daniel prince, cfa head of ishares product consulting€¦ · head of ishares product consulting...
TRANSCRIPT
Finding income……..with ETFs!
Daniel Prince, CFA
Head of iShares Product Consulting
March 2019
ICRMH0319U-756605-1/24
Seeking income with ETFs
The retiree income dilemma
Today’s income challenge
Building better income
portfolios with ETFs
2 ICRMH0319U-756605-2/24
The psychology of retirement income
Retirees are reluctant to spend principal and sell securities for income. This could negatively impact the
quality of their retirement. Building portfolios that seek to generate income may help.
Source: Based on BlackRock Retirement Institute – Nov 2017. A sample of 7,148 retiree households provided self-reported asset data and out-of-pocket medical expenditure and
a subsample of 1,660 households provided the household expenditure data. Retirees were segmented into three groups based on pre-retirement non-housing retirement assets
— $0 to less than $200,000 (lowest wealth), $200,000 to less than $500,000 (medium wealth) and $500,000 and above (highest wealth).
*Inclusive of all three wealth bands (lowest, medium, and highest per source)
THE CAUSE
Three reasons retirees are spending less
Longer life expectancy
THE EFFECT
Retirees are reluctant to spend principal across all wealth bands
2017 BlackRock Retirement Institute study
1
Investors across the wealth spectrum may benefit from an income seeking portfolio
2
3
82 At age
Retirees still retain
17 Years into retirement
of their nest egg* 77%
2018
85 78 1980
Less income
Lower return expectations
retirees with
defined benefit plans 2014
2% 28% 1979
3 ICRMH0319U-756605-3/24
Seeking income with ETFs
The retiree income dilemma
Today’s income challenge
Building better income
portfolios with ETFs
4 ICRMH0319U-756605-4/24
Investors are still in a lot of cash…
Source: BankRate.com using national averages for savings accounts, money
market accounts, and 1-year CD rates as of 3/1/19. Inflation represented by 1-year
change in the consumer price index as of January 31, 2019.
Past performance does not guarantee future results.
Source: BlackRock Global Investor Pulse Survey 2017. Based on a survey of
4,000 individual US investors. On average, Americans hold 58% of their liquid
investible assets in cash.
Cash yields have not
kept pace with inflation
On average, Americans hold 58% of their
liquid investible assets in cash
5
0.10% 0.21%
0.88%
1.60%
SavingsAccounts
MoneyMarket
Account
1-year CD Inflation
Cash
58%
ICRMH0319U-756605-5/24
Yields remain below historical averages
Percent of fixed income markets yielding over 4%
U.S. Treasury
Euro Core
U.S. Agencies
U.S. Municipal
Euro Periphery
U.S. MBS
Global Credit
U.S. CMBS
Emerging Market
Global High Yield
100%
75%
50%
25%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Don’t be lulled by the rise in short term rates. It’s still hard to find 4% yield.
Index performance is for illustrative purposes only. Index performance does 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: BlackRock Investment Institute, Barclays and Thomson Reuters, December 2018. The bars show market capitalization weights of assets with an average annual yield over 4% in a
select universe that represents about 70% of the Bloomberg Barclays Multiverse Bond Index. U.S. Treasury represented by the Bloomberg Barclays U.S. Treasury index. Euro Core is
based on the Bloomberg Barclays French and German government debt indexes. U.S. Agencies represented by Bloomberg Barclays U.S. Aggregate Agencies index. U.S. Municipal
represented by Bloomberg Barclays Municipal Bond index. Euro Periphery is an average of the Bloomberg Barclays government debt indexes for Italy, Spain and Ireland. U.S. MBS
represented by the Bloomberg Barclays U.S. Mortgage Backed Securities index. Global Credit represented by the Bloomberg Barclays Global Aggregate Corporate index. U.S. CMBS
represented by the Bloomberg Barclays Investment Grade CMBS index. Emerging Market combines the Bloomberg Barclays EM hard and local currency debt indexes. Global High Yield
represented by the Bloomberg Barclays Global High Yield index.
6 ICRMH0319U-756605-6/24
Look beyond bonds for income
But know that high income assets can be volatile. Concentrated positions come with downside risk. Relative value can
change quickly across asset classes.
3.8% 5.6% 5.5%
6.7% 6.6%
-11.9%
-6.5%
-2.1%
-23.1%
-5.1%
Index performance is for illustrative purposes only and do not predict or depict the yield of any fund. Index performance does not reflect any management fees, transaction
costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Data represents past performance and is no guarantee future results.
