Annual report and audited financial statements BlackRock ...
Annual report and audited financial statements BlackRock UCITS Funds
For the year ended 31 March 2018
BLACKROCK UCITS FUNDS
CONTENTS
Overview General information Background
Performance Investment Manager's report
Governance Statement of the Manager's responsibilities Report of the Trustee to the unitholders Independent Auditors' report
Financial Statements Income statement Statement of changes in equity Statement of changes in net assets attributable to redeemable participating unitholders Balance sheet Notes to the financial statements Schedules of investments
Additional Information and Regulatory Disclosures (Unaudited) Schedules of material purchases and sales Calendar year performance Regulatory disclosures Report on remuneration Supplementary information Glossary Benchmark index disclaimers
Page
1 2
6
27 28 29
31 37 40 43 49 133
443 474 476 479 483 491 494
This annual report and audited financial statements (the "Report and Accounts") may be translated into other languages. Any such translation shall only contain the same information and have the same meaning as the English language Report and Accounts. To the extent that there is any inconsistency between the English language Report and Accounts and the Report and Accounts in another language, the English language Report and Accounts will prevail, except to the extent (and only to the extent) that it is required by law of any jurisdiction where the units are sold, that in an action based upon disclosure in a Report and Accounts in a language other than English, the language of the Report and Accounts on which such action is based shall prevail. Any disputes as to the terms of the Report and Accounts, regardless of the language of the Report and Accounts, shall be governed by and construed in accordance with the laws of Ireland.
Please note that no notification for the distribution of units according to section 323 of the German Capital Investment Code (Kapitalanlagegesetzbuch) has been made for the following Sub-Funds: BlackRock Customised Euro Non-Sovereign Bond Index Fund 1, BlackRock Diversified Distribution Fund, BlackRock Diversified Strategies Selection Fund, BlackRock Dynamic Allocation Fund, BlackRock Euro Cash Fund, BlackRock Euro Sovereign Bond Index Fund 1, BlackRock Fixed Income Selection Fund, BlackRock Global Equity Selection Fund, BlackRock Mix Fonds 1, BlackRock Mix Fonds 2, BlackRock Mix Fonds 3, BlackRock Mix Fonds 4, BlackRock Mix Fonds 5, BlackRock Multi Asset Balanced Selection Fund, BlackRock Multi Asset Conservative Selection Fund, BlackRock Multi Style Strategy Fund, BlackRock UK Credit Screened Fund, BlackRock Emerging Markets Equity Impact Fund and BlackRock UK Equity Income Fund. Therefore, units of these Sub-Funds may not be distributed in the Federal Republic of Germany.
For Swiss Investors: The prospectus, Trust Deed, the Key Investor Information Documents ("KIID"), the Fund's latest published audited Annual Report and Accounts and latest unaudited Semi-annual Report and Accounts, as applicable and a detailed list of investments purchased and sold for each Sub-Fund during the year may be obtained on request and free of charge from the Representative in Switzerland.
For German Investors: The prospectus, KIID and a full statement of portfolio changes are available, free of charge, from the German Information Agent.
The Fund is duly registered with the Comisi?n Nacional de Mercado de Valores in Spain under number 1646.
