is your stock portfolio upside down? revisiting the ... · allocation. min vol by the msci usa...

Is Your Stock Portfolio Upside Down?

Revisiting the Importance of Downside Protection Mark Peterson, Director Investment Strategy and Education

This material is provided for educational purposes only and does not constitute investment

advice. The information contained herein is based on current tax laws, which may change in the

future. BlackRock cannot be held responsible for any direct or incidental loss resulting from

applying any of the information provided in this publication or from any other source mentioned.

The information provided in these materials does not constitute any legal, tax or accounting

advice. Please consult with a qualified professional for this type of advice.

USR-8788

For financial professional use only – not to be shown or distributed to clients

The Return of Volatility (Risk will Matter Again)

Low returns and low volatility have pushed investors into riskier assets

Number of Single Day Stock Market Returns of +/-2%

or more

Percent of Assets more Risky than the

Benchmark Index

72

55

22

35

4 4 6 10

0

20

40

60

80

2008 2009 2010 2011 2012 2013 2014 2015

Tra

din

g D

ays

Morningstar as of 12/31/15. Stock market represented by S&P 500. Past performance does not guarantee or indicate future results.

Avg

22

23% 26%

78% 74%

0%

30%

60%

90%

120%

Stocks Bonds

USR-8788

Look to strategies that dampen volatility, and find true diversification

44% in

2005

57% in

2005 9 of 10 occurred

since Aug 20th

For financial professional use only – not to be shown or distributed to clients 2

Is your Equity Portfolio Upside Down?

Agenda

Portfolio’s Today Lack Downside Protection

The Importance of Downside Protection

Building Downside Protection Back Into Portfolios

For financial professional use only – not to be shown or distributed to clients 3 USR-8788

Portfolio’s Today Lack Downside Protection

A Majority of Stock Assets are Upside Down

Investors have over-allocated to risker stock strategies

Volatility Profile Relative to the S&P 500

of All Stock Fund Assets (All Equity Mutual Fund and ETF Assets 10-Year Std Dev 6/30/15)

Average Upside / Downside Capture by

Volatility Profile (Average 10-Year all Stock Mutual Funds and ETFs)

Source: Morningstar as of 30/15. Universe of funds is represented by the Morningstar Broad Equity Category distinct share class only. Same Risk is defined by funds and ETFs with a standard

deviation between 14.72–14.76. 10-year standard deviation. Higher risk is a 10-year standard deviation of 14.77 or higher. Lower Risk is a 10 standard deviation of 14.71 and lower.

78% 9%

13% Higher Risk

Same Risk

Lower Risk

10 Years Ago 12/2005 20 Years Ago 12/1995

Higher Risk 44% 46%

Same Risk 8% 3%

Lower Risk 48% 51%

105

98

85

107

99

80

60

85

110

Higher Risk Same Risk Lower Risk

Do

wn

sid

e C

ap

ture

Up

sid

e C

ap

ture


Traditional Stock Diversification does not Help Like it has in the Past

Source: Morningstar as of 12/31/2015. Past performance does not guarantee or indicate future results.

Historic Upside / Downside Capture Ratio for a Diversified Stock Portfolio: 30% Large Cap Value, 30% Large Cap Growth, 30%

International and 10% Small Cap.

10-Year Upside / Downside Capture Ratio 10-Year Rolling Upside / Downside Capture Ratio

92

102

77

109

50

80

110

1989 2015

Up

sid

e C

ap

ture

Do

wn

sid

e

Cap

ture

60

85

110

Dec-8

9

Feb-9

2

Apr-

94

Ju

n-9

6

Aug

-98

Oct-

00

Dec-0

2

Feb-0

5

Apr-

07

Ju

n-0

9

Aug

-11

Oct-

13

Dec-1

5

Upside Capture Ratio Downside Capture Ratio


Increasing Equity Correlations Hurting Upside / Downside Capture?

Source: Morningstar as of 12/31/2015. Past performance does not guarantee or indicate future results.

Rolling 10-Year International Stock Correlation to the S&P 500

0.40

0.70

1.00

Dec-8

9

Ja

n-9

1

Feb-9

2

Ma

r-93

Apr-

94

Ma

y-9

5

Ju

n-9

6

Ju

l-9

7

Aug

-98

Sep

-99

Oct-

00

Nov-0

1

Dec-0

2

Ja

n-0

4

Feb-0

5

Ma

r-06

Apr-

07

Ma

y-0

8

Ju

n-0

9

Ju

l-1

0

Aug

-11

Sep

-12

Oct-

13

No

v-1

4

Dec-1

5

International Mid Cap Emerging Markets

0.47

0.84

0.89

0.79

0.61

0.96


The Importance of Downside Protection

Why Limiting Volatility (Downside Risk) is so Important 50% Upside / Downside Capture

S&P 500 vs. 50% Upside/50% Downside Capture (8/31/00–12/31/15)

Source: Crestmont and Morningstar as of 12/31/15. Past performance does not guarantee or indicate future results.

4,000

8,000

12,000

16,000

20,000

Aug

-00

Ja

n-0

1

Ju

n-0

1

No

v-0

1

Apr-

02

Sep

-02

Feb-0

3

Ju

l-0

3

De

c-0

3

Ma

y-0

4

Oct-

04

Ma

r-05

Aug

-05

Ja

n-0

6

Ju

n-0

6

No

v-0

6

Apr-

07

Sep

-07

Feb-0

8

Ju

l-0

8

De

c-0

8

Ma

y-0

9

Oct-

09

Ma

r-10

Aug

-10

Ja

n-1

1

Ju

n-1

1

No

v-1

1

Apr-

12

Sep

-12

Fe

b-1

3

Ju

l-1

3

De

c-1

3

Ma

y-1

4

Oct-

14

Ma

r-15

-45%

+108%

-51%

S&P 500 50% Upside, 50% Downside of the S&P 500

$18,786

$18,160

+221%


Over the Most Recent Market Cycle, What Generated the Best Outcome?