Source: Morningstar and Bloomberg, yields as of 12/31/18. Data is covers 1/1/2012 through 12/31/18. Yields for the various asset class indices have material differences including
investment objectives, liquidity, safety, guarantees of insurance, fluctuation of principal or return and tax features. Fixed income yields represented by yield-to-worst, equity yields by 12
month dividend yield while MLPs' yield consists primarily of return of capital which reduces the investors adjusted cost basis, the composition of which varies based on income, expenses,
depreciation and tax elections made by the MLP based on each investor’s share of the MLP’s income, expenses, gains and losses. Yield data based on month-end numbers. Average
annual drawdown is the average of the largest declines in value from peak to trough during each of the following periods: 2012, 2013, 2014, 2015, 2016, 2017 & 2018. Additional annual
drawdowns are added following an equity drawdown greater than 5% or at the close of a calendar year depending on which occurs first.
2.1% 2.0% 2.4% 3.2% 4.0% 6.4%
-5.0%
-9.5%
-2.7% -3.6%
-9.7%
-5.1%
Traditional sources of income (1/1/2012 – 12/31/2018)
Non-traditional sources of income (1/1/2012 – 12/31/2018)
Avg.
annual
drawdown
Avg.
yield
U.S.
Treasuries
S&P
500 Bloomberg
Barclays
Aggregate
Inv.
Grade
Debt
Dividend
Equities
High
Yield
U.S.
REITS
Emerging
Market Debt
Bank
Loans
Master
Limited
Partnership
Preferred
Stocks
7 ICRMH0319U-756605-7/24
Seeking income with ETFs
The retiree income dilemma
Building better income
portfolios with ETFs
Today’s income challenge
8 ICRMH0319U-756605-8/24
Demand for fixed income ETFs has grown
U.S. Bond ETF AUM $631 B
$0
2002 iShares launches first Bond ETF,
iShares iBoxx $ Investment Grade
Corporate Bond ETF (LQD)
LQD
U.S. Bond ETF growth is remarkable…
ETFs as % of U.S. bond market
* Entire universe of the U.S. bond market.
Source: Bloomberg, as of 12/31/2018.
U.S. bond market*
$53.2 trillion
Source: Bloomberg 12/31/2018 – Universe denominated by BBG Barclays
Multiverse Market Value.
U.S. bond ETFs
$631B (1.19%)
2002 2004 2006 2008 2010 2012 2014 2016 2018
…with room to grow
9 ICRMH0319U-756605-9/24
The income ETF toolkit
What is the role of income in your portfolio?
IUSB AGG HYG MUB PFF LQD DGRO
Core bonds and municipals High yield and preferred
Help diversify risk Seek increased income
Short duration strategies
Put cash to work
EMB NEAR IGSB FLOT ISTB
HDV
10
The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment
strategy. There is no guarantee that any strategies discussed will be effective.
ICRMH0319U-756605-10/24
-40
-20
0
20
1990 2000 2001 2002 2008 2018
11
Diversify equity
Core bonds can help diversify Negative stock market calendar years, 1989-2018
“Help diversify risk”
S&P 500 Index
Bloomberg Barclays U.S. Aggregate Bond Index
Re
turn
(%
)
Growth of the P/E ratio of the S&P 500 Index
0
500
1000
1500
2000
2500
3000
Index performance is for illustrative purposes only. Index performance does not reflect any management fees, transaction cos ts or expenses. Indexes are unmanaged
and one cannot invest directly in an index. Past performance does not guarantee future results.
S&P 500 growth chart source: Bloomberg as of 2/28/2019. P/E ratios of the S&P 500 Index as of 1/1/2007 and 1/1/2019. Bonds ve rsus stocks performance source: Morningstar. As of
12/31/18. Past performance does not guarantee or indicate future results. Bond returns represented the Bloomberg Barclays U.S . Aggregate Index from 1989 (when the index came
into existence) to 2018. Stock returns represented by the S&P 500 Index from 1989 to 2019 for comparative purposes. It is not possible to invest directly into an index.
2007 P/E ratio
17.36
2019 P/E ratio
19.96
0.01%
ICRMH0319U-756605-11/24
Help diversify equities “Help diversify risk”
iShares Core U.S.
