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2023 iSHARES REPORT ON INVESTOR PROGRESS
EMPOWERING INVESTORS THROUGH CHOICE
How iShares empowers millions of people to make their money work for them
INTRODUCTION
At iShares, we believe investor choice is a bedrock principle of free and open capital markets. Our third annual iShares Report on Investor Progress explores how exchange traded funds (ETFs) and index investments are advancing the freedom of millions of people to choose how to invest their money, empowering them to achieve their long-term goals.
We may look back at 2022 as one of the worst markets in decades, with stocks and bonds suffering double digit declines in the face of high inflation, rising rates, energy shocks, and geopolitical conflict. Yet the past year’s turmoil is creating next year’s opportunities — to rethink portfolio construction, to reconsider the greater income-generating potential of bonds, to reallocate to equity sectors or themes that may perform even with elevated inflation, and to adopt more granular approaches to international investing.
Taking a fresh look at portfolios requires investors to make choices, from broad asset allocation, to thematic or sector tilts, to product selection, to frequency of rebalancing. With over 2,500 iShares ETFs and index mutual funds — more than any other firm — we’re able to provide investors with more choices to access more segments of more markets than ever before.1
We are always trying to balance choice and simplicity. Today, as the Global Head of iShares and Index Investments, I value tools that help me reduce complexity. I am reminded of this every morning, when I use my Starbucks app — which offers more than 170,000 ways to customise beverages — to order the same, reliable black coffee.2 I appreciate the choices but prefer simplicity. This sentiment is shared by many of our clients, whose typical investment account is in the tens of thousands of dollars.3 The number of people who value the choice and simplicity of iShares ETFs grew by millions in 2022 to nearly 35 million, a growing part of the 120 million using our index capabilities worldwide.4
Millions of people are choosing iShares to gain efficient access to markets in the same way as our wealth management and institutional clients as they look for more ways to customise portfolios. The technology of ETFs and indexing has empowered investors of all types all over the world, reduced complexity by enabling people to pick a high-quality diversified index rather than sift among thousands of securities, as well as provided access to hard-to-reach markets.
Providing people with the freedom to choose where and how to invest in a convenient and affordable way is resonating.
What follows are examples of our commitments to be champions of investor progress by making investing more accessible and more affordable, while ensuring we continue to deliver best-in-class performance and innovation in the years ahead.
HIGHLIGHTS OF INVESTOR PROGRESS
232
ACCESSIBILITY
Clients worldwide entrusted iShares with over $220 billion in new ETF assets and $12 billion in index mutual funds.6
599
AFFORDABILITY
Since 2015, iShares has helped save investors nearly $600 million through fee reductions.7
1
PERFORMANCE
In 2022, our portfolio managers handled over 1 million index changes for thousands of funds.8
2500
INNOVATION
We offer more than 2,500 products, including 1,300+ ETFs and 1,200+ index mutual funds.9
ACCESSIBILITY
MAKING INVESTING WORK FOR EVERYONE
Bond ETFs have broken down barriers to fixed income markets
CONVENIENT BOND MARKET ACCESS
ETFs have been improving access to global equity markets for decades, but their impact on the bond market is even more profound. Twenty years ago, it was nearly impossible for individuals to access the bond market without opting for a pricey mutual fund or paying brokers an expensive markup to buy bonds directly.10 Even a professional investor might have needed several calls to haggle over terms to trade just one bond.
Then, in the summer of 2002, iShares launched the first U.S.-listed bond ETFs, enabling all investors to buy a portfolio of thousands of bonds with the click of a button, for a known bid-ask spread.11 What started with four U.S. iShares bond ETFs ultimately blossomed into 400 differentiated choices globally, along with hundreds more industry wide.12
The role of bonds in a portfolio is more relevant today, with bond yields rising to the highest levels in over a decade in 2022.13 The variety and liquidity of bond ETFs are making it easier for investors to build income-seeking portfolios.
