LOGO

  OCTOBER 31, 2021

 

   2021 Annual Report

 

iShares U.S. ETF Trust

 

·  

iShares Inflation Hedged Corporate Bond ETF | LQDI | Cboe BZX

 

·  

iShares Interest Rate Hedged Corporate Bond ETF | LQDH | NYSE Arca

 

·  

iShares Interest Rate Hedged High Yield Bond ETF | HYGH | NYSE Arca


The Markets in Review

Dear Shareholder,

The 12-month reporting period as of October 31, 2021 was a remarkable period of adaptation and recovery, as the global economy dealt with the implications of the coronavirus (or “COVID-19”) pandemic. The United States began the reporting period as the initial reopening-led economic rebound was beginning to slow. Nonetheless, the economy continued to grow at a solid pace for the reporting period, eventually regaining the output lost from the pandemic. However, a rapid rebound in consumer spending pushed up against supply constraints and led to elevated inflation.

Equity prices rose with the broader economy, as the implementation of mass vaccination campaigns and passage of two additional fiscal stimulus packages further boosted stocks, and many equity indices neared or surpassed all-time highs late in the reporting period. In the United States, returns of small-capitalization stocks, which benefited the most from the resumption of in-person activities, outpaced large-capitalization stocks. International equities also gained, as both developed and emerging markets continued to recover from the effects of the pandemic.

The 10-year U.S. Treasury yield (which is inversely related to bond prices) had fallen sharply prior to the beginning of the reporting period, which meant bonds were priced for extreme risk avoidance and economic disruption. Despite expectations of doom and gloom, the economy expanded rapidly, stoking inflation concerns in early 2021, which led to higher yields and a negative overall return for most U.S. Treasuries. In the corporate bond market, support from the U.S. Federal Reserve (the “Fed”) assuaged credit concerns and led to solid returns for high-yield corporate bonds, outpacing investment-grade corporate bonds.

The Fed remained committed to accommodative monetary policy by maintaining near-zero interest rates and by reiterating that inflation could exceed its 2% target for a sustained period without triggering a rate increase. In response to rising inflation late in the period, the Fed changed its market guidance, raising the possibility of higher rates in 2022 and reducing bond purchasing beginning in late 2021.

Looking ahead, we believe that the global expansion will continue to broaden as Europe and other developed market economies gain momentum, although the Delta variant of the coronavirus remains a threat, particularly in emerging markets. While we expect inflation to remain elevated in the medium-term as the expansion continues, we believe the recent uptick owes more to temporary supply disruptions than a lasting change in fundamentals. The change in Fed policy also means that moderate inflation is less likely to be followed by interest rate hikes that could threaten the economic expansion.

Overall, we favor a moderately positive stance toward risk, with an overweight in equities. Sectors that are better poised to manage the transition to a lower-carbon world, such as technology and health care, are particularly attractive in the long-term. U.S. small-capitalization stocks and European equities are likely to benefit from the continuing vaccine-led restart, while Chinese equities stand to gain from a more accommodative monetary and fiscal environment as the Chinese economy slows. We are underweight long-term credit, but inflation-protected U.S. Treasuries, Asian fixed income, and emerging market local-currency bonds offer potential opportunities. We believe that international diversification and a focus on sustainability can help provide portfolio resilience, and the disruption created by the coronavirus appears to be accelerating the shift toward sustainable investments.

In this environment, our view is that investors need to think globally, extend their scope across a broad array of asset classes, and be nimble as market conditions change. We encourage you to talk with your financial advisor and visit iShares.com for further insight about investing in today’s markets.

Sincerely,

 

LOGO

Rob Kapito

President, BlackRock, Inc.

LOGO

Rob Kapito

President, BlackRock, Inc.

 

Total Returns as of October 31, 2021
     
      6-Month     12-Month 
   

U.S. large cap equities
(S&P 500® Index)

  10.91%   42.91%
   

U.S. small cap equities
(Russell 2000® Index)

  1.85   50.80
   

International equities
(MSCI Europe, Australasia, Far East Index)

  4.14   34.18
   

Emerging market equities
(MSCI Emerging Markets Index)

  (4.87)   16.96
   

3-month Treasury bills
(ICE BofA 3-Month U.S. Treasury Bill Index)

  0.01   0.06
   

U.S. Treasury securities
(ICE BofA 10-Year U.S. Treasury Index)

  1.59   (4.77)
   

U.S. investment grade bonds
(Bloomberg U.S. Aggregate Bond Index)

  1.06   (0.48)
   

Tax-exempt municipal bonds
(S&P Municipal Bond Index)

  0.33   2.76
   

U.S. high yield bonds
(Bloomberg U.S. Corporate High Yield 2% Issuer Capped Index)

  2.36   10.53

Past performance is not an indication of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.