Aggregate Bond ETF
iShares Core Total USD
Bond Market ETF
iShares iBoxx $
Investment Grade
Corporate Bond ETF
60% AGG
40% LQD
Correlation to S&P 500 -0.17 -0.15 0.17 0.00
Return* 2.00% 2.73% 3.27% 2.51%
Risk* 2.88% 2.67% 4.43% 3.35%
AGG IUSB LQD
Keep correlations low while seeking attractive total return
Diversify
Equities
*Source: BlackRock as of 12/31/18. Risk and Return based on 3-year annualized NAV return and standard deviation ending December 31, 2018. This information should not be relied
upon as research, investment advice or a recommendation regarding the Funds or any security in particular. This information is strictly for illustrative and educational purposes and is
subject to change. This information does not represent the actual current, past or future holdings or portfolio of any BlackRock client.
The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment
strategy. There is no guarantee that any strategies discussed will be effective.
Past performance 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.
With the stock market near record highs, bond diversification may be more important than ever.
12 ICRMH0319U-756605-12/24
The income ETF toolkit
What is the role of income in your portfolio?
IUSB AGG MUB LQD
Core bonds and municipals
Help diversify risk
Short duration strategies
Put cash to work
NEAR IGSB FLOT ISTB
13
The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment
strategy. There is no guarantee that any strategies discussed will be effective.
HYG PFF DGRO
High yield and preferred
Seek increased income
EMB
HDV
ICRMH0319U-756605-13/24
Diversify beyond high yield bonds
Consider diversifying beyond high yield bonds with preferred stocks and EM bonds.
$252
$86
$17
2 Source: Morningstar. As of 12/31/18. Past performance 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. For standardized performance, see appendix.
This information should not be relied upon as research, investment advice or a recommendation regarding the
Funds or any security in particular. This information is strictly for illustrative and educational purposes and is
subject to change. This information does not represent the actual current, past or future holdings or portfolio of
any BlackRock client.
* Based on 30-day SEC yield, 5 year standard deviation and 5 year correlation. Portfolio blend is represented by an
equal weight blend of: EM Bonds, iShares J.P. Morgan USD Emerging Markets Bond ETF; High yield bonds, iShares
iBoxx $ High Yield Corporate Bond ETF; Preferred stocks, iShares U.S. Preferred Stock ETF. High yield alone is
represented by Morningstar High Yield Bond category average (mutual funds only).
Many investors fail to look
beyond high yield
Fund AUM¹ (billions)
Preferred stocks and EM bonds
complement high yield bonds²
High yield
bonds
EM bonds Preferred
stocks
High yield
bonds
EM bonds
Preferred
stocks
Blend High yield
alone*
Better diversification
(Correlation to S&P 500)* 0.54 0.69
Higher yield* 6.42% 6.24%
Lower standard deviation* 4.26% 4.78%
“Seek increased income”
HYG EMB PFF
14
1 Source: Morningstar. As of 12/31/18. Based on the Morningstar category AUM
of Emerging Market Bonds and Emerging Markets Local Currency Bond, High
Yield Bond and Preferred Stock.
ICRMH0319U-756605-14/24
Help boost your equity income with dividends
The investors’ dilemma – protect principal or roll the dice in the equity market.
Dividends can potentially provide income and downside protection.
Index performance is for illustrative purposes only. Index performance does 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: Morningstar, Bloomberg as of 12/31/2018, uses the Morningstar US Dividend Growth Index to represent dividend growers and the Morningstar US Dividend Yield Focus Index
to represent dividend yielders. Up/down-capture measures relative performance in up and down markets. Up-capture shows how much one index gains relative to a benchmark when
the benchmark rose. Down-capture shows how much one index lost relative to a benchmark when the benchmark declined. There is no guarantee that any fund will pay dividends.
