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INTERIM REPORT AND UNAUDITED FINANCIAL STATEMENTSiSHARES IV PLC
FOR THE PERIOD FROM 1 JUNE 2016
TO 30 NOVEMBER 2016
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iSHARES IV PLC
i S H A R E S I V P L C I N T E R I M R E P O R T [ 1 ]
Contents
General information 3
Background 5
Half yearly management report
Investment Manager’s report 11
Financial instruments and risks 22
Significant related party transactions 39
Financial Statements
Unaudited financial statements of the Company
Condensed income statement 42
Condensed statement of changes in net assets attributable to redeemable participating shareholders 42
Condensed balance sheet 43
Notes to the unaudited financial statements of the Company 44
Unaudited condensed Fund primary statements, schedules of investments, schedules of material purchases and sales, and notes
iShares $ Short Duration Corp Bond UCITS ETF 46
iShares $ Short Duration High Yield Corp Bond UCITS ETF 70
iShares $ Treasury Bond 20+yr UCITS ETF 84
iShares $ Ultrashort Bond UCITS ETF 89
iShares € Govt Bond 20yr Target Duration UCITS ETF 98
iShares € Ultrashort Bond UCITS ETF 102
iShares £ Ultrashort Bond UCITS ETF 112
iShares Ageing Population UCITS ETF 119
iShares Automation & Robotics UCITS ETF 127
iShares Digitalisation UCITS ETF 134
iShares Edge MSCI Europe Momentum Factor UCITS ETF 141
iShares Edge MSCI Europe Multifactor UCITS ETF 148
iShares Edge MSCI Europe Quality Factor UCITS ETF 155
iShares Edge MSCI Europe Size Factor UCITS ETF 162
iShares Edge MSCI Europe Value Factor UCITS ETF 171
iShares Edge MSCI USA Momentum Factor UCITS ETF 178
iShares Edge MSCI USA Multifactor UCITS ETF 184
iShares Edge MSCI USA Quality Factor UCITS ETF 190
iShares Edge MSCI USA Size Factor UCITS ETF 196
iShares Edge MSCI USA Value Factor UCITS ETF 204
iShares Edge MSCI World Momentum Factor UCITS ETF 210
iShares Edge MSCI World Multifactor UCITS ETF 221
iShares Edge MSCI World Quality Factor UCITS ETF 233
iShares Edge MSCI World Size Factor UCITS ETF 243
iShares Edge MSCI World Value Factor UCITS ETF 263
iShares Fallen Angels High Yield Corp Bond UCITS ETF 274
iShares Healthcare Innovation UCITS ETF 284
iShares iBonds Sep 2018 $ Corp UCITS ETF 291
iShares MSCI China A UCITS ETF 302
iShares MSCI EM SRI UCITS ETF 312
iShares MSCI EMU Large Cap UCITS ETF 320
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iSHARES IV PLC
[ 2 ] i S H A R E S I V P L C I N T E R I M R E P O R T
Contents (continued)
Financial Statements (continued)
Unaudited condensed Fund primary statements, schedules of investments, schedules of material purchases and sales,
and notes (continued):
iShares MSCI EMU Mid Cap UCITS ETF 327
iShares MSCI France UCITS ETF 334
iShares MSCI Japan SRI EUR Hedged UCITS ETF (Acc) 339
iShares MSCI USA SRI UCITS ETF 344
iShares TA-25 Israel UCITS ETF 350
iShares US Equity Buyback Achievers UCITS ETF 354
iShares US Mortgage Backed Securities UCITS ETF 360
Notes to the unaudited financial statements of the Funds 365
Supplementary Information 371
Glossary 387
Disclaimers 388
This interim report and unaudited 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 shares 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.
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iSHARES IV PLC
i S H A R E S I V P L C I N T E R I M R E P O R T [ 3 ]
General information
Board of Directors1 Sub-Investment Managers2
Paul McNaughton (Chairman) (Irish) BlackRock Financial Management Inc.
Paul McGowan (Irish) 40 East 52nd Street
Barry O’Dwyer (Irish) New York
Karen Prooth (British) NY 10022
Teresa O’Flynn (Irish) United States
Audit Committee Members BlackRock (Singapore) Limited
Paul McGowan (Chairman) 20 Anson Road
Paul McNaughton #18-01
Singapore 079912
Nomination Committee Members Singapore
Paul McNaughton (Chairman)
Paul McGowan Depositary
Barry O'Dwyer State Street Custodial Services (Ireland) Limited
78 Sir John Rogerson’s Quay
Manager Dublin 2
BlackRock Asset Management Ireland Limited Ireland
J.P. Morgan House
International Financial Services Centre PRC Sub-Custodian3
Dublin 1 The Hong Kong and Shanghai Banking Corporation Limited
Ireland 1 Queen's Road Central
Hong Kong
Administrator China
State Street Fund Services (Ireland) Limited
78 Sir John Rogerson’s Quay RQFII Custodian3
Dublin 2 HSBC Bank (China) Co Ltd
Ireland 33th Floor, HSBC Building
Shanghai ifc
Registrar 8 Century Avenue
State Street Fund Services (Ireland) Limited Pudong
78 Sir John Rogerson’s Quay Shanghai
Dublin 2 China 200120
Ireland
Registered office of the Company
Company Secretary J.P. Morgan House
Sanne International Financial Services Centre
Fourth Floor Dublin 1
76 Lower Baggot Street Ireland
Dublin 2
Ireland
Legal Advisors to the Company
Investment Manager and Promoter William Fry
BlackRock Advisors (UK) Limited 2 Grand Canal Square
12 Throgmorton Avenue Dublin 2
London EC2N 2DL Ireland
England
1 All Directors are non-executive Directors. 2 The Investment Manager has sub-delegated the investment decision making in respect of iShares $ Short Duration Corp Bond UCITS ETF, iShares $ Short Duration High Yield Corp Bond UCITS ETF, iShares $ Treasury Bond 20+yr UCITS ETF, iShares $ Ultrashort Bond UCITS ETF, iShares € Govt Bond 20yr Target Duration UCITS ETF, iShares € Ultrashort Bond UCITS ETF, iShares £ Ultrashort Bond UCITS ETF, iShares Fallen Angels High Yield Corp Bond UCITS ETF, iShares iBonds Sep 2018 $ Corp UCITS ETF and iShares US Mortgage Backed Securities UCITS ETF. 3 PRC Sub-Custodian and RQFII Custodian relate to iShares MSCI China A UCITS ETF only.
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iSHARES IV PLC
[ 4 ] i S H A R E S I V P L C I N T E R I M R E P O R T
General information (continued)
Independent Auditors Paying Agent in Switzerland
PricewaterhouseCoopers State Street Bank International GmbH
Chartered Accountants and Registered Auditors Munich, Zurich Branch
One Spencer Dock Beethovenstrasse 19
North Wall Quay CH-8027 Zurich
Dublin 1 Switzerland
Ireland
German Paying and Information Agent
Representative in Switzerland Commerzbank AG
BlackRock Asset Management Schweiz AG Theodor-Heuss-Allee 50
Bahnhofstrasse 39 60486 Frankfurt am Main
8001 Zurich Germany
Switzerland
Austrian Paying and Information Agent
Paying Agent UniCredit Bank Austria AG
Citibank N.A., London Branch Attn: 8398/Custody
Citigroup Centre Julius Tandler Platz 3
25 Canada Square 1090 Vienna
Canary Wharf Austria
London E14 5LB
England
The Company is duly registered with the Comisión Nacional de Mercado de Valores in Spain under number 1042.
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iSHARES IV PLC
Background
i S H A R E S I V P L C I N T E R I M R E P O R T [ 5 ]
iShares IV public limited company (the "Company") is organised as an open-ended investment Company with variable capital. The Company was
incorporated in Ireland on 3 July 2009 with limited liability and segregated liability between its Funds and is organised under the laws of Ireland
as a Public Limited Company (“plc”) pursuant to the Companies Act 2014 and the European Communities (Undertaking in Collective Investment
in Transferable Securities) Regulations, 2011 (as amended) (the "UCITS Regulations") and is regulated by the Central Bank of Ireland (the "CBI").
The Company is structured as an umbrella Fund and comprises separate Funds (“Funds”) of the Company.
The term “Fund” shall be deemed to mean either a Fund of the Company, or if the context so requires, the Manager or its delegate acting for the
account of the relevant Fund. The term “BlackRock” is used to represent BlackRock Advisors (UK) Limited. The investment objectives and
policies of each Fund are set out in the prospectus and the relevant supplemental prospectus.
Changes to the Company
The TER discount applied to iShares $ Ultrashort Bond UCITS ETF, iShares £ Ultrashort Bond UCITS ETF and iShares € Ultrashort Bond UCITS
ETF was permanently discounted to 0.09% from 6 June 2016.
iShares Fallen Angels High Yield Corp Bond UCITS ETF launched on 22 June 2016. This was reflected in the addendum to the prospectus that
was issued on 22 June 2016.
In response to the CBI publishing the Central Bank (Supervision and Enforcement) Act, 2013 (Section 48(1)) Investor Money Regulations 2015 for
Fund Service Providers (the “Investor Money Regulations” or “IMR”) in March 2015 (effective from 1 July 2016), the Manager undertook, together
with State Street Custodial Services (Ireland) Limited, a review of the way in which subscription, distribution and redemption monies are
channelled to and from the Company.