 

 

2  

T H I S   P A G E   I S   N O T   P A R T   O F   Y O U R   F U N D   R E P O R T


Table of Contents

 

      Page  

The Markets in Review

     2  

Market Overview

     4  

Fund Summary

     5  

About Fund Performance

     11  

Shareholder Expenses

     11  

Schedules of Investments

     12  

Financial Statements

  

Statements of Assets and Liabilities

     23  

Statements of Operations

     24  

Statements of Changes in Net Assets

     25  

Financial Highlights

     27  

Notes to Financial Statements

     30  

Report of Independent Registered Public Accounting Firm

     38  

Important Tax Information (Unaudited)

     39  

Board Review and Approval of Investment Advisory Contract

     40  

Supplemental Information

     44  

Trustee and Officer Information

     45  

General Information

     47  

Glossary of Terms Used in this Report

     48  

Additional Financial Information

     49  


Market Overview

 

iShares U.S. ETF Trust

U.S. Bond Market Overview

The U.S. bond market declined slightly for the 12 months ended October 31, 2021 (“reporting period”). The Bloomberg U.S. Aggregate Bond Index, a broad measure of U.S. fixed-income performance, returned -0.48%.

The U.S. economy continued to recover from the effects of the coronavirus pandemic, growing at a brisk pace during the reporting period. Driven by strong consumer spending and significant fiscal and monetary stimulus, U.S. growth outpaced most other developed economies. An ongoing COVID-19 vaccination program helped accelerate the easing of pandemic-related restrictions, and consumers returned to activities that were previously curtailed, such as travel, restaurant dining, and in-person shopping. Spending on goods also remained elevated, leading imports to rise to an all-time high.

However, this robust consumer demand combined with continued pandemic-related disruptions to the global supply chain led to significantly higher inflation. Similarly, in the labor market, the reopening economy and pent-up demand meant that hiring accelerated, and the unemployment rate fell substantially. Nonetheless, total employment remained notably below pre-pandemic levels and job openings reached a record high despite rising wages. Elevated demand drove an increase in industrial production, although rising commodities prices and supply delays constrained growth, particularly late in the reporting period. The emergence of the highly contagious Delta variant, which was responsible for a significant rise in cases beginning late in summer 2021, also weighed on the economy.

The U.S. Federal Reserve Bank (“Fed”) continued to keep short-term interest rates at near-zero levels and maintained a significant bond-buying program for U.S. Treasuries and mortgage-backed securities, although it discontinued its corporate bond purchasing program. The Fed indicated that it would begin slowing its bond buying activities late in 2021 and signaled that an interest rate increase could be possible in 2022. However, the improving employment environment and a sharp rise in inflation led investors to anticipate a more accelerated tightening of monetary policy. Trading activity showed that investors view multiple interest rate increases as probable in 2022.

U.S. Treasuries declined, as inflation increased, and investors moved toward equities and lower-rated bonds. Rising domestic inflation expectations pressured U.S. Treasuries, which typically lose value in an inflationary environment. U.S. Treasury yields (which move inversely to prices) began the reporting period near historic lows, but generally rose as inflation increased and the economy continued to strengthen. Yields of U.S. Treasuries with intermediate- and long-term maturities, which are more sensitive to inflation, generally increased more than short-term U.S. Treasuries. However, long-term U.S. Treasury yields rose less than intermediate-term U.S. Treasury yields, with two-year, 10-year, and 30-year U.S. Treasury yields rising by 0.34%, 0.67%, and 0.28%, respectively.

Mortgage-backed securities (“MBS”) declined slightly, despite ongoing support from Fed bond purchasing. MBS performance was constrained by prepayments, as homeowners took advantage of low mortgage rates to refinance their mortgages at a lower interest rate.