Dividends can potentially
boost income…
Trailing 12 month dividend yield,
as of 12/31/18
…and potentially provide
downside protection
Upside/downside capture ratios,
10 years vs. S&P 500
As of 12/31/18
2.0% 2.4%
3.7% 100%
-100%
93%
-85%
78%
-64%
S&P 500 Dividend
growers
Dividend
yielders
S&P 500 Dividend
growers Dividend
yielders
“Seek increased income”
15 ICRMH0319U-756605-15/24
DGRO - iShares Core Dividend Growth ETF
1 Source: BlackRock. Fund holdings as of 12/31/18, subject to change.
*(companies with the highest dividend yields)
“Seek increased income”
Verizon Communications 2.95%
J.P. Morgan Chase 2.93%
Apple 2.92%
Microsoft 2.91%
Chevron 2.77%
Pfizer 2.68%
Johnson & Johnson 2.63%
Wells Fargo 2.43%
Proctor & Gamble 2.41%
Abbvie 2.07%
The index identifies U.S. companies that are growing
dividends through using the following screening methods
5+ years of
consistent
div. growth
Exclude top
decile div.
payers*
Earnings
payout ratio
<75%
Security
weighting
<3%
U.S. Dividend
Growth
Universe of U.S. Stocks
DGRO has a dividend weighted portfolio – growth focus
400+ U.S. companies
with growing dividends1
Morningstar US Dividend Growth Index
DGRO
16 ICRMH0319U-756605-16/24
HDV – iShares Core High Dividend ETF
1 Source: BlackRock. Fund holdings as of 12/31/18, subject to change.
Exxon Mobil Corp 9.49%
Verizon Communications 7.60%
Johnson & Johnson 6.58%
Chevron 6.26%
Pfizer 6.04%
Procter & Gamble 5.43%
Coca-Cola 4.47%
Altria Group 4.33%
Cisco Systems 4.21%
Pepsico 3.84%
“Seek increased income”
Identify high dividend paying US companies with
sustainable business models and good financial health
Dividend
Yield
Financial
Health
Economic
Moat
Security
Weighting
<10%
U.S. High
Dividends
Universe of U.S. Stocks
Dividend weighted portfolio – quality focus
75 High-quality U.S.
companies1
HDV
Morningstar Dividend Yield Focus Index
17 ICRMH0319U-756605-17/24
The income ETF toolkit
What is the role of income in your portfolio?
IUSB AGG MUB LQD
Core bonds and municipals
Help diversify risk
18
The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment
strategy. There is no guarantee that any strategies discussed will be effective.
HYG PFF DGRO
High yield and preferred
Seek increased income
EMB
HDV
Short duration strategies
Put cash to work
NEAR IGSB FLOT ISTB
ICRMH0319U-756605-18/24
iShares short duration ETFs “Put cash to work”
Rates have risen, but mostly on the short end. This means short term bonds may provide attractive
yields and more downside protection relative to long-term bonds.
FLOT iShares Floating
Rate Bond ETF NEAR
iShares Short Maturity
Bond ETF (Active)
IGSB iShares 1-3 Year
Credit Bond ETF ISTB
iShares Core 1-5 Year
USD Bond ETF
Getting started with
iShares short duration bond ETFs
Short-term bonds
Ultra-short bonds
Where rates were
Dec. 15, 2015
Fed begins raising
interest rates
Where rates are
Dec. 31, 2018
0.98%
2.38% 1.40%
2.31%
2-Year
Treasury
4.69%
2.38%
“Cushion”
Increase
in yield 0.98%
Where interest rates
would have
to go to lose money*
Higher interest rates More downside
protection
* "Where rates would have to go to lose money" assumes the bond is not held to maturity. If you hold a bond or treasury to maturity and the issuer did not default, you will
get the principal value back.
Source: BlackRock and treasury.gov as of 12/31/18. Cushion depicts the amount that interest rates would need to rise over the course of 12 months for principal loss on the bond to
outweigh the yield generated, based on the market price of the bond. Interest rates and bond prices have an inverse relationship. For example, bond prices decrease when interest rates
increase because the fixed interest and principal payments stated in the bond become less attractive to investors.
This information should not be relied upon as research, investment advice or a recommendation regarding the Funds or any security in particular. This information is strictly for illustrative
and educational purposes and is subject to change. This information does not represent the actual current, past or future holdings or portfolio of any BlackRock client.
19
Interest rates, then and now
ICRMH0319U-756605-19/24
Key takeaways
1 2 3
Know what you own
Income is challenging
in today’s
investment landscape
Don’t over reach for yield
– Stay Diversified
Leader. Expert. Partner.
Explore all 329 commission-free* iShares ETFs at
fidelity.com/etfs/ishares
*ETFs are subject to a short-term trading fee by Fidelity, if held less than 30 days.
Before engaging Fidelity or any broker-dealer, you should evaluate the overall fees and charges of the firm as well as the services provided. BlackRock compensates Fidelity in connection
with an exclusive long-term marketing program that includes promotion of select iShares Funds and inclusion of select iShares Funds in certain trading platforms and investment programs.