BLACKROCK UCITS FUNDS
GENERAL INFORMATION
Directors of the Manager1 William Roberts (Chairman) (British but Irish resident) Graham Bamping (British) Patrick Boylan (Irish) Paul Freeman (British) Justin Mealy (Irish) Desmond Murray (Irish) Barry O'Dwyer (Irish) Linda Silcock (British) Adele Spillane (Irish)
1All Directors are non-executive
Administrator, Registrar and Transfer Agent J.P. Morgan Administration Services (Ireland) Limited J.P. Morgan House International Financial Services Centre Dublin 1 Ireland
Secretary of the Manager Sanne Corporate Administration Services Ireland Limited Fourth Floor 76 Baggot Street Lower Dublin 2 Ireland
Irish Legal Advisers Matheson 70 Sir John Rogerson's Quay Dublin 2 Ireland
Investment Manager, Promoter, Distributor and Securities Lending Agent BlackRock Advisors (UK) Limited 12 Throgmorton Avenue London EC2N 2DL United Kingdom
Sub-Investment Manager2 BlackRock Investment Management (UK) Limited 12 Throgmorton Avenue London EC2N 2DL United Kingdom
Sub-Investment Manager3 BlackRock Institutional Trust Company, N.A. 400 Howard Street San Francisco California 94105 United States of America
Sub-Investment Manager4 BlackRock Financial Management, Inc. 40 East 52nd Street New York NY 10022 United States of America
Manager BlackRock Asset Management Ireland Limited J.P. Morgan House International Financial Services Centre Dublin 1 Ireland
Trustee J.P. Morgan Bank (Ireland) plc J.P. Morgan House International Financial Services Centre Dublin 1 Ireland
Independent Auditors PricewaterhouseCoopers Chartered Accountants and Registered Auditors One Spencer Dock North Wall Quay Dublin 1 Ireland
Representative in Switzerland BlackRock Asset Management Schweiz AG Bahnhofstrasse 39 8001 Z?rich Switzerland
Paying Agent in Switzerland State Street Bank International GmbH Munich, Z?rich Branch Beethovenstrasse 19 8027 Z?rich Switzerland
Information Agent in Germany State Street Bank International GmbH Biennerstrasse 59 80333 Munich Germany
2Sub-Investment Manager for BlackRock Diversified Strategies Selection Fund, BlackRock Euro Cash Fund, BlackRock Fixed Income Selection Fund, BlackRock Global Equity Selection Fund, BlackRock Multi Asset Balanced Selection Fund and BlackRock Multi Asset Conservative Selection Fund. 3Sub-Investment Manager for BlackRock Emerging Markets Alpha Tilts Fund. 4Sub-Investment Manager for BlackRock Emerging Markets Equity Impact Fund and BlackRock Multi Style Strategy Fund.
1
BLACKROCK UCITS FUNDS
BACKGROUND
BlackRock UCITS Funds (the "Fund") is an open-ended unit trust established on 29 June 2007 as an umbrella fund under the laws of Ireland. The Fund is constituted by the Trust Deed dated 28 June 2007 between BlackRock Asset Management Ireland Limited (the "Manager") and J.P. Morgan Bank (Ireland) plc (the "Trustee") and subsequently by an amended and restated Trust Deed between the Manager and the Trustee dated 4 December 2009 and any deeds supplemental thereto. The Fund is authorised and supervised by the Central Bank of Ireland ("CBI") pursuant to the provisions of the European Communities (Undertaking for Collective Investment in Transferable Securities) Regulations, 2011 (as amended) (the "UCITS Regulations").
The Fund is structured as an umbrella fund in that it may be divided into different classes of units ("unit class") with one or more classes representing a separate Sub-Fund ("Sub-Fund") of the Fund. Each Sub-Fund will represent a separate portfolio of assets and may consist of one or more unit classes. Each unit class may apply different subscription and redemption provisions, charges, fees or brokerage arrangements. The creation of an additional class of units will be notified to the CBI in advance. The portfolio of assets maintained for each Sub-Fund will be invested in accordance with the investment objectives and policies applicable to each Sub-Fund as set out in the prospectus. The assets of each Sub-Fund shall belong exclusively to that Sub-Fund, shall be segregated from the assets of other Sub-Funds, shall not be used to discharge directly or indirectly the liabilities of or claims against any other Sub-Fund and shall not be available for any such purpose.
The term "Sub-Funds" shall be deemed to mean either the Sub-Funds of the Fund, or if the context so requires, the Manager or its delegate acting for the accounts of the relevant Sub-Funds. The terms "BlackRock" and "Investment Manager" are used to represent BlackRock Advisors (UK) Limited as appropriate. The term ''Group Company'' is used to represent BlackRock, Inc. group companies and any of their affiliates and connected persons.
The Fund had 22 Sub-Funds in operation as at 31 March 2018.