Investors around the globe look to our European-domiciled bond ETFs for their ability to hedge currency risks back to their home currencies, whether that’s in pesos, kronor, or several others. And perhaps most remarkably, nine of the ten largest global asset managers looked to the liquidity of iShares bond ETFs in 2022 to better access the bond market.14
Our client base is so broad because of the ability of bond ETFs to act as a modernising technology that provides efficient, convenient access to the bond market.
Yet even 20 years after their debut, bond ETFs are still only 2% of the global fixed income market, with $1.7 trillion in assets, a number we project will grow to $5 trillion by 2030.16
Fixed income risk: Two main risks related to fixed income investing are interest rate risk and credit risk. Typically, when interest rates rise, there is a corresponding decline in the market value of bonds. Credit risk refers to the possibility that the issuer of the bond will not be able to repay the principal and make interest payments.
AFFORDABILITY
BREAKING THE COST BARRIER
iShares reduced prices in the face of rising inflation
GREATER SCALE, LOWER PRICES
People all over the world — especially retirees living on fixed incomes — saw their spending power erode in 2022 as inflation jumped to the highest levels in decades. While prices rose on everything from home heating to groceries, we bucked the trend, reducing fees on more than 50 iShares ETFs.17
Our technology-enabled economies of scale allow us to share our efficiencies with clients. Since 2015, iShares has helped investors save nearly $600 million through fee reductions.18 Simultaneously, the increasing affordability of ETFs helped stimulate price competition across the investment management industry, saving all kinds of investors — not just those in our ETFs — billions in fees in the past decade.19
We are always looking for ways to make investing more affordable. In the U.S. and Europe, for example, iShares Core ETFs charge roughly one-tenth the price of the average comparable mutual fund.20 In 2022, we reduced fees in our Japan-domiciled iShares range to offer the lowest priced ETFs tracking the three main local equity indices.21
But affordability is about more than fees — it also concerns how much money people need to get started investing, and how much they keep after fees and commissions.
There are no investment minimums with iShares ETFs. As a result, you can start to build a diversified portfolio for less than $100 USD via our ETF Savings Plans in Europe. In Brazil, we now have over 100 locally listed versions of iShares ETFs accessible on third-party direct platforms for minimums as low as $10 USD.22
In 2022, we expanded our partnerships with digital wealth platforms globally to eliminate commission barriers.
Over three million Europeans invested through iShares ETF savings plans in 2022, a 22% increase; we expect that number will grow threefold over the next five years.24
In an inflationary and volatile year like 2022, we continued to focus on all aspects of affordability — lower fees, lower minimum investments, and fewer commission barriers — so that our clients can keep more of what they earn and have the opportunity to achieve their long-term financial goals.
PERFORMANCE
THERE’S NOTHING PASSIVE ABOUT iSHARES
What does performance really mean for ETFs?
PRECISION & ETF MARKET QUALITY
Investment performance has typically been associated with the pursuit of alpha or seeking index-beating returns. So, what does ‘performance’ mean when it comes to ETFs and index investing? Just as two diamonds might look the same but are not of equal quality, not all ETFs and index funds are created equal. Investors expect our products to perform in two critical ways: precise tracking and best-in-class ETF market quality.
Precision is a measure of how well funds replicate the performance of an underlying index, and their ability to do so consistently over time. Delivering precise tracking requires advanced technology like our Aladdin platform, deep research, and investment acumen. When developing new products, we work closely with providers who construct the indices our ETFs track. This helps ensure the indices include a broad mix of companies to capture the investment opportunity and that we can consistently and precisely track the various indices.
Aladdin/risk management platform – risk management benefits
While proprietary technology platforms may help manage risk, risk cannot be eliminated.
We are continually evolving our products, for example, to align with changing regulatory requirements. In Europe, that has meant ensuring compliance with the EU Regulation on sustainability-related disclosures in the financial services sector (SFDR). The aim of the regulation is to harmonise disclosure standards, creating a common framework for investors to consider a fund’s sustainable credentials and compare funds with respect to their environmental, social and governance (ESG) risks and sustainable investment objectives. In response, we have provided greater transparency into sustainable product methodologies including their use of sustainability-related metrics.