As a result of this review, subscription and redemption monies will (effective from 23 May 2016), be channelled through an umbrella cash
collection account in the name of the Company, and in respect of any Funds considered to be highly leveraged, Fund cash collection accounts in
the name of the relevant Fund(s). Pending issue of the Shares and /or payment of subscription proceeds to an account in the name of the
Company or the relevant Fund(s), and pending payment of redemption proceeds or distributions, the relevant investor will be an unsecured
creditor of the relevant Fund in respect of amounts paid by or due to it. An Addendum issued on 4 July 2016 includes this change. For the
avoidance of doubt, none of the Funds of the Company are considered highly leveraged.
iShares Sustainable MSCI Emerging Markets SRI UCITS ETF and iShares Sustainable MSCI USA SRI UCITS ETF launched on 11 July 2016. On 22
November 2016, the Fund names changed to iShares MSCI EM SRI UCITS ETF and iShares MSCI USA SRI UCITS ETF respectively.
iShares Ageing Population UCITS ETF, iShares Automation & Robotics UCITS ETF, iShares Digitalisation UCITS ETF and iShares Healthcare
Innovation UCITS ETF launched on 12 September 2016.
On 14 September 2016, the Brazilian Tax Authorities issued Normative Instruction 1658/16 amending the list of countries considered to be ‘low
tax jurisdictions’ to include Curacao, Saint Martin and Ireland and exclude the Netherlands Antilles and Saint Kitts and Nevis. The changes are
effective from 1 October 2016 onwards. As a consequence, Brazilian Capital Gains Tax (“CGT”) and increased income withholding tax (“WHT”)
rates on interest on capital distributions will apply to the Brazilian securities held in the following Funds, iShares MSCI EM SRI UCITS ETF,
iShares Automation & Robotics UCITS ETF, iShares Ageing Population UCITS ETF, and iShares Digitalisation UCITS ETF. From 1 October
onwards, capital gains are subject to CGT, which is currently being accounted for through a levy on primary market redemptions, as permitted
under the “Duties and Charges” definition within the prospectus.
iShares Edge MSCI USA Momentum Factor UCITS ETF, iShares Edge MSCI USA Quality Factor UCITS ETF, iShares Edge MSCI USA Size Factor
UCITS ETF and iShares Edge MSCI USA Value Factor UCITS ETF launched on 14 October 2016.
On 2 November 2016, the Board of Directors of the Company notified shareholders of their intention to launch multiple share classes within
most of the existing Funds of the Company and also other Funds across the Irish iShares range and an amendment to the definition of ‘Duties
and Charges’.
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iSHARES IV PLC
Background (continued)
[ 6 ] i S H A R E S I V P L C I N T E R I M R E P O R T
Changes to the Company (continued)
The following name changes to the Funds and changes to benchmark index names as detailed below were effective from 22 November 2016.
Existing Fund Name New Fund Name
iShares $ Short Duration Corporate Bond UCITS ETF iShares $ Short Duration Corp Bond UCITS ETF
iShares $ Short Duration High Yield Corporate Bond UCITS ETF iShares $ Short Duration High Yield Corp Bond UCITS ETF
iShares Euro Government Bond 20yr Target Duration UCITS ETF iShares € Govt Bond 20yr Target Duration UCITS ETF
iShares Euro Ultrashort Bond UCITS ETF iShares € Ultrashort Bond UCITS ETF
iShares Fallen Angels High Yield Corporate Bond UCITS ETF iShares Fallen Angels High Yield Corp Bond UCITS ETF
iShares iBonds Sep 2018 USD Corporate UCITS ETF iShares iBonds Sep 2018 $ Corp UCITS ETF
iShares Sustainable MSCI Emerging Markets SRI UCITS ETF iShares MSCI EM SRI UCITS ETF
iShares Sustainable MSCI Japan SRI EUR Hedged UCITS ETF iShares MSCI Japan SRI EUR Hedged UCITS ETF (Acc)
iShares Sustainable MSCI USA SRI UCITS ETF iShares MSCI USA SRI UCITS ETF
Fund Benchmark Name Updated Benchmark Name
iShares $ Treasury Bond 20+yr UCITS ETF Barclays U.S. 20+ Year Treasury Bond Index ICE U.S. Treasury 20+ Years Bond Index
iShares Fallen Angels High Yield Corp
Bond UCITS ETF
Barclays Global Corporate ex EM Fallen
Angels 3% Issuer Capped Index
Bloomberg Barclays Global Corporate ex
EM Fallen Angels 3% Issuer Capped Index
iShares iBonds Sep 2018 $ Corp
UCITS ETF
Barclays September 2018 Maturity
US Corporate Index
Bloomberg Barclays September 2018
Maturity US Corporate Index
iShares US Mortgage Backed Securities
UCITS ETF
Barclays US Mortgage Backed
Securities Index
Bloomberg Barclays US Mortgage
Backed Securities Index
The prospectus previously stated that the TERs of iShares € Ultrashort Bond UCITS ETF, iShares $ Ultrashort Bond UCITS ETF and iShares $
Ultrashort Bond UCITS ETF were reduced temporarily. This change has been made permanent from 22 November 2016 and the TERs have
decreased from 0.20% to 0.09%. On 22 November 2016, a revised prospectus was issued to reflect the changes listed above.
As of 18 November 2016, the Company Secretary changed from Chartered Corporate Services, Taney Hill, Eglinton Terrace, Dundrum, Dublin 14
to Sanne, Fourth Floor, 76 Lower Baggot Street, Dublin 2.
Securities Financing Transactions Regulation (Regulation (EU) 2015/2365) (“SFTR”) came into force on 12 January 2016 and, amongst other
requirements, introduces new disclosure requirements in the Funds' annual and half-yearly reports published after 13 January 2017 detailing
the Funds’ use of securities financing transactions and total return swaps ("TRS"). As a result, additional disclosures have been included in the
Supplementary Information section to the Interim Report.
Brexit
In a United Kingdom (“UK”) referendum held on 23 June 2016, the electorate of the UK resolved to leave the European Union. For further details
on the possible impact of the results of the referendum please refer to the Investment Manager’s report and the Financial Instruments and
Risk: Market Risk section.
Renminbi qualified foreign institutional investor
Under current law issued from the Peoples Republic of China (“PRC”) and subject to minor exceptions, investors based in certain jurisdictions
outside the PRC may apply to the China Securities Regulatory Commission (“CSRC”) for status as a Renminbi Qualified Foreign Institutional
Investor (“RQFII”). Once an entity is licensed as a RQFII, it will be eligible to apply for a certain amount of RQFII Quota (investment quota issued
by China’s State Administration of Foreign Exchange (“SAFE”) to invest directly in China A Shares).
The Investment Manager has been licensed as a RQFII and as at 11 March 2015 has been granted an allocation of RQFII Quota for allocation
across multiple funds under its management.
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iSHARES IV PLC
Background (continued)
i S H A R E S I V P L C I N T E R I M R E P O R T [ 7 ]
Renminbi qualified foreign institutional investor (continued)
The capacity of iShares MSCI China A UCITS ETF to make investments in China A shares depends on several factors, including sufficient RQFII
Quota being granted by SAFE to the Investment Manager (including any additional RQFII Quota when needed) and allocated by the Investment
Manager for use by the Fund, as well as the ability of the Investment Manager to maintain its RQFII Licence. The Investment Manager has the
flexibility to allocate its RQFII Quota across multiple funds under its management from time to time. As such, the Fund will not have exclusive
use of a specified amount of RQFII Quota and will rely on the Investment Manager’s management and allocation of such quota between different
Funds.
Fund Details
There were 38 Funds in operation at 30 November 2016. The investment objective of the Funds is to provide investors with a total return, taking
into account the capital and income returns, which reflect the total returns of the respective benchmark listed in the table below:
Fund Benchmark Index
Investment Management Approach*
iShares $ Short Duration Corp Bond UCITS ETF Markit iBoxx USD Liquid Investment Grade 0-5 Index Non-replicating
iShares $ Short Duration High Yield Corp Bond UCITS ETF Markit iBoxx USD Liquid High Yield 0-5 Capped Index Non-replicating
iShares $ Treasury Bond 20+yr UCITS ETF** ICE U.S. Treasury 20+ Years Bond Index Non-replicating
iShares $ Ultrashort Bond UCITS ETF Markit iBoxx USD Liquid Investment Grade Ultrashort Index Non-replicating
iShares € Govt Bond 20yr Target Duration UCITS ETF Markit iBoxx EUR Eurozone 20yr Target Duration Index Non-replicating
iShares € Ultrashort Bond UCITS ETF Markit iBoxx EUR Liquid Investment Grade Ultrashort Index Non-replicating
iShares £ Ultrashort Bond UCITS ETF Markit iBoxx GBP Liquid Investment Grade Ultrashort Index Non-replicating
iShares Ageing Population UCITS ETF iSTOXX® FactSet Ageing Population Index Non-replicating
iShares Automation & Robotics UCITS ETF iSTOXX® FactSet Automation & Robotics Index Non-replicating
iShares Digitalisation UCITS ETF iSTOXX® FactSet Digitalisation Index Non-replicating
iShares Edge MSCI Europe Momentum Factor UCITS ETF MSCI Europe Momentum Index Non-replicating
iShares Edge MSCI Europe Multifactor UCITS ETF MSCI Europe Diversified Multiple-Factor Index Non-replicating
iShares Edge MSCI Europe Quality Factor UCITS ETF MSCI Europe Sector Neutral Quality Index Non-replicating
iShares Edge MSCI Europe Size Factor UCITS ETF MSCI Europe Mid-Cap Equal Weighted Index Non-replicating
iShares Edge MSCI Europe Value Factor UCITS ETF MSCI Europe Enhanced Value Index Non-replicating
iShares Edge MSCI USA Momentum Factor UCITS ETF MSCI USA Momentum Index Non-replicating
iShares Edge MSCI USA Multifactor UCITS ETF MSCI USA Diversified Multiple-Factor Index Non-replicating
iShares Edge MSCI USA Quality Factor UCITS ETF MSCI USA Sector Neutral Quality Index Non-replicating
iShares Edge MSCI USA Size Factor UCITS ETF MSCI USA Mid-Cap Equal Weighted Index Non-replicating
iShares Edge MSCI USA Value Factor UCITS ETF MSCI USA Enhanced Value Index Non-replicating
iShares Edge MSCI World Momentum Factor UCITS ETF MSCI World Momentum Index Non-replicating
iShares Edge MSCI World Multifactor UCITS ETF MSCI World Diversified Multiple-Factor Index Non-replicating
iShares Edge MSCI World Quality Factor UCITS ETF MSCI World Sector Neutral Quality Index Non-replicating
iShares Edge MSCI World Size Factor UCITS ETF MSCI World Mid-Cap Equally Weighted Index Non-replicating
iShares Edge MSCI World Value Factor UCITS ETF MSCI World Enhanced Value Index Non-replicating
iShares Fallen Angels High Yield Corp Bond UCITS ETF** Bloomberg Barclays Global Corporate ex EM Fallen Angels Non-replicating
3% Issuer Capped Index
iShares Healthcare Innovation UCITS ETF iSTOXX® FactSet Breakthrough Healthcare Index Non-replicating
iShares iBonds Sep 2018 $ Corp UCITS ETF** Bloomberg Barclays September 2018 Maturity Non-replicating
US Corporate Index
iShares MSCI China A UCITS ETF MSCI China A International Index Non-replicating
iShares MSCI EM SRI UCITS ETF MSCI EM SRI Index Replicating
iShares MSCI EMU Large Cap UCITS ETF MSCI EMU Large Cap Index Replicating
* Please refer to the Investment Manager’s report for further information on the meaning of replicating and non-replicating Funds. ** Benchmark index name changed during the period.
