ON THE ROAD FROM SAVING TO INVESTING

At iShares, we are committed to offering the highest quality investments for the greatest number of people, delivering the best possible value.

The purpose of our fourth annual iShares Report on Investor Progress is to provide a sense of how we are doing on our commitments to you, our 43 million investors.¹ We hope you find some facts here that provide you with glimmers of optimism and renewed confidence to keep investing for the long term.

Markets in the beginning of 2023 challenged even the most committed optimists, with higher interest rates, an uncertain economic outlook, and geopolitical turmoil all leading to heightened volatility. Many savers sought refuge in cash, in record amounts, in search of stable yields.² But investors globally also continued to turn to ETFs, pouring over $950 billion into ETFs industry-wide in 2023 and benefiting from strong equity and fixed income markets globally, especially toward the end of the year.³

We believe more people are turning to ETFs because they are empowering – they provide choices for a range of buyers – from first-time investors to professional wealth and asset managers-- to choose how they navigate investing in a way that’s convenient for them. We sometimes think of ETFs like cars – you can pick the right vehicle for you to get to your destination however you choose.

The remarkable thing about iShares ETFs is that they’re more than a vehicle; similar to other technologies, quality and selection have increased even as overall costs have come down.⁴

Today, you can access over 1,400 iShares globally, a 50% increase since 2019, from our low-cost Core ETFs used to build long-term portfolios, to our Bond ETFs that investors use to access hundreds of slices of the bond market efficiently, to our Active, and Factor ETFs that have the potential to outperform market-cap benchmarks, to our Precision ETF range that enables access to an array of countries, sectors, and commodities.⁵ The quality and selection of iShares ETFs is a great equalizer because it enables individuals to invest in ways that were once exclusively for professionals.

We believe people make the decision to get on the road from saving to investing because they hope for a better future and believe long-term financial security and wealth creation is within their reach. In the past five years, tens of millions of people indicated they shared this belief by doubling the amount of assets they entrust to our iShares ETFs.⁶ Our goal is to be relentless in making the on-ramps easier and in offering you an array of convenient routes to help bring your investment destination within view.

When people drive, they don’t need to think too deeply about how their car’s engine works. They can trust the engineering that went into their car, something they feel when they accelerate or brake. This lets them focus on reaching their destination.

At iShares, our Chief Investment Officer, Samara Cohen, leads a team of hundreds of portfolio managers, technologists, and markets experts in a group nicknamed ‘The Engine.’ They are obsessed with the quality of our ETFs and index investments because we want our clients to stay focused on reaching their destinations.

We measure the quality of our ETFs by how precisely they track their respective benchmark indexes and how they perform in diverse market conditions in three ways: liquidity, price discovery, and efficient market access. Our investment ‘engine’ handles thousands of benchmarks, performs millions of calculations and portfolio adjustments to seek precise outcomes, and benefits from the billions we have invested over the years in our technology, including our Aladdin risk management platform.¹¹

It’s in moments of market stress, however, that the investment quality of iShares ETFs has stood out. In March 2023, for example, as a handful of banks in the U.S. and Switzerland failed, global investors sought safety in U.S. Treasuries.¹² During that period of acute market stress, our iShares Treasury ETFs were in some instances less than half as expensive to trade as the underlying Treasury market, offering price discovery and liquidity in even the largest, most liquid, fixed income asset class in the world.¹³ And as investors of all types moved back to bonds in 2023, allocating record inflows to fixed income ETFs, many chose iShares, investing $113 billion with us, more than twice our next competitor.¹⁴

Take buy-write strategies, which offer the potential for enhanced monthly income from writing call options, in return for giving up some of the full upside potential of the underlying holdings. Covered call strategies have long been used by professional investors in equities but were seen as too hard to do in bonds. Our three iShares Bond BuyWrite Strategy ETFs, which launched just over a year ago, were the first of their kind in the bond market.  We were able to innovate what our ETFs could do, making it simpler and more efficient for all investors to incorporate potentially yield-enhancing covered call strategies into their bond portfolios; investors have responded by adding over $1 billion into our BuyWrite ETFs in 2023.¹⁶

While our clients trust us to obsess about our investment quality measures, some will want to trust and verify. In 2023, Morningstar expanded its ETF coverage beyond its star-rating system, which looks at rear-view performance, to include a broader universe of ETFs in its medal-rating system, a forward assessment which looks at attributes that Morningstar believes are likely to translate to better performance compared to a relevant peer group over the long run, including people and process. iShares received over 550 Gold and Silver medals across our global ETF platform, more than twice our next competitor.¹⁷

Our commitment to providing people with high quality investments is resonating. In 2023, our clients entrusted us with over $204 billion in new ETF and index mutual fund assets, more than any other firm.¹⁸

We believe access means freedom of choice for investors with fewer barriers, no matter where they are in their investing journey or how much they want to invest. Lack of access is the main reason why investing is a source of stress for people.[1] Our aim is to clear the road so more people can shift gears from saving to investing. Today, 34 million U.S. investors use iShares, double the number five years ago; globally, 43 million investors use iShares, which we want to more than double to 100 million by the end of the decade.²⁰

We are forging new relationships with digital wealth platforms and banks to expand access to more people by making investing more convenient and affordable. We believe that even small, incremental reductions in barriers can result in meaningful behavioral shifts.

