April 03, 2018

BlackRock is the world’s largest asset manager

Building the right defense in equities

By Kate Moore , Yanni Angelakos

High-yielding “bond proxies” earned their stripes as equity safe havens as bond yields were slow to revert to pre-crisis levels. We look at what may constitute the new defense in equities as interest rates transition from “lower for longer” to higher at long last.

Equity highlights

Traditional high-dividend stocks could do more harm than good in an environment of higher rates and inflation. They have underperformed broad indexes year-to-date and are vulnerable to rate moves. Minimum-volatility (min-vol) strategies suffered a similar fate, suggesting a good defense is a multi-faceted one.
The “why” behind rate rises is important. Different sectors tend to play better defense depending on the impetus for rising rates. When yields are rising faster than inflation expectations, as they are today, cyclical (rather than defensive) rate-sensitive sectors can lead. U.S. banks, in particular, appear well positioned.
Defense in stocks today is less about high yield and more about quality and the ability to outrun inflation, in our view. Companies with the free cash flow to boost dividends also tend to sport attractive valuations versus the highly bid high yielders.

Snapshot

High-yielding bond proxies did not offer downside protection in the February stock rout . It’s a role they historically have played well in drawdowns caused by economic deterioration and other risk-off periods. But this sell-off came amid a steady global expansion. The impetus this time, aside from a technical matter of investors exiting strategies betting on low volatility, was fears over rising rates and inflation.

Strong growth provides a solid foundation for stocks, we believe, but this experience makes it worth considering whether bond proxies can provide the same downside protection they have historically. They may even face competition from bonds for the first time in nearly 10 years.

We analyzed S&P 500 sector performance from 2000 to present to isolate vulnerabilities. The findings: Traditional defensive sectors such as utilities, telecommunications, real estate and consumer staples provided minimal protection when nominal yields moved higher. Our analysis reveals this relationship has held outside the U.S. as well. See the Yields up, defensive stocks down chart.

Sector performance when nominal yields rise, 2000-2018

Article originally on BlackRock.com

General disclosure: This material is prepared by BlackRock and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of March 2018 and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This material may contain ‘forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Index data cited herein are from Thomson Reuters, unless otherwise noted.