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iSHARES IV PLC
Background (continued)
[ 8 ] i S H A R E S I V P L C I N T E R I M R E P O R T
Fund Details (continued)
Fund Benchmark Index
Investment Management Approach*
iShares MSCI EMU Mid Cap UCITS ETF MSCI EMU Mid Cap Index Replicating
iShares MSCI France UCITS ETF MSCI France Index Replicating
iShares MSCI Japan SRI EUR Hedged UCITS ETF (Acc) MSCI Japan SRI 100% Hedged to EUR Index Replicating
iShares MSCI USA SRI UCITS ETF MSCI USA SRI Index Replicating
iShares TA-25 Israel UCITS ETF TA-25 Net USD Index Replicating
iShares US Equity Buyback Achievers UCITS ETF Nasdaq US Buyback AchieversTM Select Index Non-replicating
iShares US Mortgage Backed Securities UCITS ETF** Bloomberg Barclays US Mortgage Backed Securities Index Non-replicating
* Please refer to the Investment Manager’s report for further information on replicating and non-replicating Funds. ** Benchmark index name changed during the period.
All figures relating to each Fund are shown in the relevant functional currency. The financial statements of the Company are presented in
British Pounds. These Funds are Exchange Traded Funds (“ETFs”), which provide the flexibility of a share with the diversification of a Fund. They
can be bought and sold like any other share listed on a stock exchange, but provide instant exposure to many companies or various financial
instruments relevant to the Fund and its benchmark index.
Stock exchange listings
The Company maintained a primary listing on the London Stock Exchange (“LSE”).
As at 30 November 2016, the Funds are listed and traded on the following exchanges:
Fund Base
Currency*
London Stock
Exchange Borsa Italiana
Deutsche Börse**
NYSE Euronext Amsterdam
SIX Swiss
Exchange
iShares $ Short Duration Corp Bond UCITS ETF $ � - � � �
iShares $ Short Duration High Yield Corp Bond UCITS ETF $ � � � � �
iShares $ Treasury Bond 20+yr UCITS ETF $ � - � - �
iShares $ Ultrashort Bond UCITS ETF $ � - � � �
iShares € Govt Bond 20yr Target Duration UCITS ETF € � - � - �
iShares € Ultrashort Bond UCITS ETF € � � � � �
iShares £ Ultrashort Bond UCITS ETF £ � - - - -
iShares Ageing Population UCITS ETF $ � � � - �
iShares Automation & Robotics UCITS ETF $ � � � - �
iShares Digitalisation UCITS ETF $ � � � - �
iShares Edge MSCI Europe Momentum Factor UCITS ETF € � � � - �
iShares Edge MSCI Europe Multifactor UCITS ETF € " � " - �
iShares Edge MSCI Europe Quality Factor UCITS ETF € � � � - �
iShares Edge MSCI Europe Size Factor UCITS ETF € � � � - �
iShares Edge MSCI Europe Value Factor UCITS ETF € � � � - �
iShares Edge MSCI USA Momentum Factor UCITS ETF $ � - � - �
iShares Edge MSCI USA Multifactor UCITS ETF $ " � " - �
iShares Edge MSCI USA Quality Factor UCITS ETF $ � - � - �
iShares Edge MSCI USA Size Factor UCITS ETF $ � - � - �
iShares Edge MSCI USA Value Factor UCITS ETF $ � - � - �
* All $, £ and € base currency Funds are denominated in United States Dollar, British Pound and Euro respectively. ** Funds trade on the Deutsche Börse Xetra XTF Funds Platform of the Frankfurt Stock Exchange.
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iSHARES IV PLC
Background (continued)
i S H A R E S I V P L C I N T E R I M R E P O R T [ 9 ]
Stock exchange listings (continued)
Fund Base
Currency*
London Stock
Exchange Borsa Italiana
Deutsche Börse**
NYSE Euronext Amsterdam
SIX Swiss
Exchange
iShares Edge MSCI World Momentum Factor UCITS ETF $ " � " - �
iShares Edge MSCI World Multifactor UCITS ETF $ � � � - �
iShares Edge MSCI World Quality Factor UCITS ETF $ � � � - �
iShares Edge MSCI World Size Factor UCITS ETF $ � � � - �
iShares Edge MSCI World Value Factor UCITS ETF $ � � � - �
iShares Fallen Angels High Yield Corp Bond UCITS ETF $ � � � - �
iShares Healthcare Innovation UCITS ETF $ � � � - �
iShares iBonds Sep 2018 $ Corp UCITS ETF $ � - - - -
iShares MSCI China A UCITS ETF $ � - � - �
iShares MSCI EM SRI UCITS ETF $ � - � - �
iShares MSCI EMU Large Cap UCITS ETF € � � � - �
iShares MSCI EMU Mid Cap UCITS ETF € � � � - �
iShares MSCI France UCITS ETF € � - � - �
iShares MSCI Japan SRI EUR Hedged UCITS ETF (Acc) € � - � - -
iShares MSCI USA SRI UCITS ETF $ � - � - �
iShares TA-25 Israel UCITS ETF $ " - � - �
iShares US Equity Buyback Achievers UCITS ETF $ � - � - �
iShares US Mortgage Backed Securities UCITS ETF $ � - � - �
* All $, £ and € base currency Funds are denominated in United States Dollar, British Pound and Euro respectively. ** Funds trade on the Deutsche Börse Xetra XTF Funds Platform of the Frankfurt Stock Exchange.
Transactions with connected parties
In accordance with the requirements of the CBI, the Manager shall ensure that any transactions carried out between the Funds and the
Manager or Depositary to the Funds, the delegates or sub-delegates of the Manager or Depositary (excluding any non-group company sub-
custodians 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 shareholders.
The board of directors of the Manager are satisfied that there are arrangements in place, as 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 period complied with this obligation.
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, charged to each Fund’s assets as a percentage of the average Fund assets based on a twelve month period ended 30 November 2016.
Fund Unaudited TER (%)
iShares $ Short Duration Corp Bond UCITS ETF 0.20
iShares $ Short Duration High Yield Corp Bond UCITS ETF 0.45
iShares $ Treasury Bond 20+yr UCITS ETF 0.20
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iSHARES IV PLC
Background (continued)
[ 1 0 ] i S H A R E S I V P L C I N T E R I M R E P O R T
Total expense ratio (continued)
Fund Unaudited TER (%)
iShares $ Ultrashort Bond UCITS ETF 0.09*
iShares € Govt Bond 20yr Target Duration UCITS ETF 0.15
iShares € Ultrashort Bond UCITS ETF 0.09*
iShares £ Ultrashort Bond UCITS ETF 0.09*
iShares Ageing Population UCITS ETF** 0.40
iShares Automation & Robotics UCITS ETF** 0.40
iShares Digitalisation UCITS ETF** 0.40
iShares Edge MSCI Europe Momentum Factor UCITS ETF 0.25
iShares Edge MSCI Europe Multifactor UCITS ETF 0.45
iShares Edge MSCI Europe Quality Factor UCITS ETF 0.25
iShares Edge MSCI Europe Size Factor UCITS ETF 0.25
iShares Edge MSCI Europe Value Factor UCITS ETF 0.25
iShares Edge MSCI USA Momentum Factor UCITS ETF** 0.20
iShares Edge MSCI USA Multifactor UCITS ETF 0.35
iShares Edge MSCI USA Quality Factor UCITS ETF** 0.20
iShares Edge MSCI USA Size Factor UCITS ETF** 0.20
iShares Edge MSCI USA Value Factor UCITS ETF** 0.20
iShares Edge MSCI World Momentum Factor UCITS ETF 0.30
iShares Edge MSCI World Multifactor UCITS ETF 0.50
iShares Edge MSCI World Quality Factor UCITS ETF 0.30
iShares Edge MSCI World Size Factor UCITS ETF 0.30
iShares Edge MSCI World Value Factor UCITS ETF 0.30
iShares Fallen Angels High Yield Corp Bond UCITS ETF** 0.50
iShares Healthcare Innovation UCITS ETF** 0.40
iShares iBonds Sep 2018 $ Corp UCITS ETF 0.10
iShares MSCI China A UCITS ETF 0.65
iShares MSCI EM SRI UCITS ETF** 0.35
iShares MSCI EMU Large Cap UCITS ETF 0.49
iShares MSCI EMU Mid Cap UCITS ETF 0.49
iShares MSCI France UCITS ETF 0.25
iShares MSCI Japan SRI EUR Hedged UCITS ETF (Acc) 0.35
iShares MSCI USA SRI UCITS ETF** 0.30
iShares TA-25 Israel UCITS ETF 0.60
iShares US Equity Buyback Achievers UCITS ETF 0.55
iShares US Mortgage Backed Securities UCITS ETF 0.28
* The TER for this Fund is permanently discounted from 0.20% to 0.09%, the TER shown is the effective TER. ** As this Fund launched during the period, the fees, operating costs and expenses used to calculate the TER have been annualised.