On the upside, most corporate bonds advanced for the reporting period, particularly lower-rated corporate bonds. A narrowing yield spread (the difference between yields on corporate bonds and U.S. Treasuries) buoyed the performance of corporate bonds compared to U.S. Treasuries. Investors’ ongoing search for yield in a low interest rate environment drove the decline in the yield spread and supported corporate bond prices. High-yield bonds gained the most, as investors’ concerns about solvency abated alongside the growing economy, and the Fed’s support led to high investor confidence. Corporate bond issuance was elevated by historical standards as companies took advantage of low yields to refinance and lock in advantageous borrowing costs.

 

 

4  

2 0 2 1   I S H A R E S   A N N U A L   R E P O R T   T O   S H A R E H O L D E R S


Fund Summary as of October 31, 2021    iShares® Inflation Hedged Corporate Bond ETF

 

Investment Objective

The iShares Inflation Hedged Corporate Bond ETF (the “Fund”) seeks to mitigate the inflation risk of a portfolio composed of U.S. dollar-denominated, investment grade corporate bonds. The Fund is an actively managed exchange-traded fund that does not seek to replicate the performance of a specified index. The Fund currently seeks to achieve its investment objective by investing a substantial portion of its assets in one underlying fund, the iShares iBoxx $ Investment Grade Corporate Bond ETF. The Fund attempts to mitigate the inflation risk of the underlying fund by holding inflation swaps.

Effective December 1, 2021, the Fund will change from operating as a transparent active ETF to tracking an underlying index, the BlackRock Inflation Hedged Corporate Bond Index.

Performance

 

    Average Annual Total Returns           Cumulative Total Returns  
     1 Year      Since
Inception
           1 Year     Since
Inception
 

Fund NAV

    12.60      8.92       12.60     34.69

Fund Market

    12.53        9.10         12.53       35.48  

Markit iBoxx® USD Liquid Investment Grade Inflation Hedged Index

    15.91        10.13               15.91       39.87  

GROWTH OF $10,000 INVESTMENT

(SINCE INCEPTION AT NET ASSET VALUE)

 

LOGO

The inception date of the Fund was 5/8/18. The first day of secondary market trading was 5/10/18.

The Markit iBoxx® USD Liquid Investment Grade Inflation Hedged Index is an unmanaged index that is designed to reflect the inflation hedged performance of U.S. dollar-denominated investment-grade corporate debt.

Past performance is no guarantee of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares. See “About Fund Performance” on page 11 for more information.

Expense Example

 

Actual           Hypothetical 5% Return         
 

Beginning
Account Value
(05/01/21)
 
 
 
      

Ending
Account Value
(10/31/21)
 
 
 
      

Expenses
Paid During
the Period
 
 
 (a)(b) 
     

Beginning
Account Value
(05/01/21)
 
 
 
      

Ending
Account Value
(10/31/21)
 
 
 
      

Expenses
Paid During
the Period
 
 
 (a)(b) 
    

Annualized
Expense
Ratio
 
 
 (a) 
  $ 1,000.00          $ 1,070.00          $ 0.26               $ 1,000.00          $ 1,025.00        $   0.26        0.05

 

  (a) 

Annualized expense ratio and expenses paid during the period do not include fees and expenses of the underlying fund in which the Fund invests.

 
  (b) 

Expenses are calculated using the Fund’s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (184 days) and divided by the number of days in the year (365 days). Other fees, such as brokerage commissions and other fees to financial intermediaries, may be paid which are not reflected in the tables and examples above. See “Shareholder Expenses” on page 11 for more information.

 

 

 

F U N D   S U M M A R Y

  5


Fund Summary as of October 31, 2021   (continued)    iShares® Inflation Hedged Corporate Bond ETF

 

Portfolio Management Commentary

The Fund posted a positive return for the reporting period, largely driven by the strong performance of inflation-hedging securities in an environment of rising inflation. The Fund’s inflation hedge contributed the majority of the Fund’s return amid investors’ increasing inflation expectations. Inflation rose consistently during the reporting period due to the reopening of the global economy, persistent fiscal and monetary stimulus, and supply chain bottlenecks. Meanwhile, corporate yield spreads (the difference between yields of corporate bonds and U.S. Treasuries) declined, which supported corporate bond prices, while the relatively high yields of corporate bonds also helped the Fund’s performance.