In the U.S ., this material is for public distribution. In the EU, issued by BlackRock Investment Management (UK) Limited (authorised and regulated by the Financial Conduct Authority). Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Registered in England No. 2020394. Tel: 020 7743 3000. For your protection, telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited. This material is for distribution to Professional Clients (as defined by the FCA Rules) and Qualified Investors and should not be relied upon by any other persons. For qualified investors in Switzerland , this material shall be exclusively made available to, and directed at, qualified investors as defined in the Swiss Collective Investment Schemes Act of 23 June 2006, as amended. Issued in the Netherlands by the Amsterdam branch office of BlackRock Investment Management (UK) Limited: Amstelplein 1, 1096 HA Amsterdam, Tel: 020 - 549 5200. In South Africa , please be advised that BlackRock Investment Management (UK) Limited is an authorized Financial Services provider with the South African Financial Services Board, FSP No. 43288. In Dubai : This information can be distributed in and from the Dubai International Financial Centre (DIFC) by BlackRock Advisors (UK) Limited ‒ Dubai Branch which is regulated by the Dubai Financial Services Authority (“DFSA”) and is only directed at 'Professional Clients’ and no other person should rely upon the information contained within it. Neither the DFSA or any other authority or regulator located in the GCC or MENA region has approved this information. This information and associated materials have been provided for your exclusive use. This document is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution would be unlawful under the securities laws of such. Any distribution, by whatever means, of this document and related material to persons other than those referred to above is strictly prohibited. For investors in Israel : BlackRock Investment Management (UK) Limited is not licensed under Israel's Regulation of Investment Advice, Investment Marketing and Portfolio Management Law, 5755-1995 (the “Advice Law”), nor does it carry insurance thereunder. In Singapore , this is issued by BlackRock (Singapore) Limited (Co. registration no. 200010143N). In Hong Kong , this material is issued by BlackRock Asset Management North Asia Limited and has not been reviewed by the Securities and Futures Commission of Hong Kong. In Korea , this material is for Professional Investors only. In Taiwan , independently operated by BlackRock Investment Management (Taiwan) Limited. Address: 28/F, No. 95, Tun Hwa South Road, Section 2, Taipei 106, Taiwan. Tel: (02)23261600. In Japan , this is issued by BlackRock Japan. Co., Ltd. (Financial Instruments Business Operator: The Kanto Regional Financial Bureau. License No375, Association Memberships: Japan Investment Advisers Association, the Investment Trusts Association, Japan, Japan Securities Dealers Association, Type II Financial Instruments Firms Association.) For Professional Investors only (Professional Investor is defined in Financial Instruments and Exchange Act) and for information or educational purposes only, and does not constitute investment advice or an offer or solicitation to purchase or sells in any securities or any investment strategies. In Australia , issued by BlackRock Investment Management (Australia) Limited ABN 13 006 165 975, AFSL 230 523 (BIMAL). This material is not a securities recommendation or an offer or solicitation with respect to the purchase or sale of any securities in any jurisdiction. The material provides general information only and does not take into account your individual objectives, financial situation, needs or circumstances. BIMAL, its officers, employees and agents believe that the information in this material and the sources on which it is based (which may be sourced from third parties) are correct as at the date of publication. While every care has been taken in the preparation of this material, no warranty of accuracy or reliability is given and no responsibility for the information is accepted by BIMAL, its officers, employees or agents. No guarantee as to the repayment of capital or the performance of any product or rate of return referred to in this material is made by BIMAL or any entity in the BlackRock group of companies. In China , this material may not be distributed to individuals resident in the People's Republic of China (“PRC,” for such purposes, excluding Hong Kong, Macau and Taiwan) or entities registered in the PRC unless such parties have received all the required PRC government approvals to participate in any investment or receive any investment advisory or investment management services. For other APAC countries , this material is issued for Institutional Investors only (or professional/sophisticated/qualified investors, as such term may apply in local jurisdictions) and does not constitute investment advice or an offer or solicitation to purchase or sell in any securities, BlackRock funds or any investment strategy nor shall any securities be offered or sold to any person in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. In Canada , this material is intended for permitted clients only. In Latin America and Iberia , this material is for educational purposes only and does not constitute investment advice nor an offer or solicitation to sell or a solicitation of an offer to buy any shares of any fund (nor shall any such shares be offered or sold to any person) in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities law of that jurisdiction. If any funds are mentioned or inferred to in this material, it is possible that some or all of the funds have not been registered with the securities regulators of Argentina, Brazil, Chile, Colombia, Mexico, Panama, Peru, Portugal, Spain, Uruguay or any other securities regulator in any Latin American country and thus might not be publicly offered within any such country. The securities regulators of such countries have not confirmed the accuracy of any information contained herein. The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Investment involves risk including possible loss of principal. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation, and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are often heightened for investments in emerging/developing markets or smaller capital markets.

BII0218U/E-433241-1370344

quity markets are at a crossroads.

Nine years into the bull run, a synchronized

global economic expansion

amplified

U.S. fiscal

stimulus

is stoking

higher earnings

growth expectations

—

and

interest

rates. High

yielding

“bond proxy” stocks

earned

their stripes as equity

safe havens for much of

the period

as bond yields were slow

revert back to pre

crisis

levels. We look at what may constitute the new defense

in stocks as rates transition from “lower for longer” to higher at long last.

Highlights

•

Traditional high

dividend stocks could

do more harm than

good in an environment

of higher rates and inflation. They have underperformed broad indexes year

date and are vulnerable to rate moves

Minimum

volatility (min

vol

) strategies

suffered a similar fate, suggesting a good defense is a multi

faceted one.

•

The “why” behind rate rises is important. Different sectors tend to play better

defense depending on the impetus for rising rates. When yields are increasing

faster than inflation expectations, as they are today, cyclical (rather than defensive)

rate

sensitive sectors can lead. U.S. banks, in particular, appear well positioned.

•

Defense in stocks today is less about high yield and more about quality and the

ability to outrun inflation, in our view. Companies with the free cash flow to boost

dividends also tend to sport attractive valuations

versus the highly bid high yielders.

ot created equal

Stock and bond prices usually move inversely. Yet not all stocks are created equal.

The

Stocks in bonds’ clothing

chart reveals that defensives such as U.S. utilities and

telecoms

historically have more

closely

followed moves

in Treasury prices than higher

beta, or more volatile, cyclicals such as

financials

. This suggests offense sometimes

may be the best defense when

interest rates

are rising and bond prices

falling.

