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
For financial professional use only – not to be shown or distributed to clients 5 USR-8788
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
For financial professional use only – not to be shown or distributed to clients 6 USR-8788
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
For financial professional use only – not to be shown or distributed to clients 7 USR-8788
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%
For financial professional use only – not to be shown or distributed to clients 9 USR-8788
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)
For financial professional use only – not to be shown or distributed to clients 10 USR-8788
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
For financial professional use only – not to be shown or distributed to clients 11 USR-8788
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
For financial professional use only – not to be shown or distributed to clients 13 USR-8788
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
For financial professional use only – not to be shown or distributed to clients 14 USR-8788
Breaking Even
The Math: Why Limiting Volatility (Downside Risk) is so Important
Source: BlackRock. Past performance does not guarantee or indicate future results.
-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
For financial professional use only – not to be shown or distributed to clients 15 USR-8788
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%
For financial professional use only – not to be shown or distributed to clients 16 USR-8788
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
For financial professional use only – not to be shown or distributed to clients 19 USR-8788
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
For financial professional use only – not to be shown or distributed to clients 20 USR-8788
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
For financial professional use only – not to be shown or distributed to clients 21 USR-8788
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 %
For financial professional use only – not to be shown or distributed to clients 22 USR-8788
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.
For financial professional use only – not to be shown or distributed to clients 23 USR-8788
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%.
For financial professional use only – not to be shown or distributed to clients 24 USR-8788
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.
For financial professional use only – not to be shown or distributed to clients 25 USR-8788
Total Return 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
(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.
For financial professional use only – not to be shown or distributed to clients 26 USR-8788
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
Overall Morningstar Rating
(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.
For financial professional use only – not to be shown or distributed to clients 27 USR-8788
National Municipal 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
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
Overall Morningstar Rating
(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.
For financial professional use only – not to be shown or distributed to clients 28 USR-8788
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.
For financial professional use only – not to be shown or distributed to clients 29 USR-8788
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%
For financial professional use only – not to be shown or distributed to clients 30 USR-8788
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.
For financial professional use only – not to be shown or distributed to clients 31 USR-8788
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
For financial professional use only – not to be shown or distributed to clients 32 USR-8788
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
For financial professional use only – not to be shown or distributed to clients 33 USR-8788
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%
For financial professional use only – not to be shown or distributed to clients 34 USR-8788
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
5-Year Return Risk +14.33%
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
25-Year Return Risk +10.27%
14.48 +9.37%
8.69
Downside
Max Drawdown -50.95% -33.31%
For financial professional use only – not to be shown or distributed to clients 35 USR-8788
What’s the Optimal Upside / Downside Capture Ratio?
Assumes same upside / downside capture ratio
Source: BlackRock. Past performance does not guarantee or indicate future results.
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
For financial professional use only – not to be shown or distributed to clients 36 USR-8788
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.
For financial professional use only – not to be shown or distributed to clients 37 USR-8788
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)
Source: Morningstar as of 12/31/15.
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)
For financial professional use only – not to be shown or distributed to clients 38 USR-8788
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)
Source: Morningstar as of 12/31/15.
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)
For financial professional use only – not to be shown or distributed to clients 39 USR-8788
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
For financial professional use only – not to be shown or distributed to clients 40 USR-8788