ETF Landscape: Celebrating 10 Years of ETFs in Europe - BlackRock

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ETF Landscape April 2010Celebrating 10 Years of ETFs in Europe from BlackRockImplementing asset allocation with ETFsInvestment applicationsETFs have many investment applications. ETFs on broad-basedindices can serve as diversified core holdings, while style and sectorETFs can be used to complete parts of a portfolio or fortactical strategies.Due to their targeted exposure to specific market segments, ETFsgenerally work well within the macro asset allocation and sectoremphasis models developed by equity strategists. They also helpprovide efficient ways to gain international diversification. Anotherbenefit of ETFs is that they are complimentary to many otherinvestment products. They can be used together with commonstocks, private asset managers, and other fund products.Investors may buy ETFs to diversify their assets. Most ETFs arepassively managed portfolios designed to provide relatively low-costinvestments in broad-based or proprietary indices. Some ETFs offerrelatively low-risk, broadly diversified portfolios, which manyinvestors may find attractive as the core equity components of theirportfolios. Others offer diversified investments in particular styles,sectors, industries, regions, or countries.ETFs work well with strategic asset-allocation models. In our view,asset-allocation models have two primary applications for investors: As the framework for an entire portfolio.Investors desiring a complete asset allocation strategy may findthis appealing, as they merely have to purchase appropriateinvestments for each market segment in their proper weightingsand occasionally rebalance their portfolios. As the core portion of a portfolio.Those seeking an approach with more active trading may find acore/satellite investment strategy appropriate. In this case, themodel can serve as a core. In an effort to increase returns,shorter-term tactical strategies, such as stock, sector, style orcountry overweights may then be employed as satelliteinvestments. Core holdings can help ensure that a portfolio’sperformance does not deviate widely from establishedbenchmarks, while satellite investments constitute active plays inan effort to increase returns.ETFs based on broad-market indices serve as core holdings, whichis essential, especially in today’s environment of increased marketvolatility. Since no single sector, style, or stock consistentlyoutperforms its peers, having core holdings invested in broadmarketindices not only helps reduce volatility but also can achievecompetitive returns for the overall portfolio.This document is not an offer to buy or sell any security or to participate in any trading strategy. Please refer to important information and qualifications at the end of this material. 27
ETF Landscape April 2010Celebrating 10 Years of ETFs in Europe from BlackRockETFs can be used for targeted sector exposure. Sector ETFs can be used for the tactical portion of a portfolio or to gain exposure tounderrepresented sectors in a portfolio. They can also serve as the building blocks for a sector model.Figure 24: Sector weights and YTD performanceWorld, emerging marketsSector#stocksMSCI World%weight% YTDreturn#stocksMSCI Emerging Markets%weightConsumer discretionary 240 9.47% -2.81% 70 5.57% -8.65%Consumer staples 127 10.38% -1.63% 58 5.53% -4.70%Energy 116 10.87% -5.47% 48 14.67% -6.60%Financials 339 20.46% -4.64% 174 23.68% -6.62%Healthcare 120 10.30% -0.80% 12 2.27% -0.29%Industrials 262 10.57% -1.76% 112 6.92% -3.83%Information technology 147 11.88% -6.30% 84 13.78% -5.69%Materials 159 7.38% -8.70% 110 15.25% -6.94%Telecommunications 48 4.23% -6.94% 54 8.66% -2.18%Utilities 93 4.47% -5.03% 45 3.68% -1.36%Total 1,651 100.00% -4.19% 767 100.00% -5.65%United States% YTDreturnSector#stocksS&P 500%weight% YTDreturnConsumer discretionary 39 11.16% -4.51%Consumer staples 31 3.39% -8.66%Energy 59 10.02% -1.21%Financials 80 9.83% -2.95%Healthcare 42 12.41% -1.25%Industrials 52 12.54% 0.42%Information technology 79 15.13% -1.48%Materials 74 19.24% -8.45%Telecommunications 9 2.82% -9.32%Utilities 35 3.46% -5.10%Total 500 100.00% -3.70%Sector#stocksDJ US Total Market%weight% YTDreturnBasic materials 69 3.34% -8.22%Consumer goods 125 9.86% -1.69%Consumer services 198 11.44% -2.39%Financials 257 16.37% -1.59%Healthcare 133 12.38% 0.44%Industrials 256 12.80% -2.72%Oil and gas 93 10.84% -4.39%Technology 173 16.37% -8.58%Telecommunications 18 2.68% -9.72%Utilities 74 3.91% -4.53%Total 1,396 100.00% -3.66%Consumer discretionary 11.2%Consumer staples 3.4%Energy 10%Financials 9.8%Healthcare 12.4%Industrials 12.5%Information technology 15.1%Materials 19.2%Telecommunications 2.8%Utilities 3.5%Basic materials 3.3%Consumer goods 9.9%Consumer services 11.4%Financials 16.4%Health care 12.4%Industrials 12.8%Oil and gas 10.8%Technology 16.4%Telecommunications 2.7%Utilities 3.9%continued…Note: Index returns are for illustrative purposes only and do not represent actual fund performance. Index performance returns do not reflect any management fees, transactioncosts or expenses. Indices are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. YTD returns reflect US dollar priceperformance only from 31 December 2009 to 29 January 2010. Index weights captured from Bloomberg on 18 February 2010.Source: Global ETF Research and Implementation Strategy Team, BlackRock, Bloomberg.This document is not an offer to buy or sell any security or to participate in any trading strategy. Please refer to important information and qualifications at the end of this material. 28
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ETF Landscape: Celebrating 10 Years of ETFs in Europe - BlackRock

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