US Stock Market from 10/07–12/15 (-51% Bear Market, +221% Bull Market)

Source: Morningstar as of 12/31/2015. Past performance does not guarantee or indicate future results. It is not possible to invest in an index US stocks represented by the Ibbotson SBBI

US Large Cap TR Index. Index performance is shown for illustrative purposes only.

0

50,000

100,000

150,000

200,000

Oct-

07

Feb

-08

Jun-0

8

Oct-

08

Feb

-09

Jun-0

9

Oct-

09

Feb

-10

Jun-1

0

Oct-

10

Feb

-11

Jun-1

1

Oct-

11

Fe

b-1

2

Jun-1

2

Oct-

12

Feb

-13

Jun-1

3

Oct-

13

Feb

-14

Jun-1

4

Oct-

14

Feb

-15

Jun-1

5

What Percent of

Stock Market

Participation

(Bull / Bear

Market Capture

Ratio) Provided

the Highest

Return?

A. 25%

B. 50%

C. 75%

D. 100%

-51%

(10/07–2/09)

+221%

(3/09–12/15)


Entire Period Return

+57.65% (+5.78% average annual)

(10/07-12/15)

-51% and +221% Returns

Optimal Bull / Bear Market Capture (1# both)

What’s the Optimal Bull / Bear Market Capture Ratio?

Source: BlackRock. Past performance does not guarantee or indicate future results.

US stocks represented by the Ibbotson SBBI US Large Cap TR Index.

Bull / Bear

Capture Ratio

Growth of

$100,000

25% $135,456

51.54% $157,678

74% $164,080

75% $164,100

76% $164,098

100% $157,678

125% $136,391

Highest

Return

51.54%

Upside /

Downside

has same

return as

100% but

almost half

the downside

$130,000

$150,000

$170,000

25% 50.83% 74% 75% 76% 100% 125%

Bull / Bear Market Capture Ratio

75% Bull / 75% Bear Capture

Ratio $164,100

Growth of $100,000 (-51% and +221%)

75% Bull / Bear Market Capture


Source: Morningstar and BlackRock. Past performance does not guarantee or indicate future results. It is not possible to invest in an index. US stocks represented by the Ibbotson SBBI

US Large Cap TR Index. Index performance is for illustrative purposes only.

$10,000 in Stocks in 1926 Grew to $53.9mn

(12/31/1925 thru 12/31/2015, log scale)

Stocks Since 1926, Bull and Bear Markets

$10,000

+193%

-83%

+415%

-50%

+65%

-30%

+210%

-22%

+144% +76%

-43%

+845%

-30%

+816%

-45%

+108%

-51%

+221%

-22%

936%

-29%

$53.9mn

Dec-2

5

Nov-2

7

Oct-

29

Sep

-31

Aug

-33

Ju

l-3

5

Ju

n-3

7

Ma

y-3

9

Apr-

41

Ma

r-43

Fe

b-4

5

Ja

n-4

7

Dec-4

8

Nov-5

0

Oct-

52

Sep

-54

Aug

-56

Ju

l-5

8

Ju

n-6

0

Ma

y-6

2

Apr-

64

Ma

r-66

Fe

b-6

8

Ja

n-7

0

Dec-7

1

No

v-7

3

Oct-

75

Sep

-77

Aug

-79

Ju

l-8

1

Ju

n-8

3

Ma

y-8

5

Apr-

87

Ma

r-89

Fe

b-9

1

Ja

n-9

3

Dec-9

4

Nov-9

6

Oct-

98

Sep

-00

Aug

-02

Ju

l-0

4

Ju

n-0

6

Ma

y-0

8

Apr-

10

Ma

r-12

Fe

b-1

4


Dec-2

5

Nov-2

7

Oct-

29

Sep

-31

Aug

-33

Ju

l-3

5

Ju

n-3

7

Ma

y-3

9

Apr-

41

Ma

r-43

Fe

b-4

5

Ja

n-4

7

Dec-4

8

Nov-5

0

Oct-

52

Sep

-54

Aug

-56

Ju

l-5

8

Ju

n-6

0

Ma

y-6

2

Apr-

64

Ma

r-66

Fe

b-6

8

Ja

n-7

0

Dec-7

1

No

v-7

3

Oct-

75

Sep

-77

Aug

-79

Ju

l-8

1

Ju

n-8

3

Ma

y-8

5

Apr-

87

Ma

r-89

Fe

b-9

1

Ja

n-9

3

Dec-9

4

Nov-9

6

Oct-

98

Sep

-00

Aug

-02

Ju

l-0

4

Ju

n-0

6

Ma

y-0

8

Apr-

10

Ma

r-12

Fe

b-1

4

Source: Morningstar and BlackRock. Past performance does not guarantee or indicate future results. It is not possible to invest in an index. US stocks represented by the Ibbotson SBBI

US Large Cap TR Index. Index performance is for illustrative purposes only.

Capturing 88.78% of the Bull / Bear Markets Outperformed 100% Stocks

$10,000 Grew to $62.6mn vs. $53.9mn

(12/31/1925 thru 12/31/2015, log scale)

Stocks Since 1926, Less than 100% Capture Outperformed

+366% +185%

+57%

-74% -44%

+171%

-27% -19%

-20% -26% -38%

-26%

-39%

-45%

+826% +127% +67%

+746%

+721% +96% +197%

$62.6mn

$53.9mn

$10,000


Breaking Even

The Math: Why Limiting Volatility (Downside Risk) is so Important


-50% +100%

$1

$0.50

$1 Investment loss

Return needed to

breakeven

-1% +1.01%

-5% +5.3%

-10% +11%

-20% +25%

-30% +43%

-40% +67%

-50% +100%

-60% +150%

-70% +233%

Once you

get to loses

>20% it

really

starts to

impair your

portfolio


Source: BlackRock. Past performance does not guarantee or indicate future results. It is not possible to invest in an index. US stocks represented by the Ibbotson SBBI US Large Cap TR

Index. Index performance is for illustrative purposes only. Bear Markets defined by a 20% loss in the index. Bull Market I the upward return between bear markets.