Sub-Fund name
Benchmark index
Investment management approach
BlackRock Customised Index Fund 11
Euro
Non-Sovereign
Bond
Bloomberg Barclays Euro Aggregate ex Treasury-Custom Exclusions Index
Non-replicating
30% Barclays Global Corporate Index ? Euro Hedged,
20% J.P. Morgan Global Diversified EMBI Index ? Euro
Hedged, 5% J.P. Morgan Government Bond Index ?
Emerging Markets Global Diversified Index, 30% Bank of
BlackRock Diversified Distribution Fund2/3
America Merrill Lynch Global HY Constrained Index Active
HWOC ? Euro Hedged, 5% MSCI World ex EMU Index ?
Euro Hedged, 5% Global Treasury Index (Excluding Italy)
and 5% J.P. Morgan Corporate Emerging Markets Broad
Index CEMBI Broad Diversified Index ? Euro Hedged
BlackRock Emerging Bond Fund2
Markets
Sovereign
Screened
J.P. Morgan Government Bond Index ? Emerging Markets Global Diversified Emerging Index
Active
BlackRock Euro Sovereign Bond Index Fund 11
Bloomberg Barclays Euro Aggregate Treasury Bond Index Non-replicating
BlackRock Mix Fonds 12
BlackRock Mix Fonds 22 BlackRock Mix Fonds 32 BlackRock Mix Fonds 42 BlackRock Mix Fonds 52
80% Barclays Global Aggregate Euro Hedged Index, 10%
Bank of America Merrill Lynch 7 Libid and 10% MSCI All Active
Country World Index (All denominated in Euro)
70% Barclays Euro Aggregate Bond Index and 30% All Country World Index (All denominated in Euro)
MSCI
Active
50% Barclays Euro Aggregate Bond Index and 50% All Country World Index (All denominated in Euro)
MSCI
Active
30% Barclays Euro Aggregate Bond Index and 70% All Country World Index (All denominated in Euro)
MSCI
Active
10% Barclays Euro Aggregate Bond Index and 90% All Country World Index (All denominated in Euro)
MSCI
Active
BlackRock Multi Style Strategy Fund2
Euro Overnight Index Average (EONIA) + 100 bps
Active
BlackRock Developed Bond Fund2
Markets
Sovereign
Screened
Bloomberg
Barclays
Global
Treasury
Index
(customised)
Active
BlackRock Diversified Strategies Selection Fund
N/A4
Active
BlackRock Dynamic Allocation Fund2
Euro Overnight Index Average (EONIA)
Active
BlackRock Euro Cash Fund2
7-Day EUR LIBID
Cash Management
BlackRock Fixed Income Selection Fund BlackRock Global Equity Selection Fund2
N/A4
Active
50% MSCI Europe ex Europe Index
Index
and
50%
MSCI
All
Country
World
Active
1Please refer to tracking error section for further information on non-replicating Sub-Funds. 2The Sub-Funds are not managed by reference to a benchmark index. The benchmark indices included in the table above are provided for reference only. 3The BlackRock Diversified Distribution Fund fully redeemed on 7 July 2017. 4These Sub-Funds do not have a benchmark.
2
BLACKROCK UCITS FUNDS
BACKGROUND (continued)
Sub-Fund name BlackRock Multi Asset Balanced Selection Fund
Benchmark index N/A1
Investment management approach
Active
BlackRock Multi Asset Conservative Selection Fund N/A1
Active
BlackRock UK Credit Screened Fund2 BlackRock Defensive Yield Fund2
iBoxx Sterling Corporate 2% issuer cap
ex
Tier
1
and
Upper
Tier
2
with
a
Active
3 Month EURIBOR Index
Active
BlackRock Emerging Markets Alpha Tilts Fund2
MSCI Emerging Markets Index (Net)
Active
BlackRock Emerging Markets Equity Impact Fund2 MSCI Emerging Markets Index (Net)
Active
BlackRock UK Equity Income Fund2
FTSE All-Share TR Index
Active
1These Sub-Funds do not have a benchmark. 2The Sub-Funds are not managed by reference to a benchmark index. The benchmark indices included in the table above are provided for reference only.
