Correlations

A portfolio that includes a good mix of stocks, bonds and other investments can help protect your portfolio if one area is not doing well. Unfortunately, when a global crisis strikes – like the Great Depression, the bursting of the Dot-Com bubble or the 2008 global financial crisis – investors tend to buy and sell everything based on the "global news."

When investments move in relation to each other, it’s called correlation. Assets with different characteristics – like stocks and bonds – tend to exhibit low correlations to each other in normal markets. That means that if the stock market is doing poorly one day, the bond market isn’t necessarily in the same rut.

During times of market stress, however, all assets tend to move in sync because they are all seen as more risky. The benefits of diversification can be eroded when correlations rise, as all assets begin to move similarly rather than separately.

ETFs and Correlations

Some have mistakenly associated ETFs with rising correlations. While ETF trading volume can spike when markets are in upheaval this is because investors are increasingly using ETFs to express market sentiment changes not because ETFs drive the market.

Though ETF trading volume tends to increase during uncertainty, ETFs are not the cause of increased correlations.

 

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ETFs Exhibit Real-Time Prices

Once you understand the terms used when talking about the price of ETFs you can use the information to act on global news.

Learn more about premiums and discounts

ETFs and Securities Lending

Securities lending is a well-established practice where ETFs make short-term loans to large financial institutions.

Learn more about securities lending

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 visiting the iShares ETF prospectus pages. Read the prospectus carefully before investing. Investing involves risk, including possible loss of principal.

Investing involves risk including loss of principal. The opinions presented are those of Kate Moore, Chief Equity Strategist, as of September 9th, 2016 and may change as subsequent conditions vary. Individual portfolio managers for BlackRock may have opinions and/or made investment decisions that may, in certain respects, not be consistent with the information contained in this presentation. This 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 information and opinions contained in this presentation 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. 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 viewer.

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

©2017 BlackRock, Inc. All Rights Reserved. BLACKROCK, BLACKROCK SOLUTIONS and iSHARES are registered trademarks of BlackRock, Inc. All other trademarks are those of their respective owners.

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