1.Investment DirectionsMonthly Market OutlookNovember 15, 2012

2. INVESTMENT DIRECTIONS [ 2 ] Macroeconomic OverviewTABLE OF CONTENTSWith the US elections now over, investors attention turns to the potential fiscal cliff. However, with essentially a status quo government, the possibility of gridlock over keyGlobal Regions...................................4 economic issues remains. We still believe that the market is unprepared for a trip over the fiscal cliff with economic and analyst estimates suggesting that most investorsGlobal Sectors...................................6 believe it will be avoided. As such, we would remain cautiousexpect to see heightenedFixed Income Sectors.......................7 volatility and market movement based on news related to clues on how the two parties are likely to behave, as we saw the day after the election, rather than longer term trends. Since peaking in September, US equity market prices have traded lower, down 5.8% from September 16 through November 12. Interestingly, non-US stocks dramatically outper-Whats New formed in October.Upgrade: France to overweight from neutral Given the risk that the United States may experience a recession in 2013 if the country lobal technology to overweightG plunges over the fiscal cliff, and that volatility is likely to rise on the lingering uncertain-from neutralty, we continue to favor investments that potentially offer some downside protection:Downgrade:high-quality international dividend-paying stocks, global mega capitalization stocks Norway to neutral from overweight(mega caps), municipal bonds, and minimum volatility funds. Taiwan to neutral from overweight ontributing to negative sentiment in the markets is the fact that the earnings seasonC Singapore to neutral from overweight has proven to be mediocre and companies guidance for fourth quarter, for the most S industrials to neutral fromU part is negative. Third-quarter earnings were down around 2%, marking the end of 11overweightquarters of earnings growth. While gross domestic product growth did accelerate in the uropean financials to underweightE third quarter from an anemic 1.3% in the second quarter to a more respectable 2%, thefrom neutralrecovery is not really strong enough to generate much revenue growth. Globally, we still igh yield credit to underweightHfrom neutralbelieve the remainder of the year will see sluggish, but positive, growth. We continue to watch events in Europe closely. Lowered growth forecasts in Europe, alongwith impasse over the aid package to Greece, underscore how Europe is not out of thewoods yet, despite aggressive actions this summer by the European Central Bank (ECB). Risk Appetite Dial Still, we continue to favor northern European countries, such as Germany, the Nether-lands and, thanks to recent underperformance, now France, over the southern countries. Overall, the road ahead is still likely to be rocky. We continue to have an overweightlong-term view of global equities, especially relative to bonds. We also prefer to getequity exposure through select developed and emerging markets that have robust last monthgrowth prospects, less debt and fewer banking sector problems. Within fixed income, welike US spread products such as investment grade and municipal bonds; however, givenLowHigh compressed spreads and slow growth forecasts, we have downgraded our short-termview of high yield bonds to underweight. We also continue to favor holding a strategiclong-term allocation to commodities including gold, a beneficiary of the likely continua-Our global market risk appetite measureaccounts for ongoing shifts in investor tion of the Federal Reserves (Feds) more accommodative monetary policy with thesentiment around the macro fundamenresulting inflation concerns, and as a potential safe haven around the fiscal cliff.tals that form the basis for our near-term investment views. Please see theFigure 1: Longer-Term Global Asset Allocationappendix for an explanation of our riskappetite measure methodology. UnderweightNeutral OverweightInvestor sentiment has turned marginallynegative since the last Investment Direc- Global Equitiesntions update. The deterioration was mainlyTreasury Bondsndriven by falling stock market prices, leddown by the mixed third-quarter earningsCorporate Bondsnseason, and later by renewed fear over theMunicipals nUS fiscal cliff and a deeper-than-expectedTreasury Inflation-Protected Securities nrecession in Europe. On the other hand, in-vestors continue to seek credit risk in thesearch for yield, driving the spread between This material represents an assessment of the market environment at a specific time and is not intended to be a forecast oflow-quality and high-quality US corporatefuture events or a guarantee of future results. This information should not be relied upon by the reader as research, investmentdebt to a four-month low. Meanwhile, USadvice or a recommendation regarding the iShares Funds or any security in particular. This information is strictly for illustrative and educational purposes and is subject to change.economic activities have shown broad-based improvement from previous monthswith employment, production, sales andorders providing the tailwinds. 