The shift from saving to investing has accelerated dramatically in Germany, due to the growth of digital wealth platforms, convenient automated investing through ETF Savings Plans, and the abundance of ETF choices. Five years ago, several hundred thousand Germans invested about €150 a month into ETF Savings Plans – today it’s over 7 million.²² We expect that in the next five years, there will be over 30 million people across Continental Europe using ETF Savings Plans as this more accessible way of investing spreads.²³

In the UK, we worked with Britain’s leading digital bank, Monzo, to offer its customers our products through its app, with minimum investments as low as £1. Monzo’s mission ‘To make money work for everyone’ was such a natural fit with ours. Potential investors seem to agree, with hundreds of thousands of people signing up for the offering even before the official launch.²⁴

This shift is happening worldwide. The Japanese government is expanding its tax-exempt Nippon Individual Savings Account (NISA) in 2024 to help a nation of savers become investors. Even in the U.S., with one of the world’s broadest investing cultures, there is more to do to increase access.²⁵ This is especially true for the 57 million Americans who work in small businesses, or for themselves, and lack access to a workplace retirement plan.²⁶ Many of them want an easier way to save for retirement, so we launched our iShares LifePath Target Date ETFs, which combine the decades of experience managing our LifePath target date strategies with the convenience of our ETFs. Anyone with a brokerage account can now access this time-tested approach, and the initial investment on commission-free platforms is simply the share price of the ETF.

We are also expanding our range of actively managed ETFs to increase access to more markets. Last year we launched the BlackRock Flexible Income ETF (BINC) to enable investors to seek higher income from harder-to-reach parts of the bond market. BINC is our first actively managed ETF to be run by Rick Rieder, CIO of Global Fixed Income at BlackRock, and winner of the 2023 Morningstar Outstanding Portfolio Manager Award.²⁷

To us, democratizing access also means making your voice heard in the companies you own. We pioneered proxy voting for our global pension fund clients with BlackRock Voting Choice in the beginning of 2022, and now have the industry’s largest program, with $2.3 trillion in eligible index equity assets.²⁸ Beginning in February 2024, we’re expanding with a pilot for U.S. individual investors. We will enable Voting Choice for the over 3 million shareholder accounts of iShares Core S&P 500 ETF (IVV), making it the largest fund offering proxy voting in the industry.²⁹ Eligible shareholders will be able to participate in the shareholder voting process for the 2024 proxy season.

Our ambition is not just to provide high-quality investments to millions of people, but also to be relentless in providing you a great deal. That’s why, over the years, as our clients’ iShares investments grow, we consistently invest in our scale and pass back efficiencies to them through lower fees.

Since 2015, iShares has helped save investors over $630 million through fee reductions.³¹ Those savings are in the billions of U.S. dollars when you factor in the greater price competition ETFs have stimulated across the whole asset management industry.³²

In markets around the world where we see growth potential, we will also invest in anticipation of demand to offer you great value. In Australia, for example, we expect the ETF market to grow significantly and so last year we reduced the fees on several equity and bond ETFs to the lowest in the marketplace.³³ Around the world in 2023, we reduced prices on 45 ETFs.

We also want investors to get more mileage from our lineup of 35 actively managed ETFs, which rank in the lowest-cost quintile in the active management universe.³⁴ Take our BlackRock Advantage Large Cap Income (BALI) ETF or our iShares Large Cap Moderate Buffer (IVVM) ETF, for example, which we launched in 2023 in partnership with our active equity investment teams. These ETFs are designed to generate enhanced income or downside protection, using options, to help build portfolios in a more uncertain and volatile market. Beyond their differentiated investment proposition, they also can offer value, relative to active strategies broadly or even pricier structured products.

But value goes beyond fees – the potential effects of capital gains taxes from fund distributions can, in some markets, be more costly than fees. We manage our ETFs with tax efficiency in mind so that long-term investors can better control when they realize their own tax impact, just like when you sell a stock. Over the past five years, for example, none of our U.S. iShares Core Equity ETFs distributed capital gains, compared to 81% of U.S. active equity mutual funds.³⁵
Ultimately, we want you to keep more of what your money earns. Investors historically had to trade off investment quality and cost, but the ETF technology has upended all that. iShares ETFs enable all investors – professionals and novices – to access more markets in more ways, while benefitting from ETFs’ low fees and tax efficiency.