Notable Historical Bear and Bull Markets

Historical Optimal Bull and Bear Market Capture Ratios

Date % Change Optimal Capture Ratio

Financial Crisis

Bull 3/09–12/15

Bear 11/07–2/09

+221%

-51% 75%

Tech Bubble

Bull 10/02–10/07

Bear 8/00–9/02

+108%

-45% 65%

1987 Crash

Bull 12/87–7/00

Bear 9/87–11/87

+816%

-30% 160%

1973–1974

Bull 7/70–12/72

Bear 1/73–9/74

+76%

-43% 51%

Great Depression

Bull 7/32–2/37

Bear 9/29–6/32

+415%

-83% 48%


Building Downside Protection Back Into Portfolios

Strategies to Potentially Improve Stock Portfolios

15-Year Upside / Downside Capture Ratio (Versus the S&P 500 12/31/15)

1. Multi Asset Class Income is since the inception of the Morningstar Multi-Asset High Income Index 3/1/2009. Global Flexible is represented by the Morningstar Category World

Allocation. Min Vol by the MSCi USA Minimum Volatility index, US quality by the MSCI USA Quality Index, Div Stocks by the MSCI USA High Dividend Index.

Source: Morningstar as of 12/31/15.

481

66

77 82

89

211

60

66 73

83

0

25

50

75

100

Multi Asset Income Global Flexible Minimum Volatility Dividend Stocks Quality Stocks

Upsid

e

Cap

ture

Dow

nsid

e

Cap

ture


Fixing Your Equity Upside / Downside Capture

Source: Morningstar as of 6/30/2015. Past performance does not guarantee or indicate future results. Intl represented by MSCI EAFE Index, Lr Grow represented by Russell 1000 growth,

Lrg Val by the Russell 1000 Value, Sm Cap by the Russell 2000 index, Intl Min Vol by the MSCI EAFE Minimum Volatility Index, Divided Stocks by MSCI USA High Dividend Index, US Min

Vol by the MSCI USA Minimum Volatility Index, Global Flexible by BlackRock Global Allocation Fund Instl (MALOX).

Adding Low Volatility Equities and Hedged

International to an Equity Portfolio

Upside / Downside Capture Last 10 years

30

30 10

30 Lr Grow

Lr Val

Sm Cap

Intl

15

15

15

10 10

12.5

12.5

10 Lr Grow

Lr Val

US Min Vol

Global Flex

Sm Cap

Intl Min Vol

Intl

Div Stocks

102

91

109

90

0

40

80

120

Traditional Equity Portfolio Adding Low Volatility Eq

Upside Capture Downside Capture


Limiting Downside Risk in Action: BlackRock Global Allocation Fund

S&P 500 vs. BlackRock Global Allocation Fund (8/31/2000–12/2015)

Source: Morningstar as of 12/31/15. Past performance does not guarantee or indicate future results. Investor I shares. This illustration is based on an initial investment of $10,000 in

Investor I shares made on 3/24/2000, assumes reinvestment of dividends and capital gains. Results are hypothetical. Performance for other share classes will vary. It is not possible to

invest in an index.

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Aug

-00

Ju

n-0

1

Apr-

02

Feb-0

3

Dec-0

3

Oct-

04

Aug

-05

Ju

n-0

6

Apr-

07

Feb-0

8

Dec-0

8

Oct-

09

Aug

-10

Ju

n-1

1

Apr-

12

Feb-1

3

Dec-1

3

Oct-

14

Aug

-15

BLK Global Allocation Instl S&P 500 TR

Upside Capture

(8/31/00–12/15)

Downside Capture

(8/31/00–12/15)

BlackRock Global

Allocation Fund Instl 75.47 52.90

$18,160

$30,223


2. Be Prepared for Equity Volatility – Traditional Diversification Still Works

Equity P/E multiples are at levels indicating higher probability of losses.

• Over the past 5 years, there have been 9 monthly equity corrections greater than -2%; on average munis and core

bonds had positive performance.

In 2015, volatility picked up and equities had 3 months of sell-offs greater than 2%.

• 2015 Avg. returns during the 3 sell-offs: S&P5000, -3.84%; BlackRock Total Return Fund, +0.80%; BlackRock

National Municipal Fund, +0.71%.

Muni and Taxable Bonds Have Delivered Downside Protection During Monthly Drawdowns

Average Returns During Monthly Equity Sell-Off <-2% Since 2010

Source: Morningstar 12/31/2015 An equity shock is defined as a period in which the S&P 500 fell by 2 or more percent. Based on 9 monthly periods from 12/31/10–12/31/15.

Past performance does not guarantee or indicate future results. You cannot invest directly in an index.

(4.26)

0.61 1.02

-6.00

-4.00

-2.00

0.00

2.00

S&P 500 TR USD BlackRock Total Return Instl BlackRock National Municipal Instl

To

tal R

etu

rn %


Strategies to Potentially Improve Equity Portfolio

Potentially Improve Up / Down Market Capture

US Stock Strategies

BlackRock Equity Dividend Fund.

Multi Asset Strategies

BlackRock Global Allocation Fund.

BlackRock Multi-Asset Income Fund.