3. INVESTMENT DIRECTIONS [ 3 ]Figure 2: iShares Investment Strategy Group Near-Term Outlooks Global Region Underweight NeutralOverweightRelated iShares ETF Tickers Developed Markets Global Equitiesx ACWI, HDV, IOO, OEF, IDV, URTH,ACWV Developed Markets xEFA, IDV, ACWX, EFAV, SCZ Australia xEWA, EPP, EWAS, DVYA CanadaxEWC, EWCS France x EWQ Germanyx EWG, EWGS Hong Kongx EWH, EWHS Italy xEWI Japan xEWJ, SCJ Netherlandsx EWN NorwayxENOR Singapore xEWS, EWSS Spain xEWP SwedenxEWD Switzerland xEWL United KingdomxEWU, EWUS United States xEUSA, IWV, IVV, USMV Emerging Markets Emerging Markets x EEM, EEMV, DVYE, EEMS Brazil x EWZ, EWZS Chinax MCHI, ECNS India xINDY, INDA, SMIN Indonesia xEIDO MexicoxEWW Russia x ERUS South AfricaxEZA South Korea xEWY TaiwanxEWT Global Sector Underweight NeutralOverweightRelated iShares ETF Tickers Consumer Discretionaryx Consumer StaplesxIYK, KXI, AXSL Energy x IXC, FILL, EMEY, AXEN European Financials xEUFN FinancialsxIYF, IXG, AXFN, EMFN, EUFN, FEFN, IAT HealthcarexIYH, IXJ, AXHE Industrials xIYJ, EXI, AXID Global Technologyx IXN, AXIT, AAIT, IYW, SOXX Materials xIYM, MXI, AXMT, EMMT, RING, PICK, SLVP REITs xICF, IYR TelecommunicationsxIXP, AXTE, IYZ US Regional Banks xIAT US IndustrialsxIYJ US Retail xN/A US Technologyx IYW US UtilitiesxIDU Utilities xIDV, JXI,AXUT Fixed Income Sector Underweight NeutralOverweightRelated iShares ETF Tickers Emerging MarketsxEMB, LEMB, CEMB, EMHY High Yield Credit xHYG, HYXU, GHYG, QLTB, QLTCLQD, FLOT, QLTA, MONY, ENGN, AMPS, CSJ, Investment Grade Creditx CIU, CFT, CLY, QLTA Mortgage-Backed SecuritiesxMBB, GNMA, CMBS Municipals x SUB, MUB Non-US Developed MarketsxISHG, IGOV TIPS/Global Inflation-LinkedxSTIP, TIP, GTIP, ITIP US Treasuries xSHY, IEI, IEF, TLH, TLT, GOVT, SHV Global StyleUnderweight NeutralOverweightRelated iShares ETF Tickers Global Mega CapsxOEF, IOO, HDV, DVY, IDV Small CapsxIWMThis material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This informationshould not be relied upon by the reader as research, investment advice or a recommendation regarding the iShares Funds or any security in particular. This information is strictly forillustrative 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. 4. INVESTMENT DIRECTIONS[ 4 ]Global RegionsDeveloped Markets: With the US election behind us, Presidentregion from 1% to 0.1%. While recognizing that slower growth forObama now faces negotiations with Congress to avoid the so-called Germany seems inevitable, we believe that its valuation stillfiscal cliff, which automatically comes into effect on January 2, 2013looks favorable. In the longer term, the German corporate sectorif no action is taken. The market sold off sharply post-election with is well-positioned to gain from emerging market growth and asentiment led down by Fitchs warning of a possible rating down-competitive domestic labor market.grade. The good news is that lawmakers are aware of the economic We are also upgrading France from neutral to overweight, whileimplications of the fiscal cliff, but with a split Congress, the path todowngrading Norway from overweight to neutral. Since thecompromise will be anything but smooth. Adding to the uncertainty ECBs bond purchase program announcement in September,has been a mixed third-quarter earnings season that underscores which mitigates the tail risk of a eurozone break-up andthe divide between subdued corporate sentiment and a better moodcompresses risk premia, French equities have lagged otheramong consumers thanks to housing and labor market improvement. eurozone countries, resulting in attractive valuations. In ourOur view on the United States has been neutral in light of rich view, the recession discount fueled by the ambitious budget,valuations and heightened event-driven uncertainty. which aims to cut the fiscal deficit to 3% in 2013 mostly via taxincreases, is already largely priced in. Meanwhile, the deteriorat- Europe, growthInfears have intensified amid worrying signsing news flow from Germany has increased the odds that EU that the festering debt crisis is taking a toll on Germany, and thepolicymakers are more willing to let the ECB operate on looser European Commission cut its 2013 growth forecast for theFigure 3: Global Region Near-Term Outlooks and the Factors Behind Them* Global RegionValuationsGrowthProfitabilityRisk/ Our ViewRelated iShares Developed Markets (P/B) SentimentUnderweightNeutral OverweightETF Tickers EWA, EPP, Australia + + EWAS, DVYA Canada + EWC, EWCS France + EWQ Germany + + EWG, EWGS Hong Kong++ EWH, EWHS Italy+ EWI Japan+ EWJ, SCJ Netherlands+ EWN Singapore EWS, EWSS Spain+ EWP Sweden + + + EWD Switzerland + EWL United Kingdom + EWU, EWUS EUSA, IWV, IVV, United States + + + USMV Emerging Markets Brazil + EWZ, EWZS China++ MCHI, ECNS INDY, INDA, India + + SMIN Indonesia + + EIDO Mexico + EWW Russia + ERUS South Africa + EZA South Korea + EWY Taiwan EWT unattractive + attractiveneutralcurrent underweight outlookcurrent overweight outlook current neutral outlookprevious month (if not shown same as current)* Please see appendix for an explanation of our factor methodology. ** Due to a confluence of factors, country views may be in the same spot on the chart though the countries outlooks aredifferent. Please see Figure 2 for official outlooks. ***Figure 3. tracks countries with market capitalization that is above the median market value of MSCI All Country investment universe.This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This informationshould not be relied upon by the reader as research, investment advice or a recommendation regarding the iShares Funds or any security in particular. This information is strictly for illustrativeand 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. 