Changes to the Fund during the year
On 15 May 2017, an updated prospectus was issued for the Fund to facilitate the launch of BlackRock UK Equity Income Fund and BlackRock Defensive Yield Fund.
On 25 May 2017, BlackRock Defensive Yield Fund commenced trading with the launch of the Class D Accumulating, Class D Distributing, Class D CHF Hedged Accumulating, Class Z Accumulating, Class Z CHF Hedged Accumulating and Flexible Accumulating Unit Class.
On 21 June 2017, BlackRock UK Equity Income Fund commenced trading with the launch of the Class A Accumulating, Class A Distributing, Class D Accumulating, Class D Distributing, Class X Accumulating, Class Z Accumulating and Class Z Distributing.
The BlackRock Diversified Distribution Fund fully redeemed on 7 July 2017.
On 10 August 2017, an updated prospectus was issued for the Fund to facilitate the following changes: ? Inclusion of Class A units for BlackRock Global Equity Selection Fund, BlackRock Fixed Income Selection Fund, BlackRock
Multi Asset Conservative Selection Fund and BlackRock Defensive Yield Fund. ? Revision of list of and information for Directors of the Fund. ? Inclusion of new disclosure regarding the European Union ("EU") Benchmarks Regulation.
On 15 September 2017, Castlewood Corporate Services Limited trading as Chartered Corporate Services ("CCS"), the Secretary of the Manager, changed its name from CCS to Sanne Corporate Administration Services Ireland Limited.
On 6 October 2017, an updated prospectus was issued for the Fund to facilitate the following changes: ? Inclusion of BlackRock Emerging Markets Alpha Tilts Fund. ? Updating of the investment policies for BlackRock Global Equity Selection Fund, BlackRock Fixed Income Selection Fund,
BlackRock Diversified Strategies Selection Fund, BlackRock Multi Asset Balanced Selection Fund and BlackRock Multi Asset Conservative Selection Fund to permit securities lending by these Sub-Funds. ? Updating of subscription fee details for certain unit classes of certain Sub-Funds. ? Revision of the definition of "Accumulating Classes" and "Distributing Classes". ? Inclusion of new risk factor with respect to capital gains tax regulation in Brazil. ? Updating of risk factors with respect to sanctions against certain issuers in Russia.
On 12 December 2017, BlackRock Emerging Markets Alpha Tilts Fund commenced trading with the launch of the Class D Accumulating, Class Z Accumulating, Institutional Accumulating Unit Class and Flexible Accumulating Unit Class.
In accordance with new rules effective January 2018 pursuant to EU Directive 2014/65/EU on markets in financial instruments referred to as "MiFID II", any external research received by the Investment Manager in connection with investment services that the Investment Manager provides to the Sub-Funds will be paid for by the Investment Manager out of its own resources.
3
BLACKROCK UCITS FUNDS
BACKGROUND (continued)
Changes to the Fund during the year (continued)
On 1 February 2018, an updated prospectus was issued for the Fund to facilitate the following changes: ? Inclusion of BlackRock Emerging Markets Equity Impact Fund. ? In relation to BlackRock Mix Fonds 1, updating to reflect that the Investment Manager will use the commitment approach instead
of Relative VaR, to monitor and manage the global exposure of the Sub-Fund. ? Inclusion of information relating to the authorised intermediaries under the "Important Information" section. ? Inclusion of updates in relation to EU Directive 2014/65/EU on markets in financial instruments ("MiFID II"). ? Updating of risk factors with respect to MiFID II Risk. ? Inclusion of a definition for "Class D Units". ? Amendment of the criteria for "Typical Investor" from Retail and Institutional to Retail and Professional. ? Revision of the disclosures in relation to Conflicts of Interest.
On 28 February 2018, BlackRock Emerging Markets Equity Impact Fund commenced trading with the launch of the Class A Accumulating and Flexible Accumulating Unit Class.
Changes to the Board of Directors of the Manager
With effect from 1 June 2017, Linda Silcock was appointed as a non-executive Director of the Manager.
With effect from 6 June 2017, Patrick Boylan was appointed as a non-executive Director of the Manager.