Unclaimed dividends
In accordance with the prospectus, any dividend which has remained unclaimed for twelve years from the date of its declaration shall be
forfeited and cease to remain owing by the Company to investors and become the property of the relevant Fund.
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iSHARES IV PLC
Half yearly management report
INVESTMENT MANAGER’S REPORT
i S H A R E S I V P L C I N T E R I M R E P O R T [ 1 1 ]
INVESTMENT OBJECTIVE
The investment objective of the Funds is to provide investors with a total return, taking into account the capital and income returns, which
reflect the total returns of the respective benchmark listed in the Background section
FUND PERFORMANCE*
The performance of the Funds for the period under review is shown below:
Fund return for the period
ended 30/11/2016
Benchmark return for the period
ended 30/11/2016
Fund return for the period
ended 30/11/2015
Benchmark return for the period
ended 30/11/2015
Fund % % % %
iShares $ Short Duration Corp Bond UCITS ETF 0.23 0.32 0.18 0.23
iShares $ Short Duration High Yield Corp Bond UCITS ETF 4.51 4.79 (4.72) (4.56)
iShares $ Treasury Bond 20+yr UCITS ETF (6.36) (6.29) (0.54) (0.45)
iShares $ Ultrashort Bond UCITS ETF 0.53 0.60 0.20 0.23
iShares € Govt Bond 20yr Target Duration UCITS ETF (0.42) (0.39) (3.37) (3.43)
iShares € Ultrashort Bond UCITS ETF 0.04 0.04 0.00 0.01
iShares £ Ultrashort Bond UCITS ETF 0.54 0.57 0.34 0.33
iShares Ageing Population UCITS ETF** (1.44) (1.41) N/A N/A
iShares Automation & Robotics UCITS ETF** 1.01 0.82 N/A N/A
iShares Digitalisation UCITS ETF** (6.02) (5.93) N/A N/A
iShares Edge MSCI Europe Momentum Factor UCITS ETF 0.32 0.82 (1.48) (1.18)
iShares Edge MSCI Europe Multifactor UCITS ETF*** (1.52) (1.38) 11.05 11.27
iShares Edge MSCI Europe Quality Factor UCITS ETF (4.29) (4.14) 0.32 0.53
iShares Edge MSCI Europe Size Factor UCITS ETF (0.43) (0.29) (1.21) (1.04)
iShares Edge MSCI Europe Value Factor UCITS ETF 2.21 2.31 (6.64) (6.63)
iShares Edge MSCI USA Momentum Factor UCITS ETF** (0.92) (0.94) N/A N/A
iShares Edge MSCI USA Multifactor UCITS ETF*** 8.70 8.73 5.82 5.85
iShares Edge MSCI USA Quality Factor UCITS ETF** 2.30 2.27 N/A N/A
iShares Edge MSCI USA Size Factor UCITS ETF** 5.21 5.25 N/A N/A
iShares Edge MSCI USA Value Factor UCITS ETF** 7.03 7.00 N/A N/A
iShares Edge MSCI World Momentum Factor UCITS ETF 0.72 0.76 (2.28) (2.24)
iShares Edge MSCI World Multifactor UCITS ETF*** 2.56 2.74 6.61 6.73
iShares Edge MSCI World Quality Factor UCITS ETF 0.84 0.83 (1.24) (1.17)
iShares Edge MSCI World Size Factor UCITS ETF 2.60 2.81 (5.31) (5.46)
iShares Edge MSCI World Value Factor UCITS ETF 5.90 5.98 (8.76) (8.79)
iShares Fallen Angels High Yield Corp Bond UCITS ETF** 2.53 2.95 N/A N/A
iShares Healthcare Innovation UCITS ETF** (9.87) (9.80) N/A N/A
iShares iBonds Sep 2018 $ Corp UCITS ETF 0.69 0.79 0.05 0.11
iShares MSCI China A UCITS ETF 8.26 8.12 (29.92) (28.62)
iShares MSCI EM SRI UCITS ETF** (1.26) (1.12) N/A N/A
iShares MSCI EMU Large Cap UCITS ETF 0.93 0.99 (1.32) (1.21)
* Fund performance is shown net of fees and expenses (TER). ** As this Fund launched during the period, performance figures are shown from launch date to period end date. ***As this Fund launched during the prior year, performance figures are shown from launch date to 30 November 2015.
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iSHARES IV PLC
Half yearly management report
INVESTMENT MANAGER’S REPORT (continued)
[ 1 2 ] i S H A R E S I V P L C I N T E R I M R E P O R T
FUND PERFORMANCE* (continued)
Fund return for the period
ended 30/11/2016
Benchmark return for the period
ended 30/11/2016
Fund return for the period
ended 30/11/2015
Benchmark return for the period
ended 30/11/2015
Fund % % % %
iShares MSCI EMU Mid Cap UCITS ETF 1.67 1.80 0.78 0.96
iShares MSCI France UCITS ETF 2.68 2.52 (0.44) (0.56)
iShares MSCI Japan SRI EUR Hedged UCITS ETF (Acc)**** 3.65 3.80 N/A N/A
iShares MSCI USA SRI UCITS ETF** 4.84 4.86 N/A N/A
iShares TA-25 Israel UCITS ETF**** 0.20 0.36 N/A N/A
iShares US Equity Buyback Achievers UCITS ETF 14.93 15.13 (4.24) (4.07)
iShares US Mortgage Backed Securities UCITS ETF**** (0.60) (0.59) N/A N/A
* Fund performance is shown net of fees and expenses (TER). ** As this Fund launched during the period, performance figures are shown from launch date to period end date. ***As this Fund launched during the prior year, performance figures are shown from launch date to 30 November 2015. **** As these Funds launched between 30 November 2015 and 31 May 2016 there are no comparatives.
The Fund return figures are the aggregated net monthly returns and are based on the average published pricing net asset value (“NAV”) for the
financial period under review. Due to accounting policy requirements under Irish accounting standards which apply to the financial statements,
there may be slight differences between the NAV per share as recorded in the financial statements and the published pricing NAV per share.
The returns are net of management fees.
Past performance may not necessarily be repeated and future performance may vary.
TRACKING ERROR
Realised tracking error is the annualised standard deviation of the difference in monthly returns between a Fund and its benchmark index.
Tracking error shows the consistency of the returns relative to the benchmark index over a defined period of time.
Anticipated tracking error is based on the expected volatility of differences between the returns of a Fund and the returns of its benchmark
index.
For physically replicating funds, the investment management approach is to buy a portfolio of securities that as far as practicable consist of the
securities that make up the benchmark index, in similar proportion to the weights represented in the benchmark index.
For non-replicating funds, the investment management approach aims to match the main risk characteristics of the benchmark index by
investing in a portfolio that is primarily made up of securities that represent the benchmark index. The objective is to generate a return which is
as close as practicable to the total return of the index net of transaction costs and gross of fees and other costs.
Cash management, efficient portfolio management techniques including securities lending, transaction costs from rebalancing and currency
hedging can have an impact on tracking error as well as the return differential between a Fund and its benchmark index. Importantly, these
impacts can be either positive or negative depending on the underlying circumstances.
In addition to the above, the Funds may also have a tracking error due to withholding tax suffered by the Funds on any income received from its
investments. The level and quantum of tracking error arising due to withholding taxes depends on various factors such as any reclaims filed on
behalf of the Funds with various tax authorities, any benefits obtained by the Funds under a tax treaty or any securities lending activities carried
out by the Funds.
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iSHARES IV PLC
Half yearly management report
INVESTMENT MANAGER’S REPORT (continued)
i S H A R E S I V P L C I N T E R I M R E P O R T [ 1 3 ]
TRACKING ERROR (continued)
The table below shows the anticipated tracking error of the Funds (disclosed in the prospectus on an ex ante basis) against the realised
tracking error of the Funds as at 30 November 2016. Realised tracking error is calculated using data from the preceding 36 month observation
period. Where a Fund has not been trading for 36 months, the annualised tracking error since inception has been presented.