5. INVESTMENT DIRECTIONS [ 5 ]monetary policy to support growth, which we would expect to Figure 4: Valuations and Market ReturnsPrice/Bookdisproportionately benefit French equities. While downside risks2.5remain within the banking sector, the broad French market is 2.22.2 2.12.1 2.0well diversified with no single sector accounting for more than2.016% of the index, and the deep discount in non-financial sectors 1.7 1.61.6 1.6compared to peers in Germany and the rest of developed Europe1.51.4is in our view hard to justify. Since late January, Norway has 1.31.3outperformed a broad index of developed markets, resulting in1.0relatively richer valuations. While the economic fundamentals inthe country are good, the concentrated stock market is facing0.5company specific headwinds in the near term unless crudeprices rebound.0.0Japan, inresponse to the deflation threat and persistent Current month3 months ago1 year ago3 years agocurrency strength, added another 11 trillion to its assetMSCI USMSCI Emergingpurchase program in October, following the increase in Equity IndexMSCI EAFE IndexMarkets IndexSeptember. While the decision was broadly anticipated, theBank of Japan also unveiled its unlimited lending program toSources: MSCI, FactSet, as of 10/31/12.banks in a bid to stoke lending and economic growth. Althoughthe new lending facility parallels the Funding for Lendinginitiative pioneered by the Bank of England this summer, weremain skeptical of the policy impact. The real challenge faced Figure 5: Valuations and Market ReturnsPrice/Earningsby Japan, and to some extent the United Kingdom, is not the 24.9 25.5supply-side shortage, but a lack of demand for capital driven 25by private sector deleveraging. However, we remain neutral onJapan and the United Kingdom, mainly for their attractive 2019.4valuations and portfolio diversification benefits.Weare tactically cautious on Singapore, as its valuation looks15 14.5 14.414.6 14.1a bit rich in light of a slowdown in growth momentum, elevated 12.5 13.112.2inflation pressure and declining margins for banks. That said,11.5 11.0in the longer term, we remain constructive on Singapore along 10with the other CASSH countries (Canada, Australia, Switzerland,Singapore, Hong Kong) for their low public leverage, which we 5expect to translate into better long-term growth prospects.Emerging Markets: In While global growth is slowing overall, its 0accelerating in some emerging markets. After an aggressive round Current month3 months ago1 year ago3 years agoof policy easing in many emerging countries, those efforts havefinally borne fruit with growth starting to take off. We believe that MSCI USMSCI Emerging Equity IndexMSCI EAFE IndexMarkets Indexemerging markets still offer a good opportunity for investorslooking to gain access to growth, given their currently attractiveSources: MSCI, FactSet, as of 10/31/12.valuations. From a regional approach, we prefer Asia and LatinAmerica relative to emerging EMEA. emerging Asia, we like China but are downgrading Taiwan toIn further monetary accommodation is limited with an already lowneutral. Improving PMIs and export growth point to a stabilizationinterest rate and worsening inflation.of activity in China. As China embarks on a once-in-a-decadeAmong the remaining emerging markets, we prefer Russia andleadership transition, the make-up of the new government should Brazil. After central bank-led policies to reduce systemic riskoffer greater clarity on the future direction for economic policy.surprised the markets, investors have returned to emerging marketsMeanwhile, the downgrade of Taiwan is motivated by valuation andwith greater differentiation and focus on country-specific funda-earnings uncertainty in semiconductors. Not only does the price-mentals. In particular, Russia has been undermined by falling energyto-earnings multiple of Taiwan look rich compared to the developedprices and short-term excess supply as global demand fell. Weworld technology sector, corporate profits, especially for semicon- remain constructive on Russia because of the compelling valuationductor manufacturers, could face further headwinds from a lower and a sanguine view that crude oil prices will rise due to dwindlingutilization rate and associated pricing pressure. Furthermore, a flux spare capacity in OPEC and rising demand in China.of newly implemented tax policies is taking a toll, while room for 6. INVESTMENT DIRECTIONS[ 6 ]Global SectorsGlobal equity markets finished down in October on the back ofSeptember the sector has underperformed the broader market to thea soft earnings season that reflected deteriorating business extent that valuations are again looking compelling.conditions through third quarter, and companies struggling to We remain underweight global consumer discretionary, US retailbeat analysts revenue forecasts given the slowdown in the Unitedespecially. On the positive side, credit growth in the United States hasStates, recession in Europe and policy uncertainty in China. Morepicked up and consumer confidence is at a five-year high, thanks to aimportantly, management guidance for fourth quarter was mostly mending housing market, some job creation and robust stock marketnegative, with businesses in the United States cutting capital returns. Valuations, however, are rich, and could come under pressurespending and delaying hiring due to the uncertainty surroundingif upcoming tax hikes and spending cuts occur. With consumer debtthe fiscal cliff. This month we have downgraded US industrials tolevels still high and real hourly wage growth dismal, personalneutral and upgraded global technology to overweight, in additionconsumption has been largely supported by a decline in the savingsto downgrading European financials to underweight. rate and government transfer payments, including extended unemployment benefits. As we expect heightened