Search for Yield

A Low Yield Environment

We remain in a historically low yield environment. The combination of low growth and elevated stock and bond prices means balancing income and risk is as challenging as ever.

Still, we see three potential areas of opportunity for investors seeking yield in the current environment.

Balancing Income and Risk

chart: Balancing Income and Risk

Source: Barclays, Morningstar, Markit iBoxx and S&P as of 4/29/2016. Notes: Volatility is based on annualized standard deviation of daily index total returns over the last three years. The tax-adjusted yield for municipal bonds is based on a 43.4% overall tax rate. For bond indexes the yields displayed are yield to maturity and for the stock indexes it is the dividend yield. indexes displayed are Barclays US Treasury Bond Index, Barclays U.S. Aggregate Bond Index, Markit iBoxx $ Investment Grade Index, S&P AMT-Free Municipal Bond Index and S&P U.S. Preferred Stock. Index returns are for illustrative purposes only. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.

Municipal Bonds

Look for tax-adjusted yield

Municipal bonds can provide an attractive tax-adjusted yield relative to other yield-oriented asset classes. The structural backing by a municipality or a specific project historically has created a stable source of income that has tended to be less volatile than other fixed income instruments based on lower standard deviation of index returns of municipals versus other fixed income indexes.1

Furthermore, municipal bonds have historically had low correlations relative to other asset classes and can serve as a portfolio diversifier.2

iShares National Muni Bond ETF (MUB) iShares National Muni Bond ETF

Preferred Stocks

Consider a hybrid between stocks and bonds

Preferred stocks blend characteristics of both stocks and bonds. Preferred stocks have historically offered higher yields than traditional bonds3 and less volatility than common stock.4

Low historical correlations with other asset classes also make preferred stocks a potentially appealing way to diversify across income sources.5

iShares U.S. Preferred Stock ETF (PFF) iShares U.S. Preferred Stock ETF

Dividend Growers

Find attractive equity income

When it comes to sourcing income from equities it’s important not to overreach. While a higher dividend payout is attractive in the short term, if not supported by a healthy balance sheet, it can threaten the long term sustainability of a company.

We favor companies that have historically grown their dividends but maintained reasonably lower pay-out ratios. These companies can potentially offer investors attractive valuations, stable earnings and stronger balance sheets.

iShares Core Dividend Growth ETF (DGRO) iShares Core Dividend Growth ETF

Search for income in a low-yield environment

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1 Source: Based on the annualized standard deviation of daily index total returns for major bond indexes as of 3/31/2016.

2 Source: Bloomberg, BlackRock, based on 10-year correlations of the Barclay Agg Bond Index, US Intermediate Credit Index, and 3-7 Treasury Index versus S&P AMT-Free Municipal Bond Index as of 3/31/2016.

3 Source: Bloomberg as of July 2016. Based on 3-year average yields of the S&P U.S. Preferred Stock Index versus the Markit iBoxx USD Liquid Investment Grade Index and 10-yr treasury bills.

4 Source: Bloomberg as of July 2016. Based on 3-year standard deviation of 3-year returns between the S&P U.S. Preferred Stock Index and S&P 500 index. Volatility, represented by standard deviation, measures how dispersed returns are around the average. A higher standard deviation indicates that returns are spread out over a larger range of values and thus, more volatile.

5 Source: Bloomberg as of July 2016. Based on 5-year correlation of index levels between the S&P U.S. Preferred Stock Index versus the S&P 500 index, Barclays US Aggregate Bond Index, Barclays US Corporate High Yield Index, and Markit iBoxx USD Liquid Investment Grade Index. Correlation measures how two securities move in relation to each other.

Carefully consider the Funds' investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds' prospectuses or, if available, the summary prospectuses, which may be obtained by visiting the iShares ETF and BlackRock Fund prospectus pages. Read the prospectus carefully before investing.

Investing involves risk, including possible loss of principal.

The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective.

The information presented does not take into consideration commissions, tax implications, or other transactions costs, which may significantly affect the economic consequences of a given strategy or investment decision.

This document contains general information only and does not take into account an individual's financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.

This material represents an assessment of the market environment as of the date indicated; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular.

The information provided is not intended to be tax advice.  Investors should be urged to consult their tax professionals or financial advisors for more information regarding their specific tax situations.

Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments.

There may be less information on the financial condition of municipal issuers than for public corporations. The market for municipal bonds may be less liquid than for taxable bonds. Some investors may be subject to federal or state income taxes or the Alternative Minimum Tax (AMT). Capital gains distributions, if any, are taxable.

Preferred stocks are not necessarily correlated with securities markets generally. Rising interest rates may cause the value of the Fund’s investments to decline significantly.  Removal of stocks from the index due to maturity, redemption, call features or conversion may cause a decrease in the yield of the index and the Fund.

Funds that concentrate investments in specific industries, sectors, markets or asset classes may underperform or be more volatile than other industries, sectors, markets or asset classes and than the general securities market.

There is no guarantee that dividends will be paid.

Diversification and asset allocation may not protect against market risk or loss of principal.

The Funds are distributed by BlackRock Investments, LLC (together with its affiliates, “BlackRock”).

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