G L O B A L E Q U I T Y O U T L O O K • A P R I L 2 0 1 8

Building the right

defense

in equities

Kate Moore

Chief Equity Strategist,

BlackRock Investment Institute

Yanni Angelakos

Macro Research and Strategy,

BlackRock

Fundamental

Active Equity

Sources: BlackRock Investment Institute, with data from Thomson Reuters and S&P, March 2018. Notes: The dots

show the correlation of S&P 500 sectors and U.S. bond

daily returns

(based on the Thomson Reuters U.S. benchmark

year

) and the beta to the S&P 500 broad

market from 2001 to the present.

Beta is a measure of risk relative to

the

broader market. Sectors are represented by their respective S&P 500 indexes

Stocks in bonds’ clothing

Rate

sensitivity and

market beta

of U.S. stocks by sector,

2001

2018

FOR INSTITUTIONAL, PROFESSIONAL,

WHOLESALE, QUALIFIED

INVESTORS AND QUALIFIED

CLIENTS ONLY.

FOR PUBLIC DISTRIBUTION IN THE

U.S.

BII0318U-455596-1451399

Taking the offense on equity defense

High

yielding

bond proxies did not offer downside

protection

in the February stock rout. It’s

a role they

historically have

played

well in drawdowns caused by economic

deterioration

and other risk

off periods.

But

this selloff

came

amid a

steady global

expansion. The

impetus this time,

aside from

technical matter of investors

exiting strategies betting on

low volatility,

was fears over rising rates and inflation.

Strong growth provides a solid foundation for stocks, we

believe

, but this experience makes it worth

considering whether

bond

proxies

can provide the same downside protection in the

coming quarters as they have historically. They may even face

competition from bonds for the first

time in nearly 10 years.

We analyzed

S&P 500

sector performance from 2000 to

present to isolate vulnerabilities.

The findings: Traditional

defensive sectors such as utilities, telecommunications,

real

estate and consumer staples provided

minimal

protection when nominal yields moved higher.

considered three cases: 1) rising 10

year yields; 2) rising

year

breakevens

(a market gauge of expected inflation);

and 3) rising 10

year real

(inflation

adjusted) yields

A rate

increase

greater than 15 basis points

in a month constituted

a “

rise.” Based on our analysis, the

split between sectors that

benefited from rising nominal yields and those that suffered

was clear:

Defense

oriented

sectors

—

those

that are

income

driven but light on

growth

—

fared worse as the

opportunity cost for holding

them grew.

Cyclical stocks,

whose performance coincides with an expanding business

cycle, predictably performed better

Our analysis reveals

this

relationship

has held outside the

U.S. as well

. See

the

Yields up, defensive stocks down

chart.

Yields up, defensive stocks down

Sector performance when nominal yields rise, 2000

2018

The “why” matters

The “why” behind rate rises is important.

Yields can and do

rise for different reasons

—

some better than others. If the

economy is growing, and inflation along with it, an inflation

hedge is warranted. Commodity

oriented sectors historically

have fit the bill: As demand for goods and services rises,

commodity prices have tended to follow suit

We prefer to gain

exposure to commodities through related equities and debt

today. Companies have become more disciplined in their

spending and both assets have

lagged underlying spot

prices,

leaving room for greater appreciation potential. We offer our

take in our latest

Global investment outlook

We find energy and materials stocks historically have been

the best performing when U.S. inflation

breakevens

perk up.

And they have dropped when

breakevens

dipped. Real estate

investment trusts (REITs), a sector we saw decline when

nominal yields rose, tend to perform much better when the

rate increase is spurred by inflation expectations. Why?

Rents and real estate values tend to increase with higher

prices broadly in an expanding economy.

When nominal yields are rising faster than inflation

expectations

—

as has been the case in the first few months

of 2018

—

financials

have ended

up taking the

reins.

This is

a boon for U.S. banks

in particular, which are able to lend at

higher rates as the Fed

gradually ups its target rate. This puts

U.S. banks among our favored sectors, with deregulation and

the prospect of increasing dividends offering the potential for

an additional boost.

similar analysis for Europe reveals

some parallels in the

response to a rising GDP

weighted 10

year government bond

yield:

Cyclicals rise,

defensives

drop.

We find the

average dividend yield of

common “bond

proxy”

sectors

in the MSCI USA Index stands near

% today, almost

two percentage points higher than the broad

index

This makes

defensive companies an appealing income source. But as

interest rates

—

and the short end of the yield

curve

—

grow

attractive for investors,

the risk/reward proposition

changes. Defensive stocks begin to lose their luster,

particularly at still

demanding valuations in some regions.