Global / International Stock Strategies

BlackRock Global Dividend Fund.

Fixed Income

BlackRock Total Return Fund.

BlackRock Strategic Municipal Opportunities Fund.


Global Allocation Fund, Performance as of December 31, 2015

Average Annual Total Returns %

(Data as of 12/31/15) 1 Year 3-Year 5-Year 10-Year Inception2

BLK Global Allocation Fund (Institutional) -0.83 5.14 4.37 6.06 10.05

BLK Global Allocation Fund (Inv. A @NAV) -1.05 4.88 4.09 5.79 9.77

Reference Benchmark1 -0.78 5.52 5.58 5.46 –

Morningstar World Allocation Category -4.15 2.88 3.49 4.42 –

BLK Global Allocation Fund (Inv. A @MSC) -6.25 3.01 2.97 5.22 9.55

Morningstar Analyst Rating™

Morningstar has awarded the fund a Gold

rating, its highest level of conviction

(effective 1/13/15). See ‘Important Notes’

for additional information.

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of

an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current

performance may be lower or higher than the performance data quoted. Refer to blackrock.com/funds to obtain performance data current to

the most recent month-end. Total / Net, annual fund operating expenses, including investment-related expenses as stated in the Fund’s most

recent prospectus are 0.87%/0.78% for Institutional shares and 1.13%/1.04% for Investor A shares. The Fund’s Net annual fund operating

expenses including investment-related expenses, include investment dividend expense, interest expense, acquired fund fees and expenses

and certain other fund expenses. Net expenses also take into account fees which BlackRock has agreed to waive voluntarily. Investment

results reflect total fund operating expenses, net of all fees, waivers and / or expense reimbursements. Please note that BlackRock may

discontinue these voluntarily waivers at any time without notice. 1. Reference benchmark consists of 36% S&P 500 Index, 24% FTSE World (ex-US.) Index, 24% BofA/ML Current 5-Year U.S. Treasury Index, 16% Citigroup Non-USD World

Government Bond Index.

2. Before 1/3/03, R share performance is that of Institutional shares (which have no distribution fees) restated for R share distribution fees. Performance for R shares after their inception

reflects actual class performance. Performance for Investor A and C shares before their inception (10/21/94) is based on Institutional share performance adjusted to reflect class-

specific fees of Investor A and C shares at the time of their launch. This information may be considered when assessing fund performance, but does not represent actual performance

of those share classes.

As of December 31, 2015. Source: BlackRock, Bloomberg, Morningstar. The performance depicted above is for the BlackRock Global Allocation Fund (Institutional). Returns are net of

fees and include reinvestment of dividends and capital gains. Other classes of shares with differing fees and expenses are available. Index performance is shown for illustrative purposes

only. It is not possible to invest directly in an index.

BlackRock Global Allocation Investor A share reflecting the deduction of current maximum initial sales charge of 5.25%.


Multi-Asset Income Fund, Performance as of December 31, 2015

Average annual total returns (%) (as of 12/31/2015) 1 Month2 YTD2 1 year 3-year 5-year Since inception (4/7/08)

BLK Multi-Asset Income Fund (Inv. A@NAV) -1.04 -1.60 -1.60 3.99 5.93 5.16

BLK Multi-Asset Income Fund (Inv. A@MSC) -6.23 -6.77 -6.77 2.14 4.79 4.43

BLK Multi-Asset Income Fund (Inst) -1.02 -1.35 -1.35 4.26 6.19 5.42

Morningstar Tactical Allocation Category Avg. -1.94 -5.93 -5.93 1.18 2.51 –

Blended Benchmark3 -1.94 0.08 0.08 5.62 5.63 –

1. Other classes of shares with differing fees and expenses are available. BlackRock Multi-Asset Income Fund (Investor A) was rated 3 stars against 255 Tactical Allocation funds in the

last three years and was rated 4 stars against 147 funds in the last five years.

2. Performance is cumulative, not annualized.

3. The Blended Benchmark represents 50% MSCI World/50% Barclays US Aggregate Index. Rankings based on total return excluding sales charges, independently calculated and not

combined to create an overall ranking.

Other classes of shares with differing fees and expenses are available. Investment returns reflect total fund operating expenses, net of all fees, waivers, and / or expense reimbursements.

The fund’s net operating expenses exclude acquired fund fees and investment interest expenses, if any, and certain other fund expenses. BlackRock has agreed contractually to waive or

reimburse certain fees and expenses until 11/30/16. Contractual waivers terminable upon 90 days notice by the fund’s independent trustees or majority vote of outstanding fund securities.

Overall Morningstar Rating Institutional shares rated against 255 Tactical Allocation Funds, as of 12/31/15, based on risk-adjusted total return. Ratings

are determined monthly and subject to change. Ratings are determined monthly and subject to change. Overall Morningstar

rating for a fund is derived from a weighted average of the performance figures associated with its 3-, 5- and 10-year (if

applicable) Morningstar rating metrics.1 Morningstar has awarded the Fund a Bronze medal. Fewer than 10% of US open-end

funds hold medalist ratings. Effective date: 05/26/15. See Important Notes for additional disclosures on Morningstar ratings.