market volatility into year-end with loss of We have downgraded European financials to underweight, as market momentum and policy uncertainty, we continue to be defen-valuations after the recent rally appear stretched in light of the still sively positioned within the global equity universe. We prefer profitable soft fundamentals and ongoing pressure on banks to restructure companies with good cash flows and strong balance sheets, such as their operations, cut costs and satisfy more stringent capital rules. global mega caps, and advocate portfolio construction techniques to We maintain our underweight view on global financials, with the help minimize fund volatility for downside protection.expectation that the tougher regulatory environment will persist after While defensive sectors such as consumer staples tend to be lessObamas re-election. Also, while the Feds more accommodative sensitive to economic uncertainty, they currently appear expensivemonetary policy has supported loan demand, ultra-low rates hurt and we maintain a benchmark allocation. The exception is US utilities banks net interest margins and profitability. where we remain underweight, thanks to a potentially significant While more cautious investor sentiment may weigh on energy stocks multiple compression if the lower dividend tax rates are allowed to in the near term, we maintain our constructive longer term view of the expire at year-end. sector given favorable long-term supply-demand trends and Due to subdued business sentiment, we have downgraded USattractive valuations. Oil prices may find further support from the industrials to neutral, which we have balanced by upgrading globalongoing tensions in the Middle East and a pickup in emerging market technology to overweight. Earnings expectations for technologydemand thanks to improving fundamentals, considering the market companies have decreased somewhat, but since the end of is currently relatively tight with limited OPEC spare capacity.Figure 6: Global Sector Near-Term Outlooks and the Factors Behind Them* Global SectorValuationsProfitabilityRisk/ Our View (P/B) Sentiment underweight neutraloverweightRelated iShares ETF Tickers Cyclical Sectors Consumer Discretionary Energy + IXC, FILL, EMEY, AXENIYF, IXG, AXFN, EMFN, EUFN, Financials + FEFN, IAT Industrials IYJ, EXI, AXID Information Technology + + IXN, AXIT, AAIT, IYW, SOXXIYM, MXI, AXMT, EMMT, RING, Materials+ PICK, SLVP Defensive Sectors Consumer Staples + IYK, KXI, AXSL Healthcare + + IYH, IXJ, AXHE Telecommunications IXP, AXTE, IYZ Utilities**+ IDV, JXI,AXUT unattractive + attractiveneutralcurrent underweight outlookcurrent overweight outlookcurrent neutral outlookprevious month (if not shown same as current)* Please see appendix for an explanation of our factor methodology. ** This chart focuses on global sector views only. For US sector views, please see Figure 2.This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information shouldnot be relied upon by the reader as research, investment advice or a recommendation regarding the iShares Funds or any security in particular. This information is strictly for illustrative andeducational purposes and is subject to change. This information does not represent the actual current, past or future holdings or portfolio of any BlackRock client. 7. INVESTMENT DIRECTIONS [ 7 ]Fixed Income SectorsAlthough US Treasury yields were more stable this month, theyFigure 7: Fixed Income Sector Near-Term Outlooksremain close to historical lows. Meanwhile, the spread betweenthe Barclays High Yield Index and the 10-year Treasury note hasFixed Income SectorUnder Neutral Over Related iSharesnarrowed from 608 basis points at the end of May to 525 basisweightweight ETF Tickerspoints today. Investors should also take note of how quickly rates EMB, LEMB,fell: a 50% contraction in the 10-year note yield the last 12Emerging Marketsx CEMB, EMHYmonths, the sharpest drop since records began in 1953. Nor isHYG, HYXU,the collapse in yields unique to the United States. Two-year rates High Yield Credit x GHYG, QLTB,in several European countries are actually negative. Given thisQLTCcompression in yield and spreads, we have downgraded high yieldLQD, FLOT, QLTA, MONY, ENGN,to underweight for the near term.Investment Grade Credit x AMPS, CSJ, CIU, CFT, CLY, QLTA Wecontinue to advocate the addition of modestly moreMBB, GNMA,exposure to spread products. We also believe in reducing Mortgage-Backed Securitiesx CMBSexposure to duration risk, for which investors are insufficiently Municipalsx SUB, MUBcompensated. Non-US Developed Marketsx ISHG, IGOV Wehave downgraded high yield to underweight for the nearterm. The rush into high yield is understandable as yield-hun- STIP, TIP, GTIP, TIPS/Global Inflation-Linkedxgry investors have few alternatives. In one sense, tighter ITIPspreads are justified. US corporate balance sheets lookSHY, IEI, IEF, US Treasuries x TLH, TLT, GOVT,pristine, with SP 500 companies sitting on more than $2 SHVtrillion in cash and default rates at only around 2%, half oftheir long-term average. To be sure, further spread tightening This material represents an assessment of the market environment at a specific time and is notis possible if conditions improve in Europe or the fiscal cliff is intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research, investment advice or a recommendation regardingavoided, but the recent rally in fixed income has pushed the iShares Funds or any security in particular. This information is strictly for illustrative andspreads to their lowest level since July 2011. With economic 