Anticipated
Tracking Error Realised
Tracking Error
Fund % %
iShares $ Short Duration Corp Bond UCITS ETF Up to 0.30 0.09
iShares $ Short Duration High Yield Corp Bond UCITS ETF Up to 0.45 0.20
iShares $ Treasury Bond 20+yr UCITS ETF* Up to 0.10 0.06
iShares $ Ultrashort Bond UCITS ETF Up to 0.10 0.05
iShares € Govt Bond 20yr Target Duration UCITS ETF* Up to 0.20 0.06
iShares € Ultrashort Bond UCITS ETF Up to 0.10 0.06
iShares £ Ultrashort Bond UCITS ETF Up to 0.10 0.05
iShares Ageing Population UCITS ETF* Up to 0.45 0.12
iShares Automation & Robotics UCITS ETF* Up to 0.40 0.36
iShares Digitalisation UCITS ETF* Up to 0.50 0.07
iShares Edge MSCI Europe Momentum Factor UCITS ETF* Up to 0.20 0.26
iShares Edge MSCI Europe Multifactor UCITS ETF* Up to 0.25 0.23
iShares Edge MSCI Europe Quality Factor UCITS ETF* Up to 0.20 0.17
iShares Edge MSCI Europe Size Factor UCITS ETF* Up to 0.20 0.22
iShares Edge MSCI Europe Value Factor UCITS ETF* Up to 0.20 0.21
iShares Edge MSCI USA Momentum Factor UCITS ETF* Up to 0.15 0.08
iShares Edge MSCI USA Multifactor UCITS ETF* Up to 0.25 0.04
iShares Edge MSCI USA Quality Factor UCITS ETF* Up to 0.15 0.08
iShares Edge MSCI USA Size Factor UCITS ETF* Up to 0.15 0.08
iShares Edge MSCI USA Value Factor UCITS ETF* Up to 0.15 0.41
iShares Edge MSCI World Momentum Factor UCITS ETF* Up to 0.20 0.11
iShares Edge MSCI World Multifactor UCITS ETF* Up to 0.25 0.08
iShares Edge MSCI World Quality Factor UCITS ETF* Up to 0.20 0.12
iShares Edge MSCI World Size Factor UCITS ETF* Up to 0.20 0.22
iShares Edge MSCI World Value Factor UCITS ETF* Up to 0.20 0.11
iShares Fallen Angels High Yield Corp Bond UCITS ETF* Up to 0.25 0.07
iShares Healthcare Innovation UCITS ETF* Up to 0.60 0.24
iShares iBonds Sep 2018 $ Corp UCITS ETF* Up to 0.40 0.15
iShares MSCI China A UCITS ETF* Up to 2.50 2.07
iShares MSCI EM SRI UCITS ETF* Up to 0.50 0.24
iShares MSCI EMU Large Cap UCITS ETF Up to 0.25 0.25
iShares MSCI EMU Mid Cap UCITS ETF Up to 0.30 0.28
iShares MSCI France UCITS ETF* Up to 0.40 0.41
iShares MSCI Japan SRI EUR Hedged UCITS ETF (Acc)* Up to 0.20 0.07
iShares MSCI USA SRI UCITS ETF* Up to 0.10 0.02
iShares TA-25 Israel UCITS ETF* Up to 0.40** 2.76
iShares US Equity Buyback Achievers UCITS ETF* Up to 0.15 0.11
iShares US Mortgage Backed Securities UCITS ETF* Up to 0.30 0.27
*The realised tracking error is normally computed from 36 months of returns. The Fund's return history is too short to give a statistically significant tracking error. **From January 2017 the anticipated tracking error has been revised to 1.5%.
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iSHARES IV PLC
Half yearly management report
INVESTMENT MANAGER’S REPORT (continued)
[ 1 4 ] i S H A R E S I V P L C I N T E R I M R E P O R T
CALENDAR YEAR PERFORMANCE
The performance of the Funds, on a calendar year basis, is shown below:
2016 2015 2014 2013 01/01/2016 01/01/2015 01/01/2014 01/01/2013 Launch to 30/11/2016 to 31/12/2015 to 31/12/2014 to 31/12/2013 Date Fund Benchmark Fund Benchmark Fund Benchmark Fund Benchmark
Fund* % % % % % % % %
iShares $ Short Duration Corp Bond
UCITS ETF Oct-13 1.94 2.17 1.03 1.17 1.33 1.59 0.53 0.54
iShares $ Short Duration High Yield Corp Bond
UCITS ETF Oct-13 9.94 10.62 (3.76) (3.48) 0.19 0.32 1.72 1.65
iShares $ Treasury Bond 20+yr UCITS ETF Jan-15 1.79 1.97 (7.91) (7.77) N/A N/A N/A N/A
iShares $ Ultrashort Bond UCITS ETF Oct-13 1.06 1.25 0.48 0.57 0.23 0.46 0.11 0.15
iShares € Govt Bond 20yr Target Duration
UCITS ETF Jan-15 12.13 12.19 (6.30) (6.31) N/A N/A N/A N/A
iShares € Ultrashort Bond UCITS ETF Oct-13 0.19 0.18 0.15 0.17 0.55 0.68 0.09 0.11
iShares £ Ultrashort Bond UCITS ETF Oct-13 0.83 0.89 0.66 0.67 0.71 0.88 0.16 0.18
iShares Ageing Population UCITS ETF Sep-16 (1.44) (1.41) N/A N/A N/A N/A N/A N/A
iShares Automation & Robotics UCITS ETF Sep-16 1.01 0.82 N/A N/A N/A N/A N/A N/A
iShares Digitalisation UCITS ETF Sep-16 (6.02) (5.93) N/A N/A N/A N/A N/A N/A
iShares Edge MSCI Europe Momentum Factor
UCITS ETF Jan-15 (1.50) (1.09) 8.74 8.89 N/A N/A N/A N/A
iShares Edge MSCI Europe Multifactor
UCITS ETF Sep-15 (4.13) (3.85) 6.72 7.04 N/A N/A N/A N/A
iShares Edge MSCI Europe Quality Factor
UCITS ETF Jan-15 (5.71) (5.57) 11.53 11.67 N/A N/A N/A N/A
iShares Edge MSCI Europe Size Factor
UCITS ETF Jan-15 (2.75) (2.61) 11.25 11.24 N/A N/A N/A N/A
iShares Edge MSCI Europe Value Factor
UCITS ETF Jan-15 (1.34) (1.48) 1.22 1.06 N/A N/A N/A N/A
iShares Edge MSCI USA Momentum Factor
UCITS ETF Oct-16 (0.92) (0.94) N/A N/A N/A N/A N/A N/A
iShares Edge MSCI USA Multifactor
UCITS ETF Sep-15 10.61 10.68 3.78 3.82 N/A N/A N/A N/A
iShares Edge MSCI USA Quality Factor UCITS
ETF Oct-16 2.30 2.27 N/A N/A N/A N/A N/A N/A
iShares Edge MSCI USA Size Factor
UCITS ETF Oct-16 5.21 5.25 N/A N/A N/A N/A N/A N/A
iShares Edge MSCI USA Value Factor
UCITS ETF Oct-16 7.03 7.00 N/A N/A N/A N/A N/A N/A
iShares Edge MSCI World Momentum Factor
UCITS ETF Oct-14 2.57 2.64 3.83 4.06 3.98 4.01 N/A N/A
iShares Edge MSCI World Multifactor
UCITS ETF Sep-15 2.72 3.03 5.11 5.25 N/A N/A N/A N/A
iShares Edge MSCI World Quality Factor
UCITS ETF Oct-14 3.42 3.40 2.48 2.63 2.59 2.69 N/A N/A
* Where a Fund's launch date is within a performance period, figures are shown from the launch to the year end.
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iSHARES IV PLC
Half yearly management report
INVESTMENT MANAGER’S REPORT (continued)
i S H A R E S I V P L C I N T E R I M R E P O R T [ 1 5 ]
CALENDAR YEAR PERFORMANCE (continued)
The performance of the Funds, on a calendar year basis, is shown below:
2016 2015 2014 2013 01/01/2016 01/01/2015 01/01/2014 01/01/2013 Launch to 30/11/2016 to 31/12/2015 to 31/12/2014 to 31/12/2013 Date Fund Benchmark Fund Benchmark Fund Benchmark Fund Benchmark
Fund* % % % % % % % %
iShares Edge MSCI World Size Factor
UCITS ETF Oct-14 6.46 6.83 (0.08) (0.26) 1.98 2.04 N/A N/A
iShares Edge MSCI World Value Factor
UCITS ETF Oct-14 4.92 4.91 (3.27) (3.28) 0.80 0.86 N/A N/A
iShares Fallen Angels High Yield Corp Bond
UCITS ETF Jun-16 2.53 2.95 N/A N/A N/A N/A N/A N/A
iShares Healthcare Innovation UCITS ETF Sep-16 (9.87) (9.80) N/A N/A N/A N/A N/A N/A
iShares iBonds Sep 2018 $ Corp UCITS ETF Mar-15 2.24 2.44 0.58 0.66 N/A N/A N/A N/A
iShares MSCI China A UCITS ETF Apr-15 (11.81) (11.82) (18.74) (17.09) N/A N/A N/A N/A
iShares MSCI EM SRI UCITS ETF Jul-16 (1.26) (1.12) N/A N/A N/A N/A N/A N/A
iShares MSCI EMU Large Cap UCITS ETF Sep-13 (2.42) (2.65) 8.31 8.26 4.44 4.42 8.81 8.94
iShares MSCI EMU Mid Cap UCITS ETF Sep-13 (1.53) (1.37) 17.08 17.10 3.63 3.86 6.26 6.58
iShares MSCI France UCITS ETF Sep-14 2.61 1.80 11.98 11.27 (3.53) (3.72) N/A N/A
iShares MSCI Japan SRI EUR Hedged UCITS
ETF (Acc) May-16 7.54 7.67 N/A N/A N/A N/A N/A N/A
iShares MSCI Russia Capped Swap** Sep-10 N/A N/A N/A N/A N/A N/A 3.86 5.34
iShares MSCI USA SRI UCITS ETF Jul-16 4.84 4.86 N/A N/A N/A N/A N/A N/A
iShares S&P CNX Nifty India Swap** Sep-10 N/A N/A N/A N/A N/A N/A (7.50) (6.43)
iShares S&P GSCI Dynamic Roll
Agriculture Swap** Jan-12 N/A N/A N/A N/A N/A N/A (14.95) (14.22)
iShares S&P GSCI Dynamic Roll
Commodity Swap** Jan-12 N/A N/A N/A N/A N/A N/A (3.95) (3.17)
iShares S&P GSCI Dynamic Roll Energy Swap** Jan-12 N/A N/A N/A N/A N/A N/A (0.05) 0.75
iShares S&P GSCI Dynamic Roll Industrial
Metals Swap** Jan-12 N/A N/A N/A N/A N/A N/A (12.53) (11.85)
iShares TA-25 Israel UCITS ETF Jan-16 1.67 1.95 N/A N/A N/A N/A N/A N/A
iShares US Equity Buyback Achievers
UCITS ETF Feb-15 18.81 19.19 (5.47) (5.17) N/A N/A N/A N/A
iShares US Mortgage Backed Securities
UCITS ETF May-16 (0.42) (0.51) N/A N/A N/A N/A N/A N/A
* Where a Fund's launch date is within a performance period, figures are shown from the launch to the year end. ** Where a Fund's closure date is within a performance period, figures are shown from the start of the period to closure date.