ETF market quality refers to the ability to offer liquidity, price discovery and efficient access under varying market conditions. Liquidity is like oxygen: you don’t think about it until it’s in short supply — for example, during periods of intense market volatility as we saw in 2022. When markets are moving dramatically, even a few minutes can make a big difference in the price at which you’re able to buy or sell an asset.
Liquidity and price transparency are big reasons investors are increasingly turning to ETFs, especially in volatile markets. In 2022, ETF average daily trading volume hit record levels in both Europe and the U.S.26 As more investors turn to ETFs, more are turning to iShares, specifically. In 2022, iShares ETFs accounted for the 10 most heavily traded fixed income ETFs in Europe, and eight of the top 10 in the U.S.27
Precision and market quality don’t just happen. It takes the collective efforts and expertise of our portfolio management team and the technology and engineering to get millions of things right for a chance at delivering consistently successful outcomes for investors.
In short, there’s nothing “passive” about how we manage our clients’ ETF and index assets.
INNOVATION
REINVENTING WHAT ETFs CAN DO
ETFs and indexation are the vehicle of choice for all kinds of investors
ACTIVELY USING ETFs
In 2006, when only a few hundred ETFs were listed, a leading U.S. investment publication published an article with this headline: “Too many ETFs?”28 Today, with several thousand ETFs available globally, we constantly pose the question to ourselves: how much choice do investors need?
Our clients are telling us they want even more high-quality ETFs that provide even more granular access to different parts of the market, whether that be a part of the bond market or a new investable theme. In 2022 alone we launched 60 new ETFs globally and we continuously seek to bring new and innovative solutions to market for clients to evolve their portfolios.29
For example, in Europe this year, we continued to expand our range of products aligning with the goals of the Paris Climate Agreement — keeping global temperature rise this century well below 2 degrees Celsius above pre-1850 averages.30 By launching the iShares € Corp Bond ESG Paris-Aligned Climate UCITS ETF we provide a measurable and transparent way to align portfolios with climate goals.
These new ETFs join our existing lineup of over 1,300 ETFs, including low-cost core ETFs for buy-and-hold investors, bond ETFs for efficient access to fixed income markets, precision ETF exposures for tactical allocators to target regional, country, sector, and commodity exposures, plus our Factor, Sustainable and Thematic ETFs for those seeking sources of active return, as well as actively managed BlackRock-branded ETFs.31
We also innovated in 2022 how our clients can engage with their money, through BlackRock’s Voting Choice initiative. This empowers institutional investors in BlackRock separate accounts and nearly 650 index mutual funds the ability to choose how to vote the shares of the companies they own through our index equity capabilities.32 Nearly half of our clients’ index equity assets under management, including retirement plans serving more than 60 million people around the world, are now eligible.33 We are also working to expand this capability to individual investors in markets like the UK, and in funds where this is possible.
Perhaps the most significant innovation of 2022 is not in the expanding choices of new ETFs but how ETFs are being used — as instruments of active management. Global active asset managers have overcome their historic skepticism as they saw the benefits that iShares ETFs could provide to their portfolios. And many US asset managers have gone further still, launching alpha-seeking strategies in an active ETF wrapper.
Over time, this will expand what ETFs can do, whether in customised model portfolios or in the bond market, while providing investors with greater transparency and improved efficiency to access multiple sources of return.
1 BlackRock, as of November 25, 2022. iShares offers 1,328 ETFs. The number two and three ETF providers in terms of number of funds offer 640 and 505 products, respectively. BlackRock offers 1,243 index mutual funds, including different share classes within our commingled index fund ranges.
2 “With more than 170,000 ways to customize beverages at Starbucks® stores, customers can create a favorite drink that fits their lifestyle,” according to Starbucks’ website as of April 2022.