Potential implications of Brexit
In a referendum held on 23 June 2016, the electorate of the United Kingdom ("UK") resolved to leave the EU. The result has led to political instability and economic uncertainty, volatility in the financial markets of the UK and more broadly across the EU.
The longer term process to implement the political, economic and legal framework between the UK and the EU is likely to lead to continuing uncertainty and periods of exacerbated volatility in both the UK and in wider European markets. In particular, the decision made in the British referendum may lead to a call for similar referendums in other European jurisdictions which may also cause increased economic volatility in wider European and global markets. The potential currency volatility resulting from this uncertainty may mean that the returns of a Sub-Fund and its investments are adversely affected by market movements. This may also make it more difficult, or more expensive, for a Sub-Fund to execute prudent currency hedging policies.
This mid to long term uncertainty may have an adverse effect on the economy generally and on the ability of a Sub-Fund and its investments to execute their respective strategies and to receive attractive returns, and may also result in increased costs to a SubFund.
Total expense ratio
The total expense ratio ("TER") shown below expresses the sum of all fees, operating costs and expenses, with the exception of direct trading costs and the performance fees (where applicable), charged to each Sub-Fund's assets as a percentage of the average Sub-Fund assets based on a twelve month period ended 31 March 2018.
Sub-Fund name BlackRock Customised Euro Non-Sovereign Bond Index Fund 11 BlackRock Diversified Distribution Fund1/2 BlackRock Emerging Markets Sovereign Screened Bond Fund BlackRock Euro Sovereign Bond Index Fund 11 BlackRock Mix Fonds 11 BlackRock Mix Fonds 21 BlackRock Mix Fonds 31 BlackRock Mix Fonds 41 BlackRock Mix Fonds 51 BlackRock Multi Style Strategy Fund BlackRock Developed Markets Sovereign Screened Bond Fund
BlackRock Diversified Strategies Selection Fund1
BlackRock Dynamic Allocation Fund1
Class of the Sub-Fund
EUR - Institutional Accumulating Unit Class
EUR - Institutional Distributing Unit Class
EUR - Flexible Distributing Unit Class
EUR - Institutional Accumulating Unit Class Class R Accumulating Class R Accumulating Class R Accumulating Class R Accumulating Class R Accumulating Class U Accumulating EUR - Flexible Accumulating Unit Class EUR - Flexible Distributing Unit Class Class D Accumulating Class E Accumulating Flexible Accumulating Unit Class Institutional Accumulating Unit Class
31 March 2018 TER (%)
0.09
0.25
0.27
0.07 0.42 0.26 0.26 0.28 0.30 1.00 0.11 0.11 1.12 2.42 0.16 0.53
1Includes operating costs and expenses of the underlying Sub-Fund investments. 2TER is annualised.
4
BLACKROCK UCITS FUNDS
BACKGROUND (continued)
Total expense ratio (continued)
Sub-Fund name BlackRock Euro Cash Fund1 BlackRock Fixed Income Selection Fund1 BlackRock Global Equity Selection Fund1 BlackRock Multi Asset Balanced Selection Fund1 BlackRock Multi Asset Conservative Selection Fund1 BlackRock UK Credit Screened Fund1
BlackRock Defensive Yield Fund1/2
BlackRock Emerging Markets Alpha Tilts Fund2 BlackRock Emerging Markets Equity Impact Fund2/3
BlackRock UK Equity Income Fund1/2
Class of the Sub-Fund Class D Accumulating Class E Accumulating Class D Accumulating Class E Accumulating Class D Accumulating Class E Accumulating Class D Accumulating Class E Accumulating Class D Accumulating Class E Accumulating Flexible Accumulating Unit Class Flexible Distributing Unit Class Class D Accumulating Class D CHF Hedged Accumulating Class D Distributing Class Z Accumulating Class Z CHF Hedged Accumulating Flexible Accumulating Unit Class Class D Accumulating Class Z Accumulating Flexible Accumulating Unit Class Institutional Accumulating Unit Class Class A Accumulating Flexible Accumulating Unit Class Class A Accumulating Class A Distributing Class D Accumulating Class D Distributing Class X Accumulating Class Z Accumulating Class Z Distributing
31 March 2018 TER (%) 0.30 0.35 0.66 1.71 1.00 2.70 0.85 2.35 0.71 1.96 0.02 0.02 0.24 0.23 0.23 0.19 0.19 0.03 0.94 0.73 0.12 0.74 n/a 0.19 1.51 1.51 0.77 0.77 0.08 0.57 0.57
1Includes operating costs and expenses of the underlying Sub-Fund investments. 2TER is annualised. 3TER is not available. The unit class launched on 28 February 2018.