Additional information can be found in the ETFs’ prospectuses and related documents. Fidelity may add or waive commissions on ETFs without prior notice. Other conditions and fees may
apply. See www.Fidelity.com/commissions for details. BlackRock is not affiliated with Fidelity or any of their affiliates.
20 ICRMH0319U-756605-20/24
Appendix
ICRMH0319U-756605-21/24
Important notes
Carefully consider the Funds' investment objectives, risk factors, and charges and expenses before investing. This and other
information can be found in the Funds' prospectuses or, if available, the summary prospectuses which may be obtained by
visiting www.iShares.com or www.blackrock.com. Read the prospectus carefully before investing.
Investing involves risk, including possible loss of principal.
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. There may be less information on the financial condition of municipal issuers than for public corporations. The market for municipal
bonds may be less liquid than for taxable bonds. Some investors may be subject to federal or state income taxes or the Alternative Minimum Tax (AMT).
Capital gains distributions, if any, are taxable.
Securities with floating or variable interest rates may decline in value if their coupon rates do not keep pace with comparable market interest
rates. The iShares Floating Rate Bond ETF's income may decline when interest rates fall because most of the debt instruments held by the
Fund will have floating or variable rates. Funds that concentrate investments in specific industries, sectors, markets or asset classes may
underperform or be more volatile than other industries, sectors, markets or asset classes and than the general securities market. Shares of
ETFs trade at market price, which may be greater or less than net asset value. Actively managed funds do not seek to replicate the
performance of a specified index. Actively managed funds may have higher portfolio turnover than index funds. The iShares Short Maturity
Bond ETF will invest in privately issued securities that have not been registered under the Securities Act of 1933 and as a result are subject to
legal restrictions on resale. Privately issued securities are not traded on established markets and may be illiquid, difficult to value and subject
to wide fluctuations in value. Delay or difficulty in selling such securities may result in a loss to the iShares Short Maturity Bond ETF. The fund
may invest in asset-backed (“ABS”) and mortgage-backed securities (“MBS”) which are subject to credit, prepayment and extension risk, and
react differently to changes in interest rates than other bonds. Small movements in interest rates may quickly reduce the value of certain ABS
and MBS.
Real estate investment trusts (“REITs”) are subject to changes in economic conditions, credit risk and interest rate fluctuations. Investment in a fund of
funds is subject to the risks and expenses of the underlying funds.
International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of
substantial volatility due to adverse political, economic or other developments. These risks often are heightened for investments in emerging/developing
markets and in concentrations of single countries.
Transactions in shares of ETFs will result in brokerage commissions and will generate tax consequences. All regulated investment companies are obliged
to distribute portfolio gains to shareholders.
Diversification and asset allocation may not protect against market risk or loss of principal. The strategies discussed are strictly for illustrative and
educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no
guarantee that any strategies discussed will be effective.
22 ICRMH0319U-756605-23/24
Important notes continued
Preferred stocks are not necessarily correlated with securities markets generally. Rising interest rates may cause the value of the Fund’s investments to
decline significantly. Removal of stocks from the index due to maturity, redemption, call features or conversion may cause a decrease in the yield of the
index and the Fund. There is no guarantee that any fund will pay dividends.
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.
The Funds are distributed by BlackRock Investments, LLC (together with its affiliates, “BlackRock”).
The iShares Funds are not sponsored, endorsed, issued, sold or promoted by Markit Indices Limited, Morningstar, Inc or S&P Dow Jones Indices LLC.
None of these companies make any representation regarding the advisability of investing in the Funds. BlackRock is not affiliated with the companies
listed above.
©2019 BlackRock. All rights reserved. iSHARES and BLACKROCK are registered trademarks of BlackRock. All other marks are the property of their
respective owners.
The information provided in this communication is solely for educational purposes and should not be construed as advice or an investment
recommendation. Fidelity Investments is a separate company, unaffiliated with BlackRock, Inc.. There is no form of partnership, agency affiliation, or
similar relationship between BlackRock, Inc. and Fidelity Investments, nor is such a relationship created or implied by the information herein. Fidelity
Investments has not been involved with the preparation of the content supplied by BlackRock, Inc. and does not guarantee or assume any responsibility
for its accuracy or completeness.
23 ICRMH0319U-756605-24/24