3 BlackRock, as of 30 September 2022. We divided our assets under management by 120 million. 120 million figure estimates the combined reach of our iShares ETFs and index mutual funds, LifePath® index target-date funds and other index-tracking products that are used in retirement plans BlackRock, Broadridge (as of 30 September 2022); Blackrock FP&A (Institutional Index AUM as of 30 September 2022); BlackRock Defined Benefit and Defined Contribution plan clients (as of 30 September 2022). Publicly reported average “number of members” statistics collected from various relevant client websites. 35 million figure estimates the number of individual investors in iShares ETFs from digital platforms across US, European Union, United Kingdom, Canada, and Japan using Broadridge, ExtraETF, AMF, Le Monde, Wisdom Tree, Finanzas, Italian Association of Asset Managers. U.S. iShares users calculated based on Broadridge data of total number of accounts in the U.S. holding iShares ETFs by ticker level and internal assumptions on number of accounts per household, per user and tickers per account; Institutional index mandate client (ex ETF) estimate based on Blackrock AUM and number of users across accounts.
4 120 million figure estimates the combined reach of our iShares ETFs and index mutual funds, LifePath® index target-date funds and other index-tracking products that are used in retirement plans BlackRock, Broadridge (as of 30 September 2022); Blackrock FP&A (Institutional Index AUM as of 30 September 2022); BlackRock Defined Benefit and Defined Contribution plan clients (as of 30 September 2022). Publicly reported average “number of members” statistics collected from various relevant client websites. 35 million figure estimates the number of individual investors in iShares ETFs from digital platforms across US, European Union, United Kingdom, Canada, and Japan using Broadridge, ExtraETF, AMF, Le Monde, Wisdom Tree, Finanzas, Italian Association of Asset Managers. U.S. iShares users calculated based on Broadridge data of total number of accounts in the U.S. holding iShares ETFs by ticker level and internal assumptions on number of accounts per household, per user and tickers per account; Institutional index mandate client (ex ETF) estimate based on Blackrock AUM and number of users across accounts.
5 ETF assets: BlackRock iShares Global Business Intelligence (YTD data as of 30 December 2022). 3rd party Index Mutual Funds (IMFs): Simfund for US IMFs (YTD as of 30 December 2022) and Broadridge for Non-US IMFs (YTD as of 30 December 2022); BlackRock IMFs: BlackRock Financial Planning and Analysis (YTD as of 30 December 2022).
6 ETF assets: BlackRock iShares Global Business Intelligence (YTD data as of 30 December 2022). 3rd party Index Mutual Funds (IMFs): Simfund for US IMFs (YTD as of 30 December 2022) and Broadridge for Non-US IMFs (YTD as of 30 December 2022); BlackRock IMFs: BlackRock Financial Planning and Analysis (YTD as of 30 December 2022).
7 BlackRock as of 16 December 2022. Cumulative cost-savings figure is calculated by taking the difference between the previous fund expense ratio and the new fund expense ratio from 2015 through 16 December 2022, multiplied by the fund assets under management at the time of the fund reduction. Methodology does not account for compounding savings over time.
8 Projections, or a “pro-forma” index, are what an index will look like in the future based on announced index changes. For more information on managing equity index rebalances, see “iShares Investigates: Market Indexes and Index Investing: Equity index rebalances." BlackRock, as of 30 September 2022.
9 BlackRock, as of 30 September 2022.
10 National Bureau of Economic Research, Explorations in Economic Research, Volume 2, number 3 (Regional Stock Exchanges in a Central Market System), ‘The Historical Evolution of Today’s Bond Market’ by Sidney Homer (p.378-389).
11 iShares launched the first bond ETFs in the U.S. in July 2002 (LQD, SHY, IEF, TLT).