All defensive sectors have cheapened since reaching peak

valuations when bond yields bottomed in 2016. Yet defensive

stocks globally are still trading at a 7% premium to the broad

market today, based on our analysis of MSCI index data.

European defensives stand at a

11%

premium, while the U.S.

comes in at a 3

discount relative to the broader market.

Idiosyncratic challenges atop such broad transitions make

picking stocks even more complicated than usual. Technology

disruption has created gray area in many spots. And consumer

staples, in particular, face notable business challenges. Take

beverages and packaged goods

, two of the biggest: The former

struggles with changing consumer preferences. The latter faces

competition from private

label goods sold by big

name retailers

as brands have less sway over cost

conscious consumers.

Margin compression

is also a challenge as rising input costs are

difficult to pass through

These

, we find, are

global phenomena.

FOR INSTITUTIONAL, PROFESSIONAL,

WHOLESALE, QUALIFIED

INVESTORS AND QUALIFIED

CLIENTS ONLY.

FOR PUBLIC DISTRIBUTION IN THE

U.S.

Past performance is not a reliable indicator of current or future results. It is not

possible to invest directly in an index.

Sources: BlackRock Investment Institute, with

data from Thomson Reuters, S&P, MSCI and the European Central Bank, March 2018.

Notes: The bars show the average annualized monthly

performance

of U.S. and

European equity sectors during months when 10

year yields rose. Sector performance is

relative to the broad

market;

indexes used are the S&P 500 and the MSCI Europe.

We define a rise in the 10

year as a change greater than 15 basis

points.

We use

the 10

year Treasury for the U.S. and a GDP

weighted 10

year rate for the euro

area.

BII0318U-455596-1451399

Building a better ballast

Investors

may be

tempted

to add to bond

proxies and

related defensive stocks as their

premium valuations to

the

rest of the market have

lessened. Yet

the nominal and

real rate backdrop

may well warrant

this relative multiple

compression.

find some of these

companies, in fact,

have been unable to

increase

cash flows

—

even

against

economic

backdrop where

profitability has reached

new

highs for most of the market. The weakness in these

businesses justifies the

rating.

We also find the ability of these high

yielding stocks to

outperform depends heavily on the economic growth regime.

Using

Institute for Supply Management (ISM)

manufacturing

data as a proxy for economic activity, our analysis shows

that in times of economic contraction

(PMI readings below

50), high yielders

have tended

to outperform broad equity

indexes. The effect wanes significantly in periods of steady

expansion. See the

A time and place for yield

chart.

believe stocks need to do more than generate stable

income to earn investors’ attention today.

Defense

equity

portfolios

should focus on quality

as a style characteristic

and

dividend growth, in our view. Quality

companies, by our

definition,

are

those able

generate and grow

free cash flow

while maintaining healthy balance sheets. Companies with the

fundamental ability

—

and

demonstrated willingness

—

increase

dividend payouts appear better positioned to offer

portfolio protection than those

with only

high

dividend yields

Dividend growers also show

tendencies to be more “all

weather” and

we find currently sport

relatively attractive

valuations

versus

the

highest yielders that

were bid up

after

years of low rates and investor thirst for income.

A time and place for yield

High

yielder

excess return

and U.S.

economic activity

, 1991

2018

Past

performance is not a reliable indicator of

current or future

results. It is

not possible to invest directly in an index

Sources

BlackRock,

with data from

Bloomberg,

S&P

and ISM, March 2018. Notes: The bars show average forward

excess returns of the S&P 500 High Dividend Index relative to the S&P

500 over

three

, six

and

month horizons

for

various levels

of the

ISM’s U.S.

manufacturing

PMI. A reading above 50 represents economic expansion and below marks

contraction. “Lowest” is a reading of 34.5

39.5 and “highest” is 59.5

64.5.

When rising rates de

rate

Min

vol

performance under different rate conditions,

2002

2018

Past

performance is not a reliable indicator of

current or future

results. It is

not

possible to invest directly in an index.

Sources

BlackRock, with data from

Thomson Reuters and MSCI, March 2018. Notes: The bars represent the

average

annualized risk

adjusted excess return of minimum volatility from 2002 to 2018.

Treasury yields up or down is any move above or below zero

Bear flattener is rates

and

the 2

curve flatter. Bear

steepener

is rates up and 2

10 curve steeper. Bull

flattener is rates down and 2

10 curve flatter. Bear

steepener

is rates down

and 2

curve steeper. Min

vol

is represented by the MSCI ACWI Minimum Volatility Index and

the comparative benchmark is the MSCI ACWI. The Min Vol index was launched on

May 30,

2008.