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.growth stuck in the 2% vicinity, spreads would typically becloser to 600 basis points over Treasuries, as opposed to the Wemaintain a longer term underweight view of both UScurrent level of less than 500 basis points. In short, spreadsTreasuries and Treasury Inflation Protected Securities (TIPS).now appear tight relative to the economic environment,TIPS continue to have negative real rates, while Treasuriessuggesting little upside in the near term. Longer term, we stilloffer little more than cash in the way of yield. Record-lowlike high yield as an efficient way to generate potential yieldcoupons on Treasuries mean that duration risk is at a recordwith a reasonable amount of volatility.high. However, we are mindful of the significant economic risks US investment grade credit remains more attractive than otherposed by the fiscal cliff and therefore remain near-termfixed income alternatives. Spreads versus Treasuries remain neutral on both US Treasuries and TIPS.significantly above their historical average. In addition, while Wecontinue to advocate a benchmark weight to mortgage-investment grade bonds are offering much higher yields thanbacked securities (MBS), as we believe MBS prices largelyTreasuries, the default risk on corporate debt remains low.anticipated the impact of the Feds intentions to increase We also favor municipal bonds. Following the presidentialpurchases of these assets announced in September. Upside iselection, volumes in municipal bonds have increased onalso limited by prepayment uncertainty resulting from lowerbuying and spreads have tightened relative to Treasuries as rates and the potential for additional new policy tools toinvestors price in an increasing likelihood of higher marginalfurther loosen the refinancing market. Well reassess ourtax rates on upper income brackets. However, high-grade outlook on this type of debt if we see more significant changesmunicipals currently offer more attractive yields than US resulting from the latest round of quantitative easing.Treasuries and have relatively modest credit risk. And despite Outside the United States, we favor emerging market bonds.tightening, spread levels continue to appear elevated relativeDespite some widening of emerging market spreads sinceto credit risk, unless you believe another recession is likely tomid-October, spreads have continued to grind tighter over theoccur in the United States. Actual credit events in the high-course of the year. Relative to many developed markets,grade municipal space remain rare, despite isolated localemerging market sovereign issuers have favorable debtbankruptcy headlines.burdens and fiscal positions. 8. INVESTMENT DIRECTIONS [ 8 ]ContributorsRuss Koesterich, CFA, is the Global Chief Investment Strategist for BlackRocks iShares ETF business. He is a founding memberof the BlackRock Investment Institute, delivering BlackRocks insights on global investment issues. During his 20+ year careeras an investment researcher and strategist, Mr. Koesterich has served as the Global Head of Investment Strategy for scientificactive equities and as a senior portfolio manager in the US Market Neutral Group at BlackRock. Mr. Koesterich is a frequentcontributor to financial news media and can regularly be seen on CNBC, Fox Business News and Bloomberg TV. He is the authorof two books, including his most recent, The Ten Trillion Dollar Gamble, which details how to position portfolios for the impact ofthe growing U.S. deficit. Mr. Koesterich is also regularly quoted in print media including the Wall Street Journal, USA Today,MSNBC.com, and MarketWatch. He earned a BA degree in history from Brandeis University, a JD from Boston College and anMBA in capital markets from Columbia University.Nelli Oster, PhD, is an Investment Strategist in BlackRocks iShares business, where her responsibilities include developingtactical country, sector, commodity and asset allocation models implementable with iShares ETFs. Dr. Osters service with thefirm dates back to 2008, including her time with Barclays Global Investors (BGI), which merged with BlackRock in 2009. Beforejoining iShares, Dr. Oster did research and portfolio management in BGIs quantitative stock selection business, spanning US,Canada, Japan and emerging markets portfolios. Prior to joining BGI, Dr. Oster was an equity research analyst at GoldmanSachs, and she started her career in the mergers and acquisitions group of Salomon Smith Barney. Dr. Oster holds a BSc(Hons) in management sciences from the London School of Economics and a PhD in finance from the Stanford GraduateSchool of Business, where her Behavioral Finance dissertation focused on expectations formation and learning in thefinancial markets.Matthew Tucker, CFA, has spent the past 16 years focused on fixed income portfolio management, analytics and strategy.As Head of North American Fixed Income iShares Strategy within BlackRocks Fixed Income Portfolio Management team,Mr. Tucker leads the investment strategy for fixed income ETFs in North America and Latin America, focusing on productdevelopment, client support, and thought leadership. He previously worked with Barclays Global Investors before it mergedwith BlackRock, and he led the US Fixed Income Investment Solutions team responsible for overseeing product strategy foractive, index, enhanced index, iShares and long/short products. Mr. Tucker was also a portfolio manager and a trader in fixedincome focused on U.S. government securities. He began his career at Barra, where he supported clients using the companysfixed income analytics. He