12 BlackRock Global Business Intelligence, as of 30 November 2022.
13 BlackRock Investment Institute, as of 30 November 2022.https://www.blackrock.com/corporate/insights/blackrock-investment-institute/publications/outlook#asset-class-views
14 BlackRock analysis of SEC 13-F filings for U.S.; BlackRock analysis of self-reported holdings by asset managers in Europe and Asia. Top 10 global asset managers determined by Pensions & Investments in 2021.
15 BlackRock Global Intelligence as of 30 December 2022.
16 BlackRock, “All Systems Go: As bond ETFs turn 20 years old, we believe four trends will propel global AUM to $5 trillion by 2030,” April 2022.
17 BlackRock as of 30 November 2022.
18 BlackRock as of 30 September 2022. Cumulative cost-savings figure is calculated by taking the difference between the previous fund expense ratio and the new fund expense ratio from 2015 through 30 Sept 2022, multiplied by the fund assets under management at the time of the fund reduction. Methodology does not account for compounding savings over time.
19 Source: Journal of Portfolio Management, volume 48 number 5, April 2022 JPM BR April 22. JPM BR April 22 On the Benefits of Scale (pm-research.com).
20 For U.S.: BlackRock and Morningstar, as of 30 September 2022. Comparison is between the average Prospectus Net Expense Ratio for the iShares Core ETFs (0.05%) and actively managed open-end mutual funds in the 9 style box Morningstar categories using the oldest share class to avoid duplicates (0.94%). For Europe, BlackRock and Broadridge, as of 30 September 2022. Comparison is between the simple average Prospectus Total Expense Ratio (TER) for Europe-domiciled iShares Core Series ETFs (0.14%), and the average simple average Total Expense Ratio (TER) for comparable EMEA-domiciled active and index mutual funds determined by BlackRock and using the Broadridge filters for “Allocation”, “Equity” and “Fixed Income” (1.16%) available as of 1 December 2021. Europe, Middle East, and Africa (EMEA) is defined by fund domiciled in Austria, Belgium, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Isle of Man, Israel, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mauritius, Netherlands, Norway, Poland, Portugal, Slovenia, South Africa, Spain, Sweden, Switzerland, U.A.E. and United Kingdom.
21 Tokyo Stock Exchange, as of 1 November 2022.
22 BlackRock, as of 31 October 2022. Brazilian BDR platform has 8 managers and 175 products, 101 of which are BlackRock.
23 BlackRock, as of 30 November 2022.
24 BlackRock, as of 30 November 2022. https://www.etfstream.com/news/blackrock-etfs-on-european-digital-platforms-to-hit-500bn-by-2026/
25 Projections, or a “pro-forma” index, are what an index will look like in the future based on announced index changes. For more information on managing equity index rebalances, see “iShares Investigates: Market Indexes and Index Investing: Equity index rebalances." BlackRock, as of 30 September 2022.
26 Bloomberg, BlackRock as of 30 September 2022.
27 Bloomberg, BlackRock, Markit as of 30 September 2022.
28 Barron’s, “Too Many ETFs?”, 3 July 2006.
29 BlackRock, as of 30 November 2022.
30 International agreement to keep the increase in global average temperature to well below 2°C above pre-industrial levels while endeavoring to limit warming to 1.5°C, the scientifically backed threshold to prevent the most destructive effects of climate change. United Nations Framework Convention on Climate Change, 31 March 2021.
31 BlackRock, as of 30 November 2022.
32 BlackRock as of 30 September 2022. Institutional SMA clients have the opportunity to vote eligible proxies for the companies in which they are invested. Investors in eligible pooled funds will have the opportunity to direct voting on eligible proxies in eligible markets for companies held by the funds. BlackRock will determine eligibility criteria under this program based upon, among other things, local market regulation and practice, cost considerations, operational risk and/or complexity, and financial considerations, including the decision to lend securities. Voting policies shall be consistent with applicable fiduciary standards.
33 BlackRock as of 30 September 2022. Over 60 million people globally directly or indirectly invest in retirement assets eligible for voting choice.