The Fund return figures are the aggregated net monthly returns and are based on the average published pricing NAV for the financial period
under review. Due to accounting policy requirements under Irish accounting standards which apply to the financial statements, there may be
slight differences between the NAV per share as recorded in the financial statements and the published pricing NAV per share. The returns are
net of management fees.
Past performance may not necessarily be repeated and future performance may vary.
-
iSHARES IV PLC
Half yearly management report
INVESTMENT MANAGER’S REPORT (continued)
[ 1 6 ] i S H A R E S I V P L C I N T E R I M R E P O R T
MARKET REVIEW
Equities
Global equities
This market review summary covers iShares Edge MSCI World Momentum Factor UCITS ETF, iShares Edge MSCI World Multifactor UCITS
ETF, iShares Edge MSCI World Quality Factor UCITS ETF, iShares Edge MSCI World Size Factor UCITS ETF and iShares Edge MSCI World Value
Factor UCITS ETF.
Following a bout of volatility in June 2016 in the aftermath of the UK’s surprise vote to leave the European Union (“EU”), global equities
subsequently rallied to end the Company’s six month review period with modest positive returns.
Global equities began the review period on a mixed note as signs that US economic activity was picking up were largely offset by uncertainties
ahead of the UK’s EU membership referendum. Although opinion polls had suggested that the result could be close, global equity markets fell
sharply in the immediate aftermath of the public’s vote to leave the EU (“Brexit”). However, markets soon recovered their poise as investors
concluded that the ensuing uncertainty could convince central banks to maintain, or even expand, their stimulus programmes. Global equities’
firm tone extended into early September 2016; following the Bank of England’s (“BoE”) August 2016 decision to cut interest rates, the US
Federal Reserve (“Fed”) cited Brexit related uncertainty as a factor behind the decision to refrain from raising interest rates at its September
2016 meeting, despite the strength of the US labour market. Although firmer commodity prices, notably crude oil, reflecting more encouraging
news from China’s economy, also underpinned sentiment, signs that the Fed was gradually moving towards a rise in US interest rates before the
end of the year began to weigh on global stocks in October 2016, as did political uncertainties ahead of the US presidential election. Despite an
initial selloff on news of Donald Trump’s election success amid policy uncertainties, growing confidence that the President elect would embark
on a significant infrastructure improvement programme resulted in renewed strength in commodity markets, helping global equites to end the
review period on a firm note.
During the Company’s review period, World Momentum Factor equities posted positive returns but underperformed wider global equities,
weighed by relatively low exposure to certain outperforming financials such as JP Morgan Chase and relatively high exposure to certain
underperforming consumer staples companies, such as Altria Group.
World Quality Factor equities also posted positive returns and underperformed wider global equities, with returns hampered by exposure to
several underperforming healthcare stocks, including Novo Nordisk and Roche. World Size Factor and World Multifactor equities performed
broadly in line with their wider market counterparts. World Value Factor equities outperformed broader global equities, boosted by exposure to
selected outperforming financials such as Bank of America and specific consumer discretionary stocks such as Toyota Motor.
European equities
This market review summary covers iShares Edge MSCI Europe Momentum Factor UCITS ETF, iShares Edge MSCI Europe Multifactor UCITS
ETF, iShares Edge MSCI Europe Quality Factor UCITS ETF, iShares Edge MSCI Europe Size Factor UCITS ETF, iShares Edge MSCI Europe
Value Factor UCITS ETF, iShares MSCI EMU Large Cap UCITS ETF, iShares MSCI EMU Mid Cap UCITS ETF and iShares MSCI France UCITS
ETF.
European equities produced disappointing returns over the review period, underperforming compared to their global counterparts, weighed by
political and economic concerns in the wake of the Brexit vote.
European bourses began the six month review period on a nervous note, reflecting growing uncertainties ahead of the UK’s 23 June 2016
referendum. However, having broadly followed the gyrations of their UK and global peers in the aftermath of the ‘Leave’ vote, European equity
markets generally lagged behind their overseas counterparts’ rally. This reflected some concerns that Brexit would embolden Eurosceptic
parties across Europe, thereby raising political risks across the continent. Moreover, fears over the stability of some parts of the European
financial sector also mounted in the aftermath of the Brexit vote, with some Italian banks coming under scrutiny amid concern over their
capitalisation levels.
-
iSHARES IV PLC
Half yearly management report
INVESTMENT MANAGER’S REPORT (continued)
i S H A R E S I V P L C I N T E R I M R E P O R T [ 1 7 ]
MARKET REVIEW (continued)
Equities (continued)
European equities (continued)
Although firmer commodity prices lent support to large cap resource stocks across the region, while also helping to allay some lingering
concerns over deflationary risks, European stocks continued to underperform their overseas peers during the final weeks of the review period.
This largely reflected concerns that the region’s economic recovery could be faltering amid disappointing news that the Eurozone economy grew
by just 0.3% during the third quarter of 2016, matching its second quarter performance, compared to growth of 0.5% in the January to March
2016 period. European equities extended their poor relative performance during the final weeks of the review period; following Donald Trump’s
surprise US election victory in early November 2016, concerns grew that the sense of ‘anti establishment’ sentiment could heap further
pressure on Italian Prime Minister Matteo Renzi ahead of a December 2016 referendum over constitutional reform. Following the end of the
review period, these concerns would be vindicated as Prime Minister Renzi stepped down following the decisive ‘No’ vote.
Domestically focused EMU mid-caps outperformed their larger peers over the review period, helped by their lack of exposure to several
underperforming large cap financials, such as Italy’s Intesa Sanpaolo. French equities outperformed their wider European counterparts, helped
by the relatively strong performance of industrial gases group Air Liquide and personal care products maker L’Oreal. Europe Quality Factor
equities underperformed wider European indices, weighed by relatively large exposure to health care companies Novo Nordisk and
AstraZeneca. While Europe Size Factor equities performed generally in line with wider European indices, Europe Value Factor and Momentum
Factor outperformed. The former benefitted from exposure to industrial group Siemens and chemicals firm Bayer while the latter’s returns were
boosted by exposure to commodities group Glencore. Europe Multifactor equities underperformed, with exposure to real estate firm Unibail-
Rodamco detracting from returns.
US equities
This market review summary covers iShares Edge MSCI USA Momentum Factor UCITS ETF, iShares Edge MSCI USA Multifactor UCITS,
iShares Edge MSCI USA Quality Factor UCITS ETF, iShares Edge MSCI USA Size Factor UCITS ETF, iShares Edge MSCI USA Value Factor UCITS ETF, iShares MSCI USA SRI UCITS ETF and iShares US Equity Buyback Achievers UCITS ETF.
US stocks produced solid positive returns over the Company’s review period, outperforming their wider global counterparts. US equities’ gains
reflected a combination of optimism that the improving domestic economic environment would help to underpin corporate profits and some
element of ‘safe haven’ buying amid post Brexit political uncertainties in Europe.
US stocks began the review period on a firm note relative to their European peers. Despite signs that US economic activity was picking up
further from the lull around the turn of the calendar year, investors drew encouragement from statements by senior Fed officials suggesting
that they would adopt a patient approach before implementing any further rises in US interest rates. Although falling in sympathy with
European markets in the immediate aftermath of the surprise Brexit news, US stocks’ losses were relatively minor in nature, while their
subsequent rebound was more pronounced. In contrast to Europe’s woes, data showed that US economic activity was picking up; annualised
growth rose from 0.8% in the first quarter of 2016 to 1.4% during the April to June 2016 period. Against this more encouraging domestic
backdrop, comments from Fed officials suggesting that US policymakers were set to resist calls to raise interest rates until international
uncertainties, notably in Europe, abated gave further impetus to the rally in US stocks. Nevertheless, US markets lost some ground in October
2016 amid some mixed corporate trading updates that reflected how the strong US currency was impacting on overseas earnings. The growing
conviction that the strength of the US labour market could soon force the Fed’s hand, and political uncertainties ahead of the November 2016
US presidential elections, also weighed to some extent on US stocks. News that US economic growth rose to 3.2% on an annualised basis
during the third quarter of 2016, the strongest quarterly growth in two years, heightened expectations that the Fed could raise interest rates as
soon as December 2016. Despite this, as some greater clarity emerged over President elect Trump’s economic policies, particularly the
proposed infrastructure improvement programme and the planned tax cuts, US equities ended the review period on a firm note.
The Buyback Achiever index outperformed the wider US market, helped by exposure to a range of stock level outperformers, including industrial
firm Quanta Services and restaurant operator Wendy’s. US Multifactor equities performed relatively well, helped by strong returns from IT
consultancy & professional services firm Accenture.
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INVESTMENT MANAGER’S REPORT (continued)
[ 1 8 ] i S H A R E S I V P L C I N T E R I M R E P O R T
MARKET REVIEW (continued)
Equities (continued)
US equities (continued)
Since iShares MSCI USA SRI Fund launched in July 2016, SRI equities performed broadly in line with wider US stocks for the remainder of the
review period. Following their launches in early October 2016, iShares Edge MSCI USA Quality Factor UCITS ETF, iShares Edge MSCI USA Size
Factor UCITS ETF and iShares Edge MSCI USA Value Factor UCITS ETF produced positive returns. However, iShares Edge MSCI USA Momentum
Factor UCITS ETF produced negative returns, weighed by a slide in personal & household care products firm Proctor & Gamble
Japanese equities
This market review summary covers iShares MSCI Japan SRI EUR Hedged UCITS ETF (Acc).
