UCITS iBonds® ETFs

iBonds ETFs pass through the underlying bonds’ income each month and pay a final distribution of all the matured bonds, at which point the ETF will delist from the exchange. The income distributions can vary as bonds are added or removed at different yield levels; however, the final payment tends to offset any changes in income. As monthly income distributions increase, final NAV payouts tend to decrease and vice versa.

An iBonds ETF provides cash flows similar to a portfolio of bonds. Like a ladder there is some variability in cash flows, but investors can observe the approximate average YTM of the underlying bond portfolio at the time of purchase.

iBonds ETFs invest in bonds scheduled to mature throughout the calendar year starting January 1st. For the investment grade, high yield, and treasury iBonds ETFs, 12 months prior to maturity, the proceeds from coupons and maturities will be reinvested back into into cash equivalents.

Investors will receive the final net asset value per share, which includes the proceeds from bond maturities and any undistributed interest.

While iBonds are designed to provide a similar experience to holding an individual cash bond, several factors may impact NAV total return on annualized basis relative an investors’ initial net acquisition yield:

• Reinvestment Risk- as is the case for an individual bond’s yield to maturity, an investor’s net acquisition yield assumes all future cash flows will be reinvested at the same yield. When interest rates go down, monthly distributions may be reinvested at lower yields relative to the initial net acquisition yield, which can cause a drag on performance. In the final months before maturity as maturing bonds transition into cash equivalents, if cash yields are different relative to when the investor purchases the iBond, then reinvestment risk may impact total returns. In the case of rising interest rates, reinvestment risk may positively impact total returns.
• Credit events- the corporate iBonds suite track investment grade indices. If a bond is downgraded from investment grade to high yield, the security may be removed from the index and may correspondingly leave the portfolio. If the bond is removed at a lower price than it originally entered the portfolio, it may negatively impact the NAV of the fund and could affect net acquisition yield targets.