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BlackRock Launches the First ETF to Provide Long-Only Broad Exposure to Commodities in a ’40 Act Regulated Structure

16 Oct 2014

New iShares ETF improves experience for commodity investors by eliminating Schedule K-1 tax reporting

Futures roll methodology aims to reduce negative impact of ‘contango’

NEW YORK--(BUSINESS WIRE)-- BlackRock, Inc. (NYSE: BLK) launched the iShares Commodities Select Strategy ETF (NASDAQ: COMT), the first ETF to provide long-only, broad exposure to commodities in a ’40 Act regulated structure. COMT innovatively provides cost-effective, simple access to a diversified mix of commodities through futures and commodity-related companies. The fund manager uses a roll methodology designed to minimize the negative return impact of ‘contango’, which describes a term structure of the futures curve where the future price is above the expected future spot price. Additionally because the fund is regulated under the ’40 Act investors will not receive a Schedule K-1 tax reporting form at tax time. Instead, taxable gains and distributions will be reported on Form 1099, the typical tax report used by the vast majority of mutual funds and ETFs.

Patrick Dunne, Head of iShares Global Markets and Investments at BlackRock, said, “Commodity investments have traditionally provided investors with attractive total returns and strong diversification characteristics. COMT is intended to be an all-in-one commodity solution by providing comprehensive commodity exposure in a smarter, more efficient way through both futures and equities; removing a tax barrier that may have kept investors away from commodities and utilizing a roll methodology that seeks to improve returns.”

COMT delivers direct access to commodity prices via futures contracts, including agriculture, livestock, energy, industrial metals, and precious metals. The fund manager uses a futures roll process designed to improve returns by minimizing the negative impacts of contango and seeks to benefit from the opposite of contango, known as ‘backwardation’.

In addition to futures, the fund invests a portion of its assets in stocks of commodity producers to maintain diversified commodities exposure.

COMT has a simplified tax treatment compared to most commodity funds. Most commodity funds are structured as publicly-traded partnerships, and have a pass-through taxation structure. This effectively shifts the income tax liability from the fund earning the income to the shareholders who hold the fund. Unlike such commodity funds, COMT will report taxable gains and distributions on a Form 1099, the standard tax reporting form for mutual funds and ETFs.

Daniel Gamba, Head of iShares Americas Institutional Business at BlackRock, said, “We’re always innovating to solve our clients’ problems. We created this particular product to solve a common problem we’ve heard from many of our clients that invest in commodities. They want diversified commodities exposure through an ETF, but they don't want the cumbersome K-1 tax reporting that comes with existing approaches. So we created a long-only, diversified commodities ETF without the Schedule K-1, the first ETF of its kind.”

About BlackRock

BlackRock is a leader in investment management, risk management and advisory services for institutional and retail clients worldwide. At September 30, 2014, BlackRock’s AUM was $4.525 trillion. BlackRock helps clients meet their goals and overcome challenges with a range of products that include separate accounts, mutual funds, iShares® (exchange-traded funds), and other pooled investment vehicles. BlackRock also offers risk management, advisory and enterprise investment system services to a broad base of institutional investors through BlackRock Solutions®. Headquartered in New York City, as of September 30, 2014, the firm had approximately 12,100 employees in more than 30 countries and a major presence in key global markets, including North and South America, Europe, Asia, Australia and the Middle East and Africa. For additional information, please visit the Company’s website at www.blackrock.com | Twitter: @blackrock_news | Blog: www.blackrockblog.com | LinkedIn: www.linkedin.com/company/blackrock

About iShares

iShares is a global product leader in exchange traded funds with over 600 funds globally across equities, fixed income and commodities, which trade on 20 exchanges worldwide. The iShares Funds are bought and sold like common stocks on securities exchanges. The iShares Funds are attractive to many individual and institutional investors and financial intermediaries because of their relative low cost, tax efficiency and trading flexibility. Investors can purchase and sell shares through any brokerage firm, financial advisor, or online broker, and hold the funds in any type of brokerage account. The iShares customer base consists of the institutional segment of pension plans and fund managers, as well as the retail segment of financial advisors and high net worth individuals.

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 and, if available, the summary prospectuses which may be obtained by visiting www.iShares.com or www.BlackRock.com. Read the prospectus carefully before investing.

Investing involves risk, including possible loss of principal. Transactions in shares of the iShares Funds will result in brokerage commissions and will generate tax consequences. iShares Funds are obliged to distribute portfolio gains to shareholders. Shares of the iShares Funds may be sold throughout the day on the exchange through any brokerage account. However, shares may only be redeemed directly from a Fund by Authorized Participants, in very large creation/redemption units. There can be no assurance that an active trading market for shares of an ETF will develop or be maintained. Diversification may not protect against market risk or loss of principal.

The iShares Commodities Select Strategy ETF is actively managed and does not seek to replicate the performance of a specified index. The Fund may have a higher portfolio turnover than funds that seek to replicate the performance of an index.

The iShares Commodities Select Strategy ETF is a commodity pool, as defined in the Commodity Exchange Act and the applicable regulations of the Commodity Futures Trading Commission, or “CFTC,” and is managed by its Advisor, BlackRock Fund Advisors, a commodity pool operator registered with the CFTC.

The Fund's use of derivatives may reduce the Fund's returns and/or increase volatility and subject the Fund to counterparty risk, which is the risk that the other party in the transaction will not fulfill its contractual obligation. Commodity futures trading may be illiquid. In addition, suspensions or disruptions of market trading in the commodities markets and related futures markets may adversely affect the value of the Fund. Certain derivatives may give rise to a form of leverage and may expose the Fund to greater risk and increase its costs. To the extent that the Fund invests in rolling futures contracts, it may be subject to additional risk. An increase in interest rates may cause the value of fixed-income securities held by the Fund to decline.

Investing in commodity-linked derivatives and commodity-related companies may increase volatility. Price movements are outside of the fund’s control and may be influenced by weather and climate conditions, livestock disease, war, terrorism, political conflicts and economic events, interest rates, currency and exchange rates, government regulation and taxation. Commodity futures trading may be illiquid. In addition, suspensions or disruptions of market trading in the commodities markets and related futures markets may adversely affect the value of the Fund.

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 often are heightened for investments in emerging/developing markets and in concentrations of single countries.

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

©2014 BlackRock. All rights reserved. iSHARES, BLACKROCK, iBONDS and BLACKROCK SOLUTIONS are registered trademarks of BlackRock. All other marks are those of their respective owners. iS-13741-1014

BlackRock, Inc.
Christine Hudacko, 415-670-2687
Christine.Hudacko@blackrock.com
Melissa Garville, 212-810-5528
Melissa.Garville@blackrock.com

Source: BlackRock, Inc.