SOURCE: BlackRock, Inc.

BlackRock, Inc.

November 09, 2011 08:45 ET

BlackRock Announces Estimated Year-End Capital Gains Distributions: Zero Capital Gains Distributions Expected for 99% of iShares ETFs

Tax Efficiency Represents Significant Differentiator for ETFs; Research Shows Advisors and Investors Have Often Failed to Discuss Taxes and Have Differing Views on the Importance of Doing So

SAN FRANCISCO, CA--(Marketwire - Nov 9, 2011) - BlackRock, Inc. (NYSE: BLK) today announced that 99 percent of Exchange Traded Funds (ETFs) offered by its iShares® ETF business are not expected to pay capital gains distributions. iShares is the largest manager of ETFs. According to preliminary year-end capital gains information, out of the 233 iShares products, only two -- the iShares Barclays Aggregate Bond Fund (NYSE Arca: AGG) and the iShares Barclays Intermediate Credit Bond Fund (NYSE Arca: CIU) -- will have any capital gains distributions and they will be minimal. Because capital gains distributions are taxable, the ability to minimize capital gains distributions can represent significant savings to the investor. Final dividends and tax characteristics will be available by the end of year.

Tax efficiency has emerged as one of the most distinctive and valuable attributes of ETFs, given a low return environment where investors can owe capital gains taxes on top of poor performance, noted Jennifer Grancio, iShares managing director at BlackRock.

"When every dollar counts, having a tax-efficient portfolio can be an important factor in investment success," she said. "iShares ETFs have historically generated relatively few instances of capital gains distributions -- making them excellent tools for investors concerned about the impact of taxes on overall investment performance."

ETFs combine elements of traditional mutual funds and individual securities. Like index mutual funds, ETFs represent diversified portfolios of securities that track specific indexes.

Key ETF features can make the vehicle highly tax efficient compared to both actively managed and index based mutual funds. In particular, actively managed funds buy and sell stocks throughout the year, potentially leading to high portfolio turnover and tax consequences, and investors buy and sell shares through the fund directly, potentially triggering capital gains for other shareholders. In contrast, because ETFs track indexes, they have lower portfolio turnover, which generally leads to fewer taxable events. In addition, ETF investors buy and sell shares on an exchange, which insulates them from the impact of transactions by other shareholders.

Beyond offering access to a naturally tax-efficient structure, iShares ETFs also offer the advantages of an experienced, dedicated portfolio management group that works diligently to minimize capital gains distributions.

"iShares has an established track record in managing for tax efficiency," Grancio said. "Over the last 10 years, iShares ETFs have not paid capital gains 99 percent of the time."

Short-Term Capital Gains ($/share)
Estimated Long-Term Capital Gains ($/share) Estimated Total Capital Gains Distribution ($/share) Approximate % of NAV Ex-Date Pay Date
iShares Barclays Aggregate Bond Fund (AGG) $0.24-$0.29 $0.07-$0.09 $0.31-$0.38 0.29%-0.35% 12/1/11 12/7/11
iShares Barclays Intermediate Credit Bond Fund (CIU) -- $0.03-$0.05 $0.03-$0.05 0.02%-0.05% 12/1/11 12/7/11

This information represents an estimate of the distribution per share as of 11/4/11. This estimate does not take into account any possible tax reclassifications, nor does this estimate contemplate changes in income or shares outstanding that may occur prior to record date. This estimate is for informational purposes only. Please consult your tax professional or financial advisor for more information regarding your tax situation.

Long Term Distribution Data Illustrates Potential Advantages

Long term distribution data for active and index mutual funds compared to iShares products illustrates the tax issue as well as the potential benefits of selecting tax efficient investment vehicles.

For the period 2001 to 2010, the 10-year average capital gains distribution (as a percentage of net asset value) for active U.S. open-end large growth funds was 1.2 percent; for index funds in the same category, it was 0.4 percent.1 By contrast, over the same period, the average capital gains distribution for the iShares Russell 1000 Growth Index Fund (IWF) and the iShares S&P 500 Growth Index Fund (IVW) was 0.0 percent.

The contrast has been particularly dramatic in years when actively managed mutual funds posted especially large capital gains. In 2007, when open-end mutual funds paid the largest capital gain distributions on record, just 33 percent of active mutual funds did not pay capital gains, while 97 percent of iShares ETFs did not pay capital gains.2

"The cost of an investment, including the tax impact, is a critical factor that shapes the investment's total performance, but investors don't always closely examine the total costs in determining whether an investment make sense for them," said Grancio. "In today's investing environment, it's more critical than ever for investors to understand how taxes and other costs impact a portfolio, and take those realities into account in their investment decision-making."

Tax Cost Often a Missing Piece of the Investment Discussion

Research recently conducted by iShares suggests financial advisors might be missing an important opportunity to educate their clients about tax costs. The research indicated that when investors and financial advisors together discuss potential investment opportunities, taxes and other costs are often left out of the discussion -- even though investors would like to understand these topics better.