Transactions with Connected Parties
In accordance with the requirements of the CBI, the Manager shall ensure that any transactions carried out between the Sub-Funds and the Manager or Depositary to the Sub-Funds, the delegates or sub-delegates of the Manager or Depositary (excluding any non-group company sub-custodian appointed by a Depositary) and any associated or Group company of the Manager, Depositary, delegate or sub-delegate ("Connected Parties") must be conducted at arm's length and in the best interests of the unitholders.
The Board of Directors of the Manager are satisfied that there are arrangements in place, evidenced by written procedures, to ensure that the obligations set out above are applied to all transactions with Connected Parties and that transactions with Connected Parties entered into during the year complied with this obligation.
5
BLACKROCK UCITS FUNDS
INVESTMENT MANAGER'S REPORT INVESTMENT OBJECTIVE BlackRock Customised Euro Non-Sovereign Bond Index Fund 1
The BlackRock Customised Euro Non-Sovereign Bond Index Fund 1's investment objective is to provide a total return, taking into account both capital and income returns, which reflects the return of the Bloomberg Barclays Euro Aggregate ex Treasury-Custom Exclusions Index. BlackRock Diversified Distribution Fund
The BlackRock Diversified Distribution Fund's investment objective was to seek to provide investors with an annual income as well as a total return over the long term, through investment in a diversified portfolio of fixed income securities and, to a limited extent, equity securities. BlackRock Emerging Markets Sovereign Screened Bond Fund
The BlackRock Emerging Markets Sovereign Screened Bond Fund's investment objective is to seek to provide investors with diversified exposure primarily to emerging market government bond markets globally. BlackRock Euro Sovereign Bond Index Fund 1
The BlackRock Euro Sovereign Bond Index Fund 1's investment objective is to provide a total return, taking into account both capital and income returns which, reflects the return of the Bloomberg Barclays Euro Aggregate Treasury Bond Index. BlackRock Mix Fonds 1
The BlackRock Mix Fonds 1's investment objective is to seek to achieve capital growth over the long term commensurate with the target risk profile of the Sub-Fund in respect of its asset allocation. BlackRock Mix Fonds 2
The BlackRock Mix Fonds 2's investment objective is to seek to achieve capital growth over the long term commensurate with the target risk profile of the Sub-Fund in respect of its asset allocation. BlackRock Mix Fonds 3
The BlackRock Mix Fonds 3's investment objective is to seek to achieve capital growth over the long term commensurate with the target risk profile of the Sub-Fund in respect of its asset allocation. BlackRock Mix Fonds 4
The BlackRock Mix Fonds 4's investment objective is to seek to achieve capital growth over the long term commensurate with the target risk profile of the Sub-Fund in respect of its asset allocation. BlackRock Mix Fonds 5
The BlackRock Mix Fonds 5's investment objective is to seek to achieve capital growth over the long term commensurate with the target risk profile of the Sub-Fund in respect of its asset allocation. BlackRock Multi Style Strategy Fund
The BlackRock Multi Style Strategy Fund's investment objective is to achieve an absolute return for investors regardless of market movements over the targeted investment horizon. BlackRock Developed Markets Sovereign Screened Bond Fund
The BlackRock Developed Markets Sovereign Screened Bond Fund's investment objective is to seek to provide investors with diversified exposure primarily to developed government bond markets globally. BlackRock Diversified Strategies Selection Fund
The BlackRock Diversified Strategies Selection Fund's investment objective is to seek to provide investors with an absolute return over the targeted investment horizon with limited correlation to market movements.
6
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