Japanese equities generated positive returns over the Company’s review period, marginally outperforming relative to their international
counterparts. Although the effects of the strong Japanese Yen remained a concern for much of the period, optimism that the Far East region’s
economic prospects were gradually improving underpinned sentiment towards the Japanese market.
Japanese stocks broadly tracked the movements of their overseas peers early in the review period, suffering a short lived dip in response to the
surprise Brexit vote. Despite deepening concerns over the impact of ongoing Japanese Yen strength on exporters’ international earnings, with
the Japanese currency approaching 100 to the US Dollar in early July 2016, a gain of nearly 20% since the turn of the calendar year, some
optimism that the worst was over for the domestic economy lent support to Japanese stocks. Compared to a (0.2%) contraction during the final
quarter of 2015, revised data released early in the review period showed that Japan’s economy had grown by 0.5% during the first quarter of
2016. Although there was some disappointment that the strength of the labour market was not feeding through to give a sustained boost to
consumer activity, Japanese equities benefited from investors’ optimism that a gradual recovery in demand from China, the US and Europe
could help to offset the effect of Japanese Yen strength.
Nevertheless, with slowing private consumption and government spending contributing to a cooling in economic activity during the second
quarter of 2016, investors took comfort from the government’s latest fiscal support package aimed at supporting low income workers and
boosting infrastructure spending. Investors also drew confidence from the Bank of Japan’s (“BoJ”) plan to revamp its stimulus programme to
target 10 year bond yields at zero in an effort to underpin inflation. During the final weeks of the review period, Japanese stocks received a
further boost from news that rising exports had helped the economy to grow by a stronger than expected 0.5% during the third quarter of 2016,
compared to just 0.2% three months earlier. Following Donald Trump’s US election victory, a surge in the US Dollar, to around 114 versus the
Japanese Yen, raised hopes that some of the currency pressure on Japanese exporters could ease further. Over the review period the Japanese
currency lost ground relative to the US Dollar but ended marginally stronger versus the Euro.
Japanese SRI indices underperformed relative to their mainstream peers over the review period, with the lack of exposure to several
outperforming stocks such as Toyota Motor and SoftBank acting as a drag on returns.
Israeli equities
This market review summary covers iShares TA-25 Israel UCITS ETF.
Following its broadly neutral performance relative to other developed markets early in the six month review period, the Israeli stock market
subsequently underperformed. Although signs from the domestic economy remained generally positive, with the labour market improving and
Gross Domestic Product growing by 0.8%, 1.2% and 0.8% over the first, second and third quarters of the year respectively, poor returns from the
country’s very large health care sector, which represents approximately 27% of the TA-25 market index, weighed on returns.
In particular, Perrigo and Mylan shares performed very poorly amid weakening global investor sentiment towards healthcare stocks. Ahead of
the US election, speculation over the scope for greater political intervention over the pricing of pharmaceuticals impacted on sentiment.
Following Donald Trump’s victory, investors rotated away from some more ‘defensive’ sectors, such as health care, into areas perceived as
greater potential beneficiaries of higher infrastructure spending, such as the materials sector.
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Half yearly management report
INVESTMENT MANAGER’S REPORT (continued)
i S H A R E S I V P L C I N T E R I M R E P O R T [ 1 9 ]
MARKET REVIEW (continued)
Equities (continued)
Emerging markets
This market review summary covers iShares MSCI China A UCITS ETF and iShares MSCI EM SRI UCITS ETF.
Emerging market equities generated strong returns over the Company’s review period, significantly outperforming relative to their developed
counterparts.
Despite some volatility in global markets early in the review year as European stock valuations gyrated amid Brexit related uncertainties, more
encouraging news flow from developing economies helped emerging markets to outperform. Previous concerns that China’s economy could be
facing an abrupt slowdown gradually eased, initially helped by more encouraging survey data from the manufacturing sector. Subsequently,
news emerged that China’s economy grew by 6.7% on a year on year basis during the second quarter of 2016, matching its first quarter
performance, raising hopes that the earlier slowdown in growth could be gradually bottoming out, with fears over a ‘hard landing’ abating.
Meanwhile, commodity prices also found support amid more encouraging signs from the global economy. This lent support to the resource rich
Brazilian market, which also benefitted from hopes of greater political clarity as the process which would eventually lead to the impeachment of
President Dilma Rousseff on the grounds of the misuse of public funds advanced.
Having generated strong returns, both on an outright basis and relative to their developed counterparts, during the third quarter of 2016,
emerging markets lost ground in late October and November 2016. Despite a further round of supportive data from China’s economy, including
news that economic growth held at 6.7% during the third quarter of 2016, growing political uncertainty around the US elections convinced some
investors to pare back exposure to markets perceived as higher risk. The growing conviction that US interest rates could rise around the turn of
the calendar year also weighed to some extent on emerging markets late in the review period.
Over the period Chinese equities performed broadly in line with their wider emerging market peers and outperformed broader global equities.
Since iShares MSCI EM SRI UCITS ETF launched in July 2016, EM SRI equities generally underperformed their broader market peers. Towards
the end of the review period, this mainly reflected the relatively large representation of the underperforming IT sector and the relatively low
weightings among outperforming resources companies in the EM SRI universe.
Fixed income
Government bonds
This market review summary covers iShares $ Treasury Bond 20+yr UCITS ETF and iShares € Govt Bond 20yr Target Duration UCITS ETF.
Long dated government bond markets rallied early in the review period amid safe haven buying in the wake of the Brexit vote and confidence
that relatively muted rates of economic growth would enable policymakers to keep interest rates at historically low levels. Despite signs that US
economic activity was picking up during the summer, investors also drew succor from comments by senior Fed officials suggesting that
policymakers would remain patient before raising US interest rates further. However, optimism that the European Central Bank (“ECB”)’s
extraordinary degree of economic stimulus, growing evidence that deflationary forces in Europe were abating as oil and other commodity prices
rose and the looming prospect that the strengthening US economy would convince Fed policymakers to raise interest rates shortly weighed
heavily on long dated government bonds during the second half of the Company’s review period. While US bond markets fell heavily in November
2016 to end the period with significant losses, reflecting the view that the new Trump administration’s proposed infrastructure improvement
programme could fan inflationary forces and potentially convince the Fed to implement more aggressive interest increases in 2017, the returns
from their European peers dipped into moderate negative territory only very late in the review period. Despite rising global government bond
yields, European government debt prices were underpinned by growing levels of political uncertainty ahead of the Italian referendum and
conviction that the lacklustre nature of the Eurozone economic recovery would see the ECB maintaining ultra low borrowing costs for an
extended period.
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INVESTMENT MANAGER’S REPORT (continued)
[ 2 0 ] i S H A R E S I V P L C I N T E R I M R E P O R T
MARKET REVIEW (continued)
Fixed income (continued)
Corporate bonds
This market review summary covers iShares $ Short Duration Corp Bond UCITS ETF, iShares $ Short Duration High Yield Corp Bond UCITS
ETF, iShares $ Ultrashort Bond UCITS ETF, iShares € Ultrashort Bond UCITS ETF, iShares £ Ultrashort Bond UCITS ETF, iShares iBonds Sep
2018 $ Corp UCITS ETF and iShares Fallen Angels High Yield Corp Bond UCITS ETF.
Short dated credit produced modest positive returns over the Company’s review period, marginally outperforming their government peers of
similar maturities. Despite sporadic ‘flight to safety’ moves as investors switched from credit to government debt during periods of uncertainty,
particularly in the aftermath of the Brexit vote, corporate bonds continued to attract buying from investors seeking attractive levels of yield.
High yield bonds were particular beneficiaries of this ongoing search for income, while the US sub-investment grade market also benefitted
from the recovery in oil & gas prices given the relatively high representation of energy sector borrowers in the US high yield space.
While Sterling and US Dollar short dated credit markets produced modest positive gains over the review period, their Euro peers delivered
largely flat returns, reflecting investors’ reduced appetite for risk given uncertainties across the single currency zone. Since inception on 22
June 2016, iShares Fallen Angels High Yield Corp Bond UCITS ETF, which offers diversified exposure to a subset of high yield corporate bonds
that have been downgraded to sub-investment grade at some point in their trading history, marginally underperformed broader $ high yield
bonds over the remainder of the Company’s review period.
Mortgage debt
This market review summary covers iShares US Mortgage Backed Securities UCITS ETF.
Following the Fund’s inception in May 2016, mortgage backed bond markets produced steady gains for much of the remainder of the review
period, largely matching the returns from medium dated US Dollar credit markets until late October 2016. However, mortgage backed assets fell
sharply in value in November 2016, largely reflecting higher default risks as the prospect of higher interest rates as a result of the incoming US
administration’s spending plans. Against this backdrop, since the inception date, mortgage backed securities underperformed both government
and corporate bonds over the remainder of the Company’s review period.
Other speciality funds
This market review summary covers iShares Ageing Population UCITS ETF.
Launched in September 2016, the Fund seeks to offer competitively priced and diversified access to companies that specifically provide
products or services to the world’s ageing population (defined as people aged 60 years or above). Since launch, the Fund underperformed wider
equity markets over the remainder of the Company’s review period, reflecting investors’ preference for traditional growth based sectors, such as
materials, following the US election result.
This market review summary covers iShares Automation & Robotics UCITS ETF.
Launched in September 2016, the Fund seeks to offer competitively priced and diversified access to companies that are developing technology
in the fields of automation and robotics, across both developed and emerging markets. Since launch, the Fund outperformed wider equity
markets over the remainder of the Company’s review period, reflecting holdings across a range of outperforming industrial companies with
particular expertise in automation & robotic technologies.
This market review summary covers iShares Digitalisation UCITS ETF.
Launched in September 2016, the Fund seeks to offer competitively priced and diversified access to companies that offer digitally focused
services across both developed and emerging markets. Since launch, the Fund underperformed wider equity markets over the remainder of the
Company’s review period, reflecting some investors’ perception of a lack of clarity over the incoming US government’s policies towards the IT
sector, particularly with regard to the perceived risk of new trade barriers and taxation changes.