BLK Multi-Asset Income Fund 30-Day SEC Yield (Inv. A) Subsidized = 4.24% Unsubsidized = 4.11%

30-Day SEC Yield (subsidized) - The calculation is based on a 30-day period ending on the last day of the previous month. It is computed by dividing the net investment income per share

earned during the period by the maximum offering price per share on the last day of the period. If the fund expenses have waivers, the subsidized yield is based on the net expenses. 30-

Day SEC Yield (unsubsidized) – This calculation is based on total expenses of the fund as of 11/30/15. Total returns as of 12/31/15 for Institutional shares: 1 Year, -1.35%; 5-Year (Ann.), 6.19%; Since Inception (Ann.), 5.42%; for Investor A shares without / with maximum sales charge: 1 Year, -1.60%/-6.77%; 5-Year (Ann.), 5.93%/4.79%; Since Inception (Ann.), 5.16%/4.43%; for Investor C shares without / with maximum sales charge: 1 Year, -2.35%/ -3.28%; 5-Year (Ann.), 5.13%/5.13%; Since Inception (Ann.), 4.37%/4.37%. The fund’s annual total returns prior to 11/28/11 reflect a different investment strategy. Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Refer to website at www.blackrock.com to obtain performance data current to the most recent month-end. Returns include reinvestment of dividends and capital gains. Maximum Sales Charge (MSC) for the BLK Multi-Asset Income Fund A Share is 5.25%. Investor A and Instl. total annual operating / net expenses as of the most recent prospectus are 0.99%/0.74% and 0.84%/0.59%, respectively.


Total Return Fund, Performance as of December 31, 2015


(Data as of 12/31/15) 1 Year 3-Year 5-Year 10-Year

Inception

(September

6, 2006)

BLK Total Return Fund (Institutional) 0.35 2.67 4.49 4.46 4.67

BLK Total Return Fund (Inv. A @NAV) 0.02 2.35 4.18 4.14 4.35

Morningstar Intermediate-Term Bond

Fund Category Avg. -0.26 1.16 3.22 4.18 ̶

Barclays US Aggregate Bond Index 0.55 1.44 3.25 ̶ 4.51

BLK Total Return Fund (Inv. A @MSC) -3.98 0.97 3.33 3.72 4.05

1. For each fund with at least a 3-year history, Morningstar calculates a Morningstar Rating™ based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a

fund’s monthly performance (including the effects of sales charges, loads and redemption fees), placing more emphasis on downward variations and rewarding consistent

performance. Morningstar Rating is for the Institutional share class only; other classes may have different performance characteristics.

Source: Morningstar. The fund was rated against the following numbers of US-domiciled Intermediate-Term Bond funds over the following time periods as of 12/31/15: 947 in the last 3

years, 829 in the last 5 years and 595 in the last 10 years. With respect to these Intermediate-Term Bond funds, the fund received a Morningstar Rating of 5 and 5 stars for the 3- and 5-

year periods, respectively. Other classes may have different performance characteristics.

Investment dividend expense, interest expense, acquired fund fees and expenses and certain other fund expenses are included in the Net, Including Investment Related expenses and

excluded from the Net, Excluding Investment Related expenses. Institutional, Investor A and Investor C have contractual waivers with an end date of 1/31/17 terminable upon 90 days’

notice. Investment returns reflect total fund operating expenses, net of all fees, waivers, and / or expense reimbursements.

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment

will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher

than the performance data quoted. Refer to website at www.blackrock.com to obtain performance data current to the most recent month-end. Returns

include reinvestment of dividends and capital gains. Morningstar category returns are based on total return and do not reflect sales charges. Maximum

Sales Charge (MSC) for the BlackRock Total Return Fund A-Share is 4%. Institutional share class net / net including investment related / net, excluding

investment related total annual operating expenses as of the most recent prospectus are 0.69%/0.59%/0.45%. Investor A net / net including investment

related / net, excluding investment related total annual operating expenses as of the most recent prospectus are 0.97%/0.93%/0.79%.

As of 12/31/15

Overall Morningstar Rating

(Institutional Shares – MAHQX)1

Rated against 947 Intermediate-Term Bond Funds,

as of 12/31/15, based on risk-adjusted total return.

Ratings are determined monthly and subject to

change. The Overall Morningstar Rating for a fund is

derived from a weighted average of the performance

figures associated with its 3-, 5- and 10-year (if

applicable) Morningstar Rating metrics.


Strategic Municipal Opportunities Fund, Performance as of December 31, 2015

Average Annual Total Returns % (Data as of 12/31/15) 1 Year 3-Year 5-Year 10-Year

Inception

(October 2,

2006)

BLK Strategic Municipal Opportunities Fund (Institutional) 3.56 3.31 5.89 4.91 5.47

BLK Strategic Municipal Opportunities Fund (Inv. A @NAV)2 3.41 3.10 5.66 4.68 5.22

Blended Benchmark 3.05 3.51 6.36 – –

Lipper Category Average 2.26 2.03 4.10 3.66 –

BLK Strategic Municipal Opportunities Fund (Inv. A @MSC)2 -0.98 1.62 4.74 4.22 5.05

1. For each fund with at least a 3-year history, Morningstar calculates a Morningstar Rating™ based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund’s

monthly performance (including the effects of sales charges, loads and redemption fees), placing more emphasis on downward variations and rewarding consistent performance.

Morningstar Rating is for the Institutional share class only; other classes may have different performance characteristics.

2. Performance for Investor A and C shares before their introduction (10/2/06) is based on Institutional share performance (inception 10/31/88) adjusted to reflect class-specific fees

applicable to Investor A and C shares at the time of their launch. This information may be considered when assessing the fund’s performance, but does not represent actual

performance of those share classes.

Source: Morningstar. 298 in the last 3 years, 250 in the last 5 years and 174 in the last 10 years. With respect to these Muni National Interm funds, the fund received a Morningstar Rating

of 4, 4 and 5 stars for the 3-, 5- and 10-year periods, respectively. Other classes may have different performance characteristics.

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that

an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted.

Refer to website at www.blackrock.com to obtain performance data current to the most recent month-end. Returns include reinvestment of dividends and capital gains.