holds a bachelor of business administration degree from the University of California, Berkeley, andis a Chartered Financial Analyst charterholder.Stephen Laipply is a member of BlackRocks Model-Based Fixed Income Portfolio Management Group. Mr. Laipplys servicewith the firm dates back to 2009, including his years with Barclays Global Investors (BGI), which merged with BlackRock in 2009.At BGI, he was a senior investment strategist on the US Fixed Income Investment Solutions team, responsible for developing anddelivering fixed income solutions to clients. Mr. Laipply focuses primarily on the iShares (ETF) fixed income product suite. Prior tojoining BGI, he was a senior member in both the Strategic Solutions and Interest Rate Structuring Groups at Bank of AmericaMerrill Lynch, where he structured and marketed fixed income solutions across interest rates, credit and mortgages to institu-tional investors. Mr. Laipply earned a BS degree, with honors, in finance from Miami University, and an MBA in finance from theUniversity of Pennsylvania.How do you use this market commentary and do you find it useful?Please share your feedback and any questions or concerns you have at questions@iShares.com.You also can find the latest market commentary from the iShares Investment Strategy Group atiSharesblog.com and iShares.com. 9. INVESTMENT DIRECTIONS[ 9 ]AppendixThe analysis behind our views:Growth prospects: We focus on leading indicators that areOur country and sector views are based on a systematic analysis constructed to predict a countrys future economic growth. Weof the extent to which macroeconomic factors have been priced inassign a + to countries that are expected to grow fast relative toat the country and sector level.their own past trends and to other countries, and a - to coun-tries that are growing more slowly.In coming up with our country views, we use price-to-book (P/B)ratio as a measure of a countrys value. This ratio captures how theCorporate sector profitability: We focus on return on assets (ROA)market prices a given country relative to the assets it has available and on cross-country comparisons, although we also take intofor production. The higher the ratio, the more favorably the market account developments in a countrys ROA over time. A country withviews the country relative to its own history and to other countries. a highly profitable corporate sector is assigned a +; one with lowprofitability is assigned a -.The price the market is willing to pay for the assets of a country ispositively related to its expected future growth and corporateRisk / sentiment: We focus on sovereign credit default swap (CDS)sector profitability, and negatively related to the riskiness of itsspreads, which measure investor perception of the likelihood thatassets. We use factors such as leading economic indicators anda given country will default on its obligations. We mainly compareretail sales growth as proxies for expected future growth. We use CDS spreads across countries, although we also take into accountreturn on assets (ROA) as a proxy for future profitability and we use trends in a countrys CDS spreads over time. A country that iscredit default swap (CDS) spreads as a measure of risk andperceived as relatively safe is assigned a +; a risky country issentiment. In addition, we consider factors such as commodity assigned a -.prices that affect importer and exporter countries in opposite ways.While the valuation, growth, profitability and risk / sentimentIn determining the sensitivity of a countrys valuations to these factor readings are discrete, we use continuous measures in ourmacroeconomic factors, we look at trends both over time and investment process. In addition, the factors are not equallyacross countries. We are overweight (underweight) countries important in driving returns at a given point in time. As a result,where market valuations are low (high) relative to what we wouldwhen it comes to formulating our final views, the various factorexpect, with the expectation that the economic factors will be fullyreadings are not additive. For example, a + value factor, indicat-incorporated into prices in the future. We use a similar process foring that a country looks cheap, may overshadow negative readingscoming up with our sector views.in other factors, leading us to still like the country.Factor table methodologyWe use a similar methodology in coming up with the readings inHeres an explanation of the methodology of our country our sector factor table. We focus on a mix of cross-sectional andfactor table: time-series comparisons of valuations (P/B), profitability (ROE)and risk / sentiment (sector spreads). In addition, we consider theValuations: In determining whether a country looks cheap or global growth outlook for cyclical and defensive sectors.expensive, we focus on price-to-book ratio (P/B), both over timeand across countries. If a country has a low P/B relative to both Risk appetite dial methodologyits own trading history and to other countries, we assign it a +; ifOur global risk appetite dial measures current market sentiment.it has a high P/B, we assign it a -. We mainly compare developedIt is constructed from equity market returns, corporate creditmarket countries to other developed market countries andspreads and expectations for future economic growth. High equityemerging market countries to other emerging market countries. returns, narrow credit spreads and a good growth outlook tend toWe compare countries that benefit or suffer from their owncoincide with positive investor sentiment and stronger appetite forspecific