Fixed Income ETFs

Fixed Income ETFs

New Asset Class, Same Benefits

August 2016

FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR PUBLIC DISTRIBUTION iS-19074-0916

Why ETFs for Fixed Income?

1 Managing Costs is Critical ? What's Left for the Investor? 2 Bonds can be Hard to Find 3 Fixed Income ETFs can Help Fill the Void

FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR PUBLIC DISTRIBUTION iS-19074-0916

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1 Managing Costs is Critical ? What's Left for the Investor?

The Fixed Income Challenge

0.53%*

+

1.02%^

Avg Core Bond Expense Ratio

Advisory Fee

= 1.55%

Breakeven Bond Return

Dwindling Bond Returns Leave Less for the Investor*

Total return of the Bar Cap Agg. by decade

12.8%

= 1.55% fees

= What's left for the investor

7.9%

6.4%

3.8%

3.0%

1980s

1990s

2000s

2010s

2016 YTD

Source: *Morningstar as of 7/31/16. Average mutual fund net expense ratio is represented by the average of the US Intermediate Bond Fund category ? institutional shares class only. as constituted by Morningstar. Average bond returns calculated based off of annual returns of the Barclays Aggregate TR Index. ^ Source: Price Metrix as of 4/30/2016 average annual fee charged by advisors across the U.S. Index returns are for illustrative purposes only. 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 is no guarantee of future results.

FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR PUBLIC DISTRIBUTION iS-19074-0916

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2 Bonds can be Hard to Find

Volker Rule and Basel III have reduced broker inventory New investment grade bond issues are 3x oversubscribed 80% of large corporate bonds don't trade daily

Inventory is Down ? It's Harder to Find Bonds

250

Primary Dealer Inventory ($bn)

200

150

100

50

-

2002

2004

2006

Corp (Before 4/1/2013) RMBS

2008

2010

CMBS Commerical Paper High Yield

2012

Inv Grade

Inventory based on Federal Reserve Bank of New York, Barclays, as of 6/30/2015. FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR PUBLIC DISTRIBUTION iS-19074-0916

2014

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3 Fixed Income ETFs can Help Fill the Void

Fixed Income is the Fastest Growing Category in ETFs

$400

Fixed Income ETF AUM

($ Billion)

$300

+40%

$200

Annualized Growth

$100

$0

2002

Broad Market

2005

US Treasury

2008

Investment Grade Credit

2011

High Yield

2014

Municipal

Other

Portfolio Construction

Advisors Are Using ETFs More than Ever

Liquidity Management

Tactical Asset Allocation

Diversification

Source: BlackRock and Bloomberg as of 3/31/2016

FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR PUBLIC DISTRIBUTION iS-19074-0916

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