Morningstar category returns are based on total return and do not reflect sales charges. Maximum Sales Charge (MSC) for the BlackRock High Yield Municipal Fund A-Share

is 4.25%. Institutional share class net / net including investment related / net, excluding investment related total annual operating expenses as of the most recent prospectus

are 0.70%/0.65%/0.59%. Investor A net / net including investment related / net, excluding investment related total annual operating expenses as of the most recent prospectus

are 0.93%/0.88%/0.82%. Blended Benchmark 65% S&P Municipal Bond Investment Grade Index of bonds in the S&P Municipal Bond Index rated investment-grade by S&P, Moody’s,

Fitch/30% S&P Municipal Bond High Yield Index of bonds in the S&P Municipal Bond Index not rated or rated below-investment-grade/5% Barclays Taxable Municipal U.S. Aggregate

Eligible Index of fixed-rate bonds at least 1 year from maturity rated investment-grade by at least two ratings agencies: S&P, Moody’s, Fitch. Rankings based on total return excluding sales

charge, independently calculated and not combined to create an overall ranking. Expenses stated as of the fund’s most recent prospectus. Investment dividend expense, interest expense,

acquired fund fees and expenses and certain other fund expenses are included in the Net, Including Investment Related Expenses and excluded from the Net, Excluding Investment

Related Expenses. Investment returns reflect total fund operating expenses, net of all fees, waivers, and / or expense reimbursements.

As of 12/31/15


(Institutional Shares – MAMTX)1

Rated against 298 Muni National Interm Funds, as of

12/31/15, based on risk-adjusted total return. Ratings

are determined monthly and subject to change. The

Overall Morningstar Rating for a fund is derived from a

weighted average of the performance figures

associated with its 3-, 5- and 10-year (if applicable)

Morningstar Rating metrics.


National Municipal Fund, Performance as of December 31, 2015


(Data as of 12/31/15) 1 Year 3-Year 5-Year 10-Year

Inception

(October

21, 1994)

BLK National Municipal Fund (Institutional) 3.43 3.43 6.27 4.89 7.22

BLK National Municipal Fund (Inv. A @NAV) 3.35 3.26 6.10 4.69 6.95

S&P Municipal Bond Index 3.32 3.23 5.50 4.66 –

Lipper Category Average 2.98 2.85 5.57 4.08 –

BLK National Municipal Fund (Inv. A @MSC) -1.04 1.78 5.18 4.23 6.83

1. For each fund with at least a 3-year history, Morningstar calculates a Morningstar Rating™ based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund’s

monthly performance (including the effects of sales charges, loads and redemption fees), placing more emphasis on downward variations and rewarding consistent performance.

Morningstar Rating is for the Institutional share class only; other classes may have different performance characteristics.

Source: Morningstar. 298 in the last 3 years, 250 in the last 5 years and 174 in the last 10 years. With respect to these Muni National Interm funds, the fund received a Morningstar Rating

of 5, 5 and 5 stars for the 3-, 5- and 10-year periods, respectively. Other classes may have different performance characteristics.

Rankings based on total return excluding sales charge, independently calculated and not combined to create an overall ranking. Expenses stated as of the fund's most recent prospectus.

Investment dividend expense, interest expense, acquired fund fees and expenses and certain other fund expenses are included in the Net, Including Investment Related expenses and

excluded from the Net, Excluding Investment Related expenses. Investment returns reflect total fund operating expenses, net of all fees, waivers and / or expense reimbursements.

Institutional, Investor A and Investor C have contractual waivers with an end date of 11/1/16 terminable upon 90 days’ notice. Investment returns reflect total fund operating expenses, net

of all fees, waivers, and / or expense reimbursements.

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment

will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher

than the performance data quoted. Refer to website at www.blackrock.com to obtain performance data current to the most recent month-end. Returns

include reinvestment of dividends and capital gains. Morningstar category returns are based on total return and do not reflect sales charges. Maximum

Sales Charge (MSC) for the BlackRock National Municipal Fund A-Share is 4.25%. Institutional share class net / net including investment related / net,

excluding investment related total annual operating expenses as of the most recent prospectus are 0.59%/0.59%/0.56%. Investor A net / net including

investment related / net, excluding investment related total annual operating expenses as of the most recent prospectus are 0.85%/0.75%/0.72%.

As of 12/31/15


(Institutional Shares – MANLX)1

Rated against 298 Muni National Interm Funds, as of

12/31/15, based on risk-adjusted total return. Ratings are

determined monthly and subject to change. The Overall

Morningstar Rating for a fund is derived from a weighted

average of the performance figures associated with its 3-,

5- and 10-year (if applicable) Morningstar Rating metrics.


Important notes

Principal risks: These funds are actively managed and the characteristics will vary. Stock and bond values fluctuate in price so the value of your

investment can go down depending on market conditions. International investing involves special risks including, but not limited to currency fluctuations,

illiquidity and volatility. These risks may be heightened for investments in emerging markets. 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. Asset allocation strategies do not assure profit and do not protect

against loss. Short selling entails special risks. If the funds make short sales in securities that increase in value, the funds will lose value. Any loss on

short positions may or may not be offset by investing short sale proceeds in other investments. The funds may use derivatives to hedge its investments

or to seek to enhance returns. Derivatives entail risks relating to liquidity, leverage and credit that may reduce returns and increase volatility.

The Morningstar Analyst Rating is not a credit or risk rating. It is a subjective evaluation performed by the manager research analysts of Morningstar.

Morningstar evaluates funds based on five key pillars, which are process, performance, people, parent, and price. Analysts use this five pillar evaluation

to determine how they believe funds are likely to perform over the long-term on a risk-adjusted basis. They consider quantitative and qualitative factors

in their research, and the weighting of each pillar may vary. The Analyst Rating scale is Gold, Silver, Bronze, Neutral, Negative. A Morningstar Analyst

Rating of Gold, Silver, or Bronze reflect an Analyst’s conviction in a fund’s prospects for outperformance. Analyst Ratings are continuously monitored

and reevaluated at least every 14 months.