issues, e.g., corporate governance problems in Russia, torisky assets.their own trading histories.GlossaryUnderweight: Potentially decrease allocation Overweight: Potentially increase allocation Neutral: Consider benchmark allocationLong Term: Longer than one year Near Term: 12 months or less 10. For more information visit www.iShares.com or call 1-800-474-2737 Carefully consider the iShares Funds investment objectives, risk factors, this document must not distribute copies of the document to third parties. This information is and charges and expenses before investing. This and other informationindicative, subject to change, and has been prepared for informational or educational purposes can be found in the Funds prospectuses, which may be obtained by callingonly. No warranty of accuracy or reliability is given and no responsibility arising in any way for 1-800-iShares (1-800-474-2737), or by clicking the Prospectuses link. Read errors or omissions (including responsibility to any person by reason of negligence) is accepted the prospectus carefully before investing. by BlackRock. No representation or guarantee whatsoever, express or implied, is made to any Investing involves risk, including possible loss of principal. person regarding this information. This information is general in nature and has been preparedwithout taking into account any individuals objectives, financial situation, or needs. You should In addition to the normal risks associated with investing, international investments may involve seek independent professional legal, financial, taxation, and/or other professional advice before risk of capital loss from unfavorable fluctuation in currency values, from differences in generallymaking an investment decision regarding the iShares funds. An iShares fund is not sponsored, accepted accounting principles or from economic or political instability in other nations. endorsed, issued, sold or promoted by the provider of the index which a particular iShares Emerging markets involve heightened risks related to the same factors as well as increased fund seeks to track. No index provider makes any representation regarding the advisability of volatility and lower trading volume. Narrowly focused investments and securities focusing on a investing in the iShares funds. single country may be subject to higher volatility.Notice to investors in New Zealand: There is no guarantee that any fund will pay dividends. Minimum volatility funds may experience more than minimum volatility because there is no guarantee that the underlying indexesFOR WHOLESALE CLIENTS ONLY NOT FOR PUBLIC DISTRIBUTION strategies of seeking to lower volatility will be successful.This material is being distributed in New Zealand by BlackRock Investment Management Bonds and bond funds will decrease in value as interest rates rise. A portion of a municipal bond(Australia) Limited ABN 13 006 165 975, AFSL 230523 (BlackRock). In New Zealand, this funds income may be subject to federal or state income taxes or the alternative minimum tax.information is provided for registered financial service providers and other wholesale clients only Capital gains, if any, are subject to capital gains tax. High-yield securities may be more volatile, in that capacity, and is not provided for New Zealand retail clients as defined under the Financial be subject to greater levels of credit or default risk, and may be less liquid and more difficult to Advisers Act 2008. BlackRock does not offer interests in iShares to the public in New Zealand, sell at an advantageous time or price to value than higher-rated securities of similar maturity. and this material does not constitute or relate to such an offer. Before investing in an iShares Mortgage-backed securities are subject to prepayment and extension risk and therefore reactexchange traded fund, you should carefully consider whether such products are appropriate differently to changes in interest rates than other bonds. Small movements in interest rates for you, read the applicable prospectus or product disclosure statement available at iShares. may quickly and significantly reduce the value of certain mortgage-backed securities. TIPS can com.au and consult an investment adviser. Past performance is not a reliable indicator of future provide investors a hedge against inflation, as the inflation adjustment feature helps preserveperformance. Investing involves risk including loss of principal. No guarantee as to the capital the purchasing power of the investment. Because of this inflation adjustment feature, inflationvalue of investments nor future returns is made by BlackRock or any company in the BlackRock protected bonds typically have lower yields than conventional fixed rate bonds and will likely group. Recipients of this document must not distribute copies of the document to third parties. decline in price during periods of deflation, which could result in losses. Government backing This information is indicative, subject to change, and has been prepared for informational or applies only to government issued securities, not iShares exchange traded funds. educational purposes only. No warranty of accuracy or reliability is given and no responsibilityarising in any way for errors or omissions (including responsibility to any person by reason of An investment in the Fund(s) is not insured or guaranteed by the Federal Deposit Insurance negligence) is accepted by BlackRock. No representation or guarantee whatsoever, express Corporation or any other government agency.or implied, is made to any person regarding this information. This information