In a survey conducted this summer by iShares among 385 retail advisors and 394 investors, nearly three quarters of advisors indicated their clients aren't interested in such discussions, yet investors overwhelmingly indicated the opposite, with 89% saying they would be interested. Only a third of advisors indicated they "always" discuss with clients all the factors, including taxes and other costs, that affect fund performance, and 12% said they "never" or "rarely" discuss these factors.

"Advisors and investors together need to be sure to bring costs such as taxes to the table, as part of a comprehensive focus on precisely how investment performance is generated, for mutual funds as well as ETFs," Grancio said. "We believe investors will find that ETFs offer tax efficiency and other intrinsic advantages that make ETFs highly worthy additions to a portfolio."

About BlackRock
BlackRock is a leader in investment management, risk management and advisory services for institutional and retail clients worldwide. At September 30, 2011, BlackRock's AUM was $3.345 trillion. BlackRock offers products that span the risk spectrum to meet clients' needs, including active, enhanced and index strategies across markets and asset classes. Products are offered in a variety of structures including separate accounts, mutual funds, iShares® (exchange-traded funds), and other pooled investment vehicles. BlackRock also offers risk management, advisory and enterprise investment system services to a broad base of institutional investors through BlackRock Solutions®. Headquartered in New York City, as of September 30, 2011, the firm has approximately 10,200 employees in 27 countries and a major presence in key global markets, including North and South America, Europe, Asia, Australia, and the Middle East and Africa. For additional information, please visit the Company's website at

About iShares
iShares is the global product leader in exchange traded funds with over 460 funds globally across equities, fixed income and commodities, which trade on 19 exchanges worldwide. The iShares Funds are bought and sold like common stocks on securities exchanges. The iShares Funds are attractive to many individual and institutional investors and financial intermediaries because of their relative low cost, tax efficiency and trading flexibility. Investors can purchase and sell shares through any brokerage firm, financial advisor, or online broker, and hold the funds in any type of brokerage account. The iShares customer base consists of the institutional segment of pension plans and fund managers, as well as the retail segment of financial advisors and high net worth individuals.

ETFs and mutual funds each hold baskets of securities. ETFs trade on exchanges intraday at market price, which may be greater or less than net asset value. Shares of ETFs are not individually redeemed from the fund. Transactions in shares of ETFs result in brokerage commissions and generate tax consequences. Index ETFs are passively managed; they seek to track a market index, before fees and expenses, and do not attempt to outperform during rising markets or to take defensive positions in declining markets. ETF performance may diverge from the ETF's underlying index. Mutual funds are accessed directly from the fund company or through a select broker, pricing generally occurs once a day, and investors buy or redeem shares at the end-of-day net asset value, less any applicable fees. Some mutual funds may charge sales loads or redemption fees. Active mutual funds seek to outperform their benchmark while the goal of index mutual funds is to track their index. Consequently, active funds typically charge more than index-linked products for the increased trading and research expenses that may be incurred. Mutual funds and ETFs are obliged to distribute portfolio gains to shareholders.

Carefully consider the funds' investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the funds' prospectuses, which may be obtained by calling 1-800-iShares (1-800-474-2737) or by visiting Read the prospectus carefully before investing.

Investing involves risk, including possible loss of principal. Diversification may not protect against market risk.

Transactions in shares of the iShares Funds will result in brokerage commissions and will generate tax consequences. iShares Funds are obliged to distribute portfolio gains to shareholders. Shares of the iShares Funds may be sold throughout the day on the exchange through any brokerage account. However, shares may only be redeemed directly from a Fund by Authorized Participants, in very large creation/redemption units.

This estimate is for informational purposes only and not intended to be tax advice. Tax consequences of dividend distributions may vary by individual taxpayer. Please consult your tax professional or financial advisor for more information regarding your tax situation.

To receive a distribution, you must be a registered shareholder of the fund on the record date. Distributions are paid to shareholders on the payment date. Past distributions are not indicative of future distributions.

The iShares Funds ("Funds") are distributed by SEI Investments Distribution Co. ("SEI"). BlackRock Fund Advisors ("BFA") serves as the investment advisor to the Funds. BlackRock Fund Distribution Company ("BFDC") assists in the marketing of the Funds. BFA and BFDC are affiliates of BlackRock, Inc., none of which is affiliated with SEI.

Neither BlackRock Institutional Trust Company, N.A., and its affiliates nor SEI and its affiliates provide tax advice. Please note that (i) any discussion of U.S. tax matters contained in this communication cannot be used by you for the purpose of avoiding tax penalties; (ii) this communication was written to support the promotion or marketing of the matters addressed herein; and (iii) you should seek advice based on your particular circumstances from an independent tax advisor.

The iShares Funds are not sponsored, endorsed, issued, sold or promoted by Russell Investment Group or Standard & Poor's, nor are they sponsored, endorsed or issued by Barclays Capital. None of these companies make any representation regarding the advisability of investing in the Funds. Neither SEI, nor BlackRock Institutional Trust Company, N.A., nor any of their affiliates, are affiliated with the companies listed above.

* Not FDIC Insured * No Bank Guarantee * May Lose Value

1 Source: BlackRock, Morningstar as of 12/31/10. Past distributions are not indicative of future distributions.

2 Source: Lipper, Morningstar, BlackRock as of 12/10. Past distributions are not indicative of future distributions.