For more detailed information about Morningstar's Analyst Rating, including its methodology, please go

to http://corporate.morningstar.com/us/documents/ MethodologyDocuments/AnalystRatingforFundsMethodology.pdf

The Morningstar Analyst Rating should not be used as the sole basis in evaluating a mutual fund. Morningstar Analyst Ratings involve unknown risks

and uncertainties which may cause Morningstar's expectations not to occur or to differ significantly from what we expected.


http://corporate.morningstar.com/us/documents/ MethodologyDocuments/AnalystRatingforFundsMethodology.pdf

http://corporate.morningstar.com/us/documents/ MethodologyDocuments/AnalystRatingforFundsMethodology.pdf

Minimum volatility suite: index disclosures

This analysis contains back-tested index data.

Index returns are for illustrative purposes only and do not represent any actual 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.

Past performance does not guarantee future results.

Data for time periods prior to the index inception date is hypothetical and is provided for informational purposes only to indicate

historical performance had the index been available over the relevant time period.

Hypothetical data results are based on criteria applied retroactively with the benefit of hindsight and knowledge of factors that may have

positively affected its performance, and cannot account for risk factors that may affect the actual fund performance.

The actual performance of the fund may vary significantly from the hypothetical index performance due to transaction costs, liquidity or

other market factors.

Index Name Index Inception Date Dates of Back-Tested Returns 1 Year 5-Year 10-Year

MSCI USA Minimum Volatility (USD) Index 6/2/2008 6/30/2000–6/2/2008 5.64% 14.13% 8.99%


Important Notes

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or

sell any securities or to adopt any investment strategy. The opinions expressed are as of 3/08/16 and may change as subsequent conditions vary.

Individual portfolio managers for BlackRock may have opinions and / or make investment decisions that, in certain respects, may not be consistent with

the information contained in this report. The information and opinions contained in this material are derived from proprietary and non-proprietary

sources deemed by BlackRock to be reliable, are not necessarily all inclusive and are not guaranteed as to accuracy. Past performance is no guarantee

of future results. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of

the reader.

Please ask your clients to visit blackrock.com or iShares.com for a prospectus or summary prospectus, which includes investment

objectives, risks, fees, charges, expenses and other information that should be read and considered carefully before investing. Investing

involves risk, including possible loss of principal.

Prepared by BlackRock Investments, LLC, member FINRA.

© 2016 BlackRock, Inc. All rights reserved.

BLACKROCK, and SO WHAT DO I DO WITH MY MONEY are registered trademarks of BlackRock, Inc. or its subsidiaries in the US and elsewhere.

All other trademarks are those of their respective owners.


Muni Flexibility is Key During a Variety of Interest Rate Environments

Top 10 Days Interest Rates went UP (12/13–12/15) Top 10 Days Interest Rates went DOWN (12/13–12/15)

Source: Morningstar 12/31/15. Past performance is no guarantee of future results. Shown for illustrative purposes only. Interest rate moves defined by the best / worst days for the Core

Bond Index, the Barclays US Aggregate Bond Index. Other categories represented by the Morningstar category averages.

US Bond

Index

Taxable

BlackRock

Strategic

Muni OppsA

Muni Natl

Short

December 3, 2015 -0.72 0.01 -0.05

August 25, 2015 -0.61 0.10 -0.03

March 6, 2015 -0.59 -0.15 -0.12

May 11, 2015 -0.56 0.18 -0.04

February 6, 2015 -0.52 -0.06 -0.05

July 10, 2015 -0.51 -0.07 -0.04

September 15, 2015 -0.50 0.10 -0.03

February 17, 2015 -0.49 0.01 -0.04

December 14, 2015 -0.48 -0.08 -0.06

June 1, 2015 -0.47 0.19 -0.03

# Positive 0 of 10 6 of 10 0 of 10

Avg Ret on all days

interest rates went

up (219) -0.17 +0.04 -0.01

US Bond Index

Taxable

BlackRock

Strategic

Muni OppsA

Muni Natl

Short

June 29, 2015 0.59 -0.26 0.03

January 10, 2014 0.53 0.39 0.10

March 18, 2015 0.52 0.01 0.09

July 6, 2015 0.51 0.01 0.04

October 1, 2014 0.50 0.01 0.04

September 17, 2015 0.49 0.01 0.05

October 14, 2015 0.47 -0.77 0.07

June 11, 2015 0.45 0.01 0.02

August 11, 2015 0.44 0.01 0.02

May 15, 2015 0.43 -0.25 -0.01

# Positive 10 of 10 7 of 10 9 of 10

Avg Ret on all days

interest rates went

down (276) +0.15 +0.01 +0.02


High-yield Spreads vs. Default Risk

Overall risk-reward profile is favorable today as current risk premiums imply a higher default rate

As of December 31, 2015. Source: J.P. Morgan, S&P / LCD.

HY defaults expected to remain at or below 5% through 2016, but below 2% ex-Energy

and Metals and Mining

High Yield Spreads and Defaults, 1986–2015

200

800

1,400

2,000

Ja

n-8

7

Ja

n-8

9

Ja

n-9

1

Ja

n-9

3

Ja

n-9

5

Ja

n-9

7

Ja

n-9

9

Ja

n-0

1

Ja

n-0

3

Ja

n-0

5

Ja

n-0

7

Ja

n-0

9

Ja

n-1

1

Ja

n-1

3

Ja

n-1

5

Sp

rea

d (

T+

bp

s)

HY Spread Over Treasuries LT Average Spread

Spreads Summary (bps)

Current T+772bps

Ex-commodity T+627bps

12mn Change +253

30-year Average T+578bps

Default Rate Summary (%)

Current 1.8%

Ex-commodity 0.3%

Implied 7.9%

YE 2016F 3–5%/1.5%

ex-Energy

25-year Average 3.6%

All-time wide:

1,798bps

All-time

tight: 269bps


High-yield Spreads and Historical Returns

High Yield Returns at Various Spread Levels over Treasuries, 1987–2015

As of December 31, 2015. Source: J.P. Morgan, S&P/LCD. High Yield is represented by the Barclays US High Yield Index. The current spread is calculated by subtracting 5-year

US Treasury from JPM Global HY Index. For illustrative purposes only. Past performance does not guarantee or indicate future results. You cannot invest directly in an index.