is general in Index returns are for illustrative purposes only and do not represent actual nature and has been prepared without taking into account any individuals objectives, financial iShares Fund performance. Index performance returns do not reflect any situation, or needs. You should seek independent professional legal, financial, taxation, and/or management fees, transaction costs or expenses. Indexes are unmanagedother professional advice before making an investment decision regarding the iShares funds. An and one cannot invest directly in an index. Past performance does notiShares fund is not sponsored, endorsed, issued, sold or promoted by the provider of the index guarantee future results.which a particular iShares fund seeks to track. No index provider makes any representation For actual iShares Fund performance, please visit www.iShares.com or request a prospectusregarding the advisability of investing in the iShares funds. by calling 1-800-iShares (1-800-474-2737). The iShares Funds are not sponsored, endorsed, issued, sold or promoted by MSCI Inc. nor The iShares Funds that are registered with the US Securities and Exchange Commission does this company make any representation regarding the advisability of investing in the Funds. under the Investment Company Act of 1940 (Funds) are distributed in the US by BlackRockBlackRock is not affiliated with MSCI Inc. Investments, LLC (together with its affiliates, BlackRock).The MSCI ACWI (All Country World Index) IndexSM is a free float-adjusted market capitalization This material is solely for educational purposes and does not constitute an offer or solicitationindex that is designed to measure equity market performance in the global developed and to sell or a solicitation of an offer to buy any shares of any fund (nor shall any such shares beemerging markets. As of April 2012, the MSCI ACWI consisted of 45 country indices comprising offered or sold to any person) in any jurisdiction in which an offer, solicitation, purchase or sale 24 developed and 21 emerging market country indices. The developed market country indices would be unlawful under the securities law of that jurisdiction. included are: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece,Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, In Latin America, for Institutional and Professional Investors Only (Not for Public Distribution): Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. The It is possible that some or all of the funds mentioned or inferred to in this material have not been emerging market country indices included are: Brazil, Chile, China, Colombia, Czech Republic, registered with the securities regulator of Brazil, Chile, Colombia, Mexico, Peru, Uruguay or anyEgypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, other securities regulator in any Latin American country, and thus, might not be publicly offeredRussia, South Africa, Taiwan, Thailand, and Turkey. within any such country. The securities regulators of such countries have not confirmed theSource: MSCI. Neither MSCI nor any other party involved in or related to compiling, computing accuracy of any information contained herein. No information discussed herein can be providedor creating the MSCI data makes any express or implied warranties or representations with to the general public in Latin America.respect to such data (or the results to be obtained by the use thereof), and all such parties In Hong Kong, this document is issued by BlackRock (Hong Kong) Limited and has not beenhereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability reviewed by the Securities and Futures Commission of Hong Kong. In Singapore, this is issued or fitness for a particular purpose with respect to any of such data. Without limiting any of by BlackRock (Singapore) Limited (Co. registration no. 200010143N).the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in or Notice to residents in Australia:related to compiling, computing or creating the data have any liability for any direct, indirect, FOR WHOLESALE CLIENTS AND PROFESSIONAL INVESTORS ONLY NOT FOR PUBLIC special, punitive, consequential or any other damages (including lost profits) even if notified of DISTRIBUTION the possibility of such damages. No further distribution or dissemination of the MSCI data ispermitted without MSCIs express written consent. The MSCI data may only be used for your Issued in Australia by BlackRock Investment Management (Australia) Limited ABN 13 006internal use and may not be used to create any financial instruments or products (including 165 975, AFSL 230523 (BlackRock). This information is provided for wholesale clients funds and derivative instruments) or any indexes. and professional investors only. Before investing in an iShares exchange traded fund, you should carefully consider whether such products are appropriate for you, read the applicable 2012 BlackRock, Inc. All Rights reserved. BLACKROCK, and iSHARES are registeredtrademarks of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. All otheriS-8608-1112 prospectus or product disclosure statement available at iShares.com.au and consult an investment adviser. Past performance is not a reliable indicator of future performance. Investingtrademarks, servicemarks or registered trademarks are the property of their respective owners. involves risk including loss of principal. No guarantee as to the capital value of investments nor iS-8608-1112 5168-04RB-11/12 future returns is made by BlackRock or any company in the BlackRock group. Recipients ofNot FDIC Insured No Bank Guarantee May Lose Value