Earlier data are back

tested. See

Important notes

at back.

The vagaries of volatility

For much of this cycle, when

market

volatility picked up,

low

volatility

stocks and related

min

vol

strategies provided

comfortable cushion.

But February was different.

two rocky periods for stocks

—

the first quarter of 2016 and

first quarter 2018

—

the VIX

volatility gauge was

at similar levels.

Yet the performance of min

vol strategies was very

different:

outperformance two years ago and underperformance today.

The reason: 2016 was about macro growth fears and a China

slowdown; 2018 was more about rates and

inflation

and

worsened by leveraged strategies betting on low

vol.

The

When

rising rates de

rate

chart shows

that min

vol strategies

historically have floundered in various rising

rate scenarios

This illustrates the vagaries of volatility, and the need to prepare

for it in different ways

Volatility tends

to move in regimes

—

high

or low

—

our research suggests

. We see a low

volatility regime

with room to go in 2018. Yet within it, bouts of heightened

vol

are

likely, and the triggers matter for building a proper defense.

Our

bottom line:

High

yielders

and min

vol strategies

hold an

important place in portfolios. They historically have offered

cushion in risk

off periods, but their buffer may be limited amid

rising

rates and inflation.

see

short

term bonds as an

increasingly compelling alternative to “stable” dividend stocks.

ominal

two

year yields are higher than the dividend yield in

the U.S.

for

the first time since

2008.

Other regions are

not

far

behind as

central

banks begin to gradually

move to

normalize

policy

We elaborate in

A mighty (

tail)wind

. Within our overall

preference for stocks, we believe investors are well served by

an allocation to quality companies with the ability to increase

dividend payouts and generate

revenues that can outrun inflation.

FOR INSTITUTIONAL, PROFESSIONAL,

WHOLESALE, QUALIFIED

INVESTORS AND QUALIFIED

CLIENTS ONLY.

FOR PUBLIC DISTRIBUTION IN THE

U.S.

BII0318U-455596-1451399

Important notes:

Back

tested data are calculations of how an index might have performed prior to the index’s inception. There are frequently mat

erial differences between

back

tested performance and actual results. Past performance

—

whether actual or back

tested

—

is no indication or guarantee of

future performance.

Source: MSCI.

MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect

to any MSCI data contained herein.

The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products.

Thi

s report is not approved, reviewed or produced

by MSCI.

The

MSCI

Minimum Volatility

Indexes are calculated by optimizing a parent MSCI Index by using an estimated security co

variance matrix to produce an index t

hat has the

lowest absolute volatility for a given set of constraints. The starting universe to determine a Minimum Volatility Index is a

n M

SCI Equity Index

(in the case of the MSCI ACWI

Minimum Volatility Index, it is the MSCI ACWI Index) and

the estimated security co

variance matrix is based on the relevant Barra multi

factor equity model. Details about

the Barra multi

factor risk models are available at https://www.msci.com/portfolio

management

. Constructing the Minimum Volatility Indexes involves defining the parent

index and the base currency optimization, defining the optimization constraints and determining the optimized portfolio.

The MSCI Minimum Volatility Index seeks to have

the lowest absolute volatility based on the set of constraints.

Changes

resulting from

review

of the MSCI Minimum Volatility

Indexes are

made as of the close of the last

business day of May and November, coinciding with

the

semi

annual index review of the Parent

Indexes. For

more information, see

MSCI

Minimum Volatility

Indexes

Methodology

General disclosure:

This material is prepared by BlackRock and is not intended to be relied upon as a forecast, research or investment advice, an

d i

s not a

recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions express

are as of

April 2018

and may change as

subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonpropr

iet

ary sources deemed by BlackRock to be

reliable, are not necessarily all inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliab

ili

ty is given and no responsibility arising in any

other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock,

s officers, employees or agents. This material

may contain ‘forward looking’ information that is not purely historical in nature. Such information may include, among other

thi

ngs, projections and forecasts. There is no

guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of

the

reader. Index data cited herein

are

from

Thomson Reuters, unless otherwise

noted.

the U.S

., this material is for public distribution.