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INVESTMENT MANAGER’S REPORT (continued)
i S H A R E S I V P L C I N T E R I M R E P O R T [ 2 1 ]
MARKET REVIEW (continued)
Fixed income (continued)
Other speciality funds (continued)
This market review summary covers iShares Healthcare Innovation UCITS ETF.
Launched in September 2016, the Fund seeks to offer competitively priced and diversified access to companies across the world that are
focused on innovation within global healthcare services, across both developed and emerging markets. Since launch, the Fund underperformed
wider equity markets over the remainder of the Company’s review period, reflecting investors’ preference for traditional growth based sectors,
such as materials, rather than more defensive areas, such as healthcare, following the US election result.
BlackRock Advisors (UK) Limited
December 2016
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iSHARES IV PLC
Half yearly management report
FINANCIAL INSTRUMENTS AND RISKS*
* The information relating to financial instruments and risks is an integral part of the notes to the financial statements.
[ 2 2 ] i S H A R E S I V P L C I N T E R I M R E P O R T
Introduction and overview
The Company's investment activities expose it to the various types of
risk which are associated with the financial instruments and markets
in which it invests. The following information is not intended to be a
comprehensive summary of all risks, and investors should refer to the
prospectus and supplements for a more detailed discussion of the
risks inherent in investing in the Company.
Risk management framework
The principal risks and uncertainties of the Company and related risk
management policies are consistent with those disclosed in the Company’s audited financial statements as at and for the year ended
31 May 2016.
The Directors of the Company consider the following risks to be the
principal risks and uncertainties facing the Company for the period:
a) Market risk
Market risk arises mainly from uncertainty about future values of
financial instruments influenced by other price, currency and interest
rate movements. It represents the potential loss the Funds may suffer
through holding market positions in the face of market movements.
i) Market risk arising from other price risk
Exposure to other price risk
Other price risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in market
prices (other than those arising from interest rate risk or currency
risk), whether those changes are caused by factors specific to the
individual financial instrument or its issuer, or factors affecting
similar financial instruments traded in the market.
The Funds are exposed to market risk by virtue of their investments in
equities, rights, bonds, mortgage backed securities ("MBS"),
contracts for difference ("CFDs"), forward currency contracts and
futures contracts.
The movements in the prices of these investments result in
movements in the performance of the Funds. The investment
concentrations within the portfolio are disclosed in the schedules of
investments by investment type.
For iShares MSCI China A UCITS ETF, the existence of a liquid trading
market may depend on whether there is a readily available supply of, and corresponding demand for China A Shares.
The price at which China A Shares may be purchased or sold by the
Fund, upon any rebalancing activities or otherwise, and the NAV of the
Fund may be adversely affected if trading markets for the China A
Shares are limited or absent. Market volatility and settlement
difficulties in the China A Shares markets may result in significant
fluctuation in the prices of securities traded on such markets and may
consequently increase the volatility of the Net Asset Value of the
Fund.
Management of other price risk
The Investment Manager manages the Funds' market risk on a daily
basis in accordance with the Funds' investment objective. The
investment objective of the Funds is to provide investors with a total return, taking into account the capital and income returns, which
reflect the total returns of the respective benchmark. The Funds’
performances are correlated to their benchmark. The correlation of
the Funds’ performance against the benchmark is a metric monitored
by key management personnel.
ii) Market risk arising from foreign currency risk
Exposure to foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows
of a financial instrument will fluctuate because of changes in foreign
exchange rates.
The Funds may invest in securities, which as far as possible and
practicable, consist of the component securities of the benchmark
index of each Fund, and which may be denominated in currencies
other than its reporting currency.
The Funds with the exception of iShares MSCI Japan SRI EUR Hedged
UCITS ETF (Acc) (the "Currency Hedged Fund"), in line with their
benchmarks, are unhedged and are therefore exposed to foreign
currency risk.
Consequently, each Fund is exposed to the risk of currency
fluctuations between the base currency of the benchmark index and
the base currency of the constituent securities of the benchmark
index.
The Funds may also invest in forward currency contracts and thus gain
further exposure to foreign currency risk.
Management of foreign currency risk
To minimise this risk, the Currency Hedged Fund invests in forward
currency contracts that as far as possible track the hedging
methodology of the benchmark index.
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iSHARES IV PLC
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FINANCIAL INSTRUMENTS AND RISKS* (continued)
* The information relating to financial instruments and risks is an integral part of the notes to the financial statements.
i S H A R E S I V P L C I N T E R I M R E P O R T [ 2 3 ]
a) Market risk (continued)
ii) Market risk arising from foreign currency risk (continued)
Management of foreign currency risk (continued)
The benchmark index is designed to represent a close approximation
of the return that can be achieved by hedging the currency exposures
of the index in the one month forward market at the end of each
month.
Exchange rate exposures are managed where appropriate and in
compliance with the prospectus utilising forward currency contracts.
The details of the contracts in place at the period-end date are
disclosed in the schedules of investments.
For iShares MSCI China A UCITS ETF, the onshore Renminbi is the
official currency of the PRC and is the currency of denomination for all
financial transactions between individuals, state and corporations in
the PRC.
Hong Kong is the first jurisdiction to allow for the accumulation of
Renminbi deposits outside the PRC. Since June 2010, the offshore
market for Renminbi is traded officially and regulated jointly by the
Hong Kong Monetary Authority and the People’s Bank of China (Hong
Kong) Limited (“PBOC”). While both onshore Renminbi ("CNY") and
offshore Renminbi ("CNH") are the same currency, the onshore and
offshore markets in which they are traded are largely separate and
independent and the movement of currency from one market to the
other is highly restricted. CNY and CNH are traded at different rates
and any movement may not be in the same direction. As a result the
Fund may be exposed to the exchange rate differences between CNH
and CNY and foreign exchange transaction costs associated with
converting from CNH to CNY and vice versa.
iii) Market risk arising from interest rate risk
Exposure to interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in market
interest rates.
The Funds are exposed to interest rate risk through their cash
holdings, including margin cash held with brokers and their
investments in fixed and floating interest bearing securities where the
value of these securities may fluctuate as a result of a change in
interest rates.
The Funds also have indirect exposure to interest rate risk through
their investments into futures contracts, whereby the value of the
underlying asset may fluctuate as a result of a change in interest
rates.
Management of interest rate risk
Movements in the prices of these investments are derived from
movements in market interest rates and issuer creditworthiness.
Issuer creditworthiness and credit spreads are monitored by the
Investment Manager regularly. The securities in which the Funds
invest will generally have a minimum rating of investment grade from
a ratings agency as set out in the investment policy of the Funds.
Brexit
In a United Kingdom (“UK”) referendum held on 23 June 2016, the
electorate of the UK resolved to leave the European Union. The result
has led to political and economic instability, volatility in the financial
markets of the UK and more broadly across Europe. It may also lead
to weakening in consumer, corporate and financial confidence in such
markets as the UK negotiates its exit from the European Union. The
longer term process to implement the political, economic and legal
framework between the UK and the European Union 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 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 result
of this referendum does not change how the Funds’ portfolios are
managed however the mid to long term uncertainty may have an
adverse effect on the economy generally and therefore impact on the
ability of a Fund to execute on its strategy and it may also result in
increased costs to a Fund. For further details on the possible impact
of the results of the referendum please refer to the Investment
Manager’s report.
b) Counterparty credit risk
Exposure to counterparty credit risk
Counterparty credit risk is the risk that one party to a financial
instrument will cause a financial loss for the other party by failing to
discharge an obligation.
The Funds are exposed to counterparty credit risk from the parties
with which they trade and will bear the risk of settlement default.
Management of counterparty credit risk
Counterparty credit risk is monitored and managed by BlackRock’s
Risk and Quantitative Analysis (“RQA”) Counterparty & Concentration
Risk Team. The team is headed by BlackRock’s Chief Credit Officer
who reports to the Global Head of RQA. Credit authority resides with
the Chief Credit Officer and selected team members to whom specific
credit authority has been delegated.
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iSHARES IV PLC
Half yearly management report
FINANCIAL INSTRUMENTS AND RISKS* (continued)
* The information relating to financial instruments and risks is an integral part of the notes to the financial statements.
[ 2 4 ] i S H A R E S I V P L C I N T E R I M R E P O R T
b) Counterparty credit risk (continued)
Management of counterparty credit risk (continued)
As such, counterparty approvals may be granted by the Chief Credit
Officer, or by identified RQA Credit Risk Officers who have been
formally delegated authority by the Chief Credit Officer.
The BlackRock RQA Counterparty & Concentration Risk Team
completes a formal review of each new counterparty, monitors and
reviews all approved counterparties on an ongoing basis and
maintains an active oversight of counterparty exposures and the
collateral management process.
There were no past due or impaired assets as at 30 November 2016 or
31 May 2016.
i) Exchange traded financial derivative instruments
The Funds’ holdings in futures contracts expose the Funds to
counterparty credit risk.
Management of counterparty credit risk related to futures contracts
The exposure is limited by trading the contracts through a clearing
house. The Funds’ exposure to counterparty credit risk on contracts in
which it currently has a gain position is reduced by such gains
received in cash from the counterparty under the daily mark-to-
market mechanism on exchange traded futures contracts (variation
margin). The Funds’ exposure to counterparty credit risk on contracts
in which it currently has a loss position is equal to the amount of
margin posted to the counterparty which has not been transferred to
the exchange under the daily mark-to-market mechanism. The
counterparties for futures contracts are Barclays Bank Plc, HSBC
Bank Plc and Citibank.
Margin is paid or received on futures contracts to cover any exposure
by the counterparty or the Funds to each other. The “Margin cash
account” on the condensed balance sheet consists of margin
receivable from or payable to the Company's clearing brokers and
various counter