14.55%

12.77%

6.20%

0.00%

5.00%

10.00%

15.00%

20.00%

Above 700 Above Avg (578) Below Avg (578)

High yield spreads

over treasuries are

currently 772bpts

(historical average 578)

Spread above Treasuries Following 3-Year average annual return Worst 3-Year return

700+ +14.55% +6.20%

Above average (>578) +12.77% -0.68%

Below average (<578) +6.13% -7.63%


3-Y

ea

r A

ve

rag

e A

nn

ual

Retu

rn

High Yield – “The Rodney Dangerfield of Asset Classes”

Source: Morningstar Inc. as of 12/31/2015. High Yield represented by the Barcap US High yield credit index, Stocks by the S&P 500. For illustrative purposes only. Past performance does

not guarantee or indicate future results. You cannot invest directly in an index.

Average Annual Returns (Since Incept of High Yield Index (7/1983–1022015)

7

9

11

8 10 12 14 16

Retu

rn

Risk

High Yield

Bonds 8.94%

Risk 8.44

Stocks 10.54%

Risk 15.32

Annualized period Stocks High Yield

Bonds

1 Year Return Risk +5.20% 13.75

-1.94% 5.76

3-Year Return Risk +16.20%

10.49 +4.15%

4.95


11.91 +6.18%

6.06

10-Year Return Risk +7.85% 15.08

+7.62% 10.50

15-Year Return Risk +7.85% 15.15

+4.55% 10.02


14.48 +9.37%

8.69

Downside

Max Drawdown -50.95% -33.31%


What’s the Optimal Upside / Downside Capture Ratio?

Assumes same upside / downside capture ratio


The Amount of Upside / Downside Capture that Results in the Largest Total Return

Upside Gain

20% 30% 40% 50% 60.0% 70.0% 80.0% 90.0% 100% 150% 200% 250% 300% 350% 400%

Do

wn

sid

e L

oss

-20% – 83.5% 125% 150% 166.5% 178.5% 187.5% 194.5% 200% 216.5% 225% 230% 232.5% 236% 237.5%

-30% – – 41.5% 66% 83.5% 95% 104% 111% 117% 133.5% 141.5% 146.5% 150% 152.5 154%

-40% – – – 25% 41.5% 53.5% 62.5% 69.5% 75% 91.5% 100% 105% 108.5% 110.5% 112.5%

-50% – – – – 16.5% 28.5% 37.5% 44.5% 50% 66.5% 75% 80% 83% 85.5% 87.5%

-60% – – – – – 12% 21% 28.0% 33% 50% 58.5% 63% 67% 69.5% 71%

-70% – – – – – – 9% 16.0% 20% 38% 46.5% 51.5% 55% 57% 59%

-80% – – – – – – – 7% 12.5% 29% 37.5% 42.5% 46% 48% 50%

Upside / Downside Capture Ratio Resulting in MORE

RETURN and LESS DOWNSIDE than 100%

Upside / Downside

Upside / Downside Capture Ratio Resulting in just MORE

RETURN then 100% Upside / Downside


Upside / Downside Capture of Asset Allocation

Utilizing additional growth categories can support diversification and lower risk across growth strategies

Stock / Bond Portfolio Upside / Downside Capture Ratios

Upside / Downside Capture vs. US Stocks since 1926

100% Bonds 12, -9

10%/90% 21, 2

20%/80% 30, 13

40%/60% 48, 34

50%/50% 57, 45 60%/40%

65, 56

80%/20% 83, 78

90%/10% 91, 89

100%Stocks 100, 100

-20

20

60

100

10 40 70 100Downside Capture

Up

sid

e C

ap

ture

Source: Morningstar, BlackRock; as of 6/30/2014.


All Return Numbers (and Capture Ratios) are not Created Equal

Recent Bear Market -51% (11/07–2/09) and Bull Market +221% (2/09–12/15)


Which Bear / Bull Market Capture Ratio Resulted in the Best Overall Return?

S&P 500 A B C

Bear Market Capture 100% 123% 82% 17%

Bull Market Capture 100% 146% 92% 31%

66.18%

? ? ? 0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

S&P 500 A B C

Total Return (11/07–12/15)


All Return Numbers (and Capture Ratios) are not Created Equal (Cont’d)

Recent Bear Market -51% (11/07–2/09) and Bull Market +221% (2/09–12/15)


Which Bear / Bull Market Capture Ratio Resulted in the Best Overall Return?

S&P 500 Small Cap Value US Min Vol Index Corporate Bonds

Bear Market Capture 100% 123% 82% 17%

Bull Market Capture 100% 146% 92% 31%

66.18% 55.40%

85.60%

56.90%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

S&P 500 A B C

Total Return (11/07–12/15)


Optimal Capture Ratio Formula

B1= Bear Market Return

B2 = Bull Market Return

= -(B1+B2) / (2*B1*B2)

Example: Bear Market = -50%, Bull Market = +100%

-(-50%+100%) / (2*-50%*100%)

-50%/-100% =

50% Optimal Capture Ratio