In the

EU,

issued by BlackRock Investment Management (UK) Limited (authorised

and regulated

by the Financial Conduct

Authority). Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Registered in England

No. 2020394

. Tel: 020 7743 3000. For your protection, telephone calls are

usually recorded. BlackRock is a trading name of

BlackRock Investment

Management (UK) Limited. This material is for distribution to Professional Clients (as defined by the

FCA Rules) and

Qualified Investors

and should not be relied upon by any other persons. For qualified investors

in Switzerland

, this material shall be exclusively

made

available

to, and directed at, qualified investors as defined in the Swiss Collective Investment Schemes Act of 23 June 2006, as

amended. Issued

in the Netherlands

by the

Amsterdam branch office of BlackRock Investment Management (UK) Limited: Amstelplein 1, 1096

HA Amsterdam

, Tel: 020

549 5200.

In South Africa

, please be advised

that BlackRock Investment Management (UK) Limited is an

authorized Financial

Services provider with the South African Financial Services Board, FSP No. 43288.

Dubai

: This

information can be distributed

in and

from the Dubai International Financial Centre (DIFC) by BlackRock Advisors (UK) Limited

‒

Dubai Branch which is

regulated by

the Dubai

Financial Services Authority (“DFSA”) and is only directed at 'Professional Clients’ and no other person should rely upon

the information

contained

within it. Neither the DFSA or any other authority or regulator located in the GCC or MENA region has approved

this information

. This information and associated materials

have been provided for your exclusive use. This document is not intended

for distribution

to, or use by, any person or entity in any jurisdiction or country where such

distribution would be unlawful under the

securities laws

of such. Any distribution, by whatever means, of this document and related material to persons other than those

referred to above

is strictly

prohibited. For investors

in Israel

: BlackRock Investment Management (UK) Limited is not licensed under Israel's Regulation

of Investment

Advice, Investment Marketing and Portfolio Management Law, 5755

1995 (the “Advice Law”), nor does it carry

insurance thereunder

In Singapore

, this is issued by

BlackRock (Singapore) Limited (Co. registration no. 200010143N).

In Hong Kong

, this material

is issued

by BlackRock Asset Management North Asia Limited and has not

been reviewed by the Securities and Futures Commission of

Hong Kong

In Korea

, this material is for Professional Investors only.

In Taiwan

, independently operated by

BlackRock Investment

Management (Taiwan

) Limited. Address: 28/F, No. 95, Tun Hwa South Road, Section 2, Taipei 106, Taiwan. Tel: (02)23261600.

In Japan

, this is

issued

by BlackRock

Japan. Co., Ltd. (Financial Instruments Business Operator: The Kanto Regional Financial Bureau. License No375,

Association Memberships

: Japan

Investment Advisers Association, the Investment Trusts Association, Japan, Japan Securities Dealers

Association, Type

II Financial Instruments Firms Association.) For

Professional Investors only (Professional Investor is defined in Financial

Instruments and

Exchange Act) and for information or educational purposes only, and does not

constitute investment advice or an offer or solicitation

to purchase

or sells in any securities or any investment strategies.

In Australia

, issued by BlackRock Investment

Management (

Australia) Limited

ABN 13 006 165 975, AFSL 230 523 (BIMAL). This material is not a securities recommendation or an offer or solicitation with

respect to

the

purchase or sale of any securities in any jurisdiction. The material provides general information only and does not take into

account your

individual objectives, financial

situation, needs or circumstances. BIMAL, its officers, employees and agents believe that the

information in

this material and the sources on which it is based (which may be

sourced from third parties) are correct as at the date of publication. While every care has been taken in the preparation of

thi

s material, no warranty of accuracy or reliability

is given and no responsibility for

the information

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For other APAC countries

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s o

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, this material is for educational purposes only and does not

constitute investment advice nor an offer or solicitation

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or a solicitation of an offer to buy any shares of any fund (nor shall any such shares be offered or sold to any

person) in any jurisdiction

in which

an offer, solicitation, purchase or sale would be unlawful under the securities law of that jurisdiction. If any funds are me

nti

oned

inferred

to in this material, it is possible that some or all of the funds have not been registered with the securities

regulators

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, Mexico,

Panama, Peru, Portugal, Spain, Uruguay or any other securities regulator in any Latin American country and thus

might not

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securities regulators of such countries have not confirmed the accuracy of

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contained herein. The information provided here is neither tax nor legal advice.

Investors should speak to their tax

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specific information regarding their tax situation. Investment involves risk including possible loss of principal. Internatio

nal

investing involves

risks, including risks related to foreign currency, limited liquidity, less government regulation, and the possibility of

substantial volatility

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emerging/developing markets

or smaller capital markets.

2018

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