreover, ETFs are available
will perform differently – if you have
exposure to a broad range, then over a
across different asset classes and
geographies, which we will now
period of time the poor performance
explain further.
experienced in one type of asset
will be compensated for by stronger
performance in another, and vice versa.
This lowers the risk for negative overall
Don’t put
performance at any one point in time.
Let’s consider the example above.
all your
The diversified portfolio B targets
a similar level of return to portfolio A,
but importantly it does this with
considerably lower risk, potentially
making it a more attractive investment.
This is shown in the diagram opposite.
eggs
in one
With ETFs, this example can be
expanded upon. ETFs hold the
underlying securities (like shares
or bonds) listed in the index that
they track. This means that ETFs
basket.
are by theirnature already highly
6
 Liquidity
As we said earlier, ETFs are as easy to trade as
a share. This means that you can easily make or
add to an investment, or sell your investment.
In addition to being an efficient way of investing, ETFs also give you greater access
to investment opportunities across different asset types and regions. So, whatever
your investment goals, there is an ETF that can help you achieve them.

iShares offers over 700 ETFs globally. We

believe these ETFs represent ideal ‘building
blocks’ for use within your portfolio, giving
you liquid access to a wide range of asset
classes and markets worldwide.

You can invest in ETFs that track equity indices, bond indices, commodity indices
and property indices. There are literally hundreds of ETFs available which cover
virtually all major asset classes, tradable throughout the day.

ETFs are available for domestic and global investments, or country and
regional investments. ETFs cover most sectors too – from technology to
telecommunication companies, clean energy to consumer stocks. You can
invest in bonds issued by governments and companies, both in developed and
in emerging markets.

7

Cost-effectiveness
Investment products can sometimes
charge high management fees and
other costs. These costs can cancel
out any gains made by your investment
and can sometimes even lead to losses.
That is why ETFs have one primary
cost element – the Total Expense
Ratio (TER).
The TER represents the total cost to
you of holding your ETF investment
for one year. The TER covers all annual
costs relating to fund management.
8
At iShares, we
understand the
importance of keeping
your investment costs
under control.
The average TER is in general lower in of Ownership (TCO) of investment
ETFs than those in mutual funds. One of instruments. The TCO argument looks
the reasons for the lower TER is that beyond TER, including other costs
ETFs only aim to track an index, rather related to entering, holding and exiting
than try to beat it. The process of a specific investment.
tracking an index is more
straightforward than conducting
research into security picking; this
means that management fees can be
correspondingly lower.
iShares and BlackRock® have been
strong advocates of the Total Cost
The TCO is calculated by adding all the costs of an ETF and subtracting all the revenues generated over the same time
period. It considers external factors such as the explicit costs of trading, and internal factors such as rebalancing costs and
securities lending revenue (see figure below).

COST OF HOLDING

Cost of Trading
 Total Expense Ratio (TER)
 Bid/Ask spreads
Rebalancing costs TOTAL COST
+ =


Securities lending revenue  Broker Commissions

OF OWNERSHIP


 Swap spread (synthetic

funds)
 Tax

Source: BlackRock.

TOTAL COST OF OWNERSHIP:

HOLDING AND TRADING COSTS
Holding costs include both costs
to the fund and revenues received
by the fund for the same time
period. These internal factors
include TER, rebalancing costs,
withholding tax differentials and
any securities lending revenue
generated. Trading costs are
costs to the investor deducted at
the time of purchase and sale of an
ETF and include trading costs along
with brokerage fees and taxes.
Trading costs are reflected in
the bid/ask spread when
buying an ETF on-exchange or
over-the-counter.
When a comparison between ETFs and
traditional passive funds is performed
based on the TCO, as opposed to the
TER, the costs of the two types of
instruments becomes much more
comparable. Usually, the choice of
one or the other is a function of the
investment horizon of the client.

9
Transparency
At iShares, we believe in transparency. We also publish full performance
With many types of That is why we publish daily on our information, so you can see exactly
investment, there website, and for the majority of our how your investment is performing
funds, a thorough disclosure of on a daily basis.
can sometimes be a holdings and structures.
lack of clarity as to For example, for physically-replicated
where your money is ETFs, we publish the list of all the
securities held by the fund. We also
actually invested. explicitly show the funds participating
in securities lending as well as
There can also be considerable
all relevant lending parameters
uncertainty as to whether or not your
(revenue to the fund, level of the
investment is meeting its targets, as
collateralisation, collateral
there is little information on how it is
holdings, etc.)
performing day-to-day.

What are the risks with ETFs?

As there are many different types of
It’s important to ETFs, there are some that are riskier
understand that ETFs than others. If you invest in an ETF
that holds securities in a currency
are not guaranteed other than your own (for example, a
products – just like Japanese equity ETF), your returns
can also be affected by movements in
any investment in the the exchange rate (USD vs. JPY). There
stock or bond market, are some ETFs that provide currency
hedging to minimise this ‘currency risk’.
your initial investment
is subject to loss.
ETFs are designed to track an index
– i.e. they buy the same securities as
that index and attempt to replicate
the returns, minus the cost (fee) of the
fund. There is a risk that there can be
a divergence between the return of
the index, and the return of the fund.
However, it should be remembered
that it is impossible for any investor to
invest directly in an index.

10
Why choose iShares ETFs?
iShares make investing simpler, easier and more
efficient for investors of all sizes

We believe our success is based on three core

strengths:

The scale of iShares benefits you through

TRUSTED
indexing excellence, breadth of choice, and
ETF LEADER
deep liquidity

SUSTAINED iShares have delivered strong performance

RECORD OF through tight tracking, deep liquidity, and
PERFORMANCE institutional-quality indices

POWERED BY Expert portfolio management actively

BLACKROCK seeks to optimize returns, risk, and cost

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Disclaimer:

In Singapore, this material is issued by BlackRock (Singapore) Limited (company registration number: 200010143N).
This material is prepared by BlackRock for informational or educational purposes only. This does not constitute an offer or solicitation to purchase or sell in any securities
or iShares Funds, nor shall any securities be offered or sold to any person in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the
securities laws of such jurisdiction.

There are risks associated with investing, including loss of principal. The value of the units or shares in the iShares Funds and the income accruing to the units or shares may
fall or rise. The value of investments involving exposure to foreign currencies can be affected by exchange rate movements. Investment in emerging market countries may
involve heightened risks such as increased volatility and lower trading volume, and may be subject to a greater risk of loss than investments in a developed country. Any use
of synthetic instruments such as derivatives may create exposure to market counterparty risk. The listing of units of the fund on a stock exchange does not guarantee a liquid
market for the units. Transactions in units of the fund will result in brokerage commissions. Investors should note that iShares Funds differ from a typical unit trust as i) units
or shares of the Funds are bought and sold at market price (not NAV); and ii) units or shares are not individually redeemed from the Fund and may only be redeemed by
participating dealers in large redemption unit sizes. Before making an investment decision, you are reminded to refer to the relevant prospectus for specific risk considerations
which are available from BlackRock or the iShares websites.

Past performance is not indicative of future performance and is no guide to future returns. BlackRock does not guarantee the performance of the shares or units of the
iShares Funds. 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. This material contains general information only and is
not intended to represent general or specific investment advice. The information does not take into account your financial circumstances. An assessment should be made as
to whether the information is appropriate for you having regard to your objectives, financial situation and needs.

This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts,
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