On an unhedged basis, bonds issued by energy companies were the largest contributors to the Fund’s return. Oil prices more than doubled during the reporting period, as robust demand from the economic recovery met supply disruptions. Bonds issued by financial companies, especially banks, were also solid contributors to the Fund’s performance, as banks benefited from rising earnings, increased loan issuance, and somewhat higher bond yields relative to other types of corporate bonds. In the consumer non-cyclicals sector, bonds issued by food and beverage companies advanced, as an increase in consumption of alcohol and stockpiling of staples since the onset of the coronavirus pandemic continued throughout the reporting period. From a maturity perspective, the longest-term bonds contributed the most to the Fund’s return, as investors sought higher yields in the low interest rate environment.

In terms of the performance of the inflation hedge, the portfolio managers sought to mitigate the impact of inflation by using zero-coupon Consumer Price Index inflation swaps. These securities posted strong gains, as inflation expectations rose sharply during the reporting period to a seven-year high, reflecting higher realized inflation and concern that inflation could erode the value of fixed-income investments. The hedge, which is designed to offset the inflation risk of the entire Fund, was very effective during the reporting period, as it increased in value at a higher rate than inflation rose.

Portfolio Information

 

ALLOCATION BY INVESTMENT TYPE

 

Investment Type   Percent of
Net Assets
 

Investment Companies

    95.0

Short-term Investments

    45.4  

Swaps, net cumulative appreciation

    3.8  

Other assets less liabilities

    (44.2

ALLOCATION BY CREDIT QUALITY (of the UNDERLYING FUND)

 

Credit Rating(a)   Percent of
Total Investment(b)
 

Aaa

    1.7

Aa

    7.0  

A

    40.9  

Baa

    47.5  

Ba

    2.2  

Not Rated

    0.7  

 

  (a) 

Credit quality ratings shown reflect the ratings assigned by Moody’s Investors Service (“Moody’s”), a widely used independent, nationally recognized statistical rating organization. Moody’s credit ratings are opinions of the credit quality of individual obligations or of an issuer’s general creditworthiness. Investment grade ratings are credit ratings of Baa or higher. Below investment grade ratings are credit ratings of Ba or lower. Unrated investments do not necessarily indicate low credit quality. Credit quality ratings are subject to change.

 
  (b) 

Excludes money market funds.

 

 

 

6  

2 0 2 1   I S H A R E S   A N N U A L   R E P O R T   T O   S H A R E H O L D E R S


Fund Summary as of October 31, 2021    iShares® Interest Rate Hedged Corporate Bond ETF

 

Investment Objective

The iShares Interest Rate Hedged Corporate Bond ETF (the “Fund”) seeks to mitigate the interest rate risk of a portfolio composed of U.S. dollar-denominated, investment-grade corporate bonds. The Fund is an actively managed exchange-traded fund that does not seek to replicate the performance of a specified index. The Fund currently seeks to achieve its investment objective by investing a substantial portion of its assets in one underlying fund, the iShares iBoxx $ Investment Grade Corporate Bond ETF. The Fund attempts to mitigate the interest rate risk of the underlying fund by holding short positions in U.S. Treasury futures or interest rate swaps.

Effective December 1, 2021, the Fund will change from operating as a transparent active ETF to tracking an underlying index, the BlackRock Interest Rate Hedged Corporate Bond Index.

Performance

 

    Average Annual Total Returns           Cumulative Total Returns  
     1 Year      5 Years      Since
Inception
           1 Year      5 Years      Since
Inception
 

Fund NAV

    6.46      3.79      2.34       6.46      20.42      18.73

Fund Market

    6.37        3.79        2.36         6.37        20.44        18.90  

Markit iBoxx® USD Liquid Investment Grade Interest Rate Hedged Swaps Index

    6.74        3.88        2.72               6.74        20.95        22.08  

GROWTH OF $10,000 INVESTMENT

(SINCE INCEPTION AT NET ASSET VALUE)

 

LOGO

The inception date of the Fund was 5/27/14. The first day of secondary market trading was 5/28/14.

The Markit iBoxx® USD Liquid Investment Grade Interest Rate Hedged Swaps Index is an unmanaged index that is designed to reflect the duration hedged performance of U.S. dollar-denominated investment-grade corporate debt.

The Markit iBoxx® USD Liquid Investment Grade Interest Rate Hedged Swaps Index reflects the performance of the Markit iBoxx® USD Liquid Investment Grade Interest Rate Hedged Index through June 16, 2016 and beginning June 17, 2016 reflects the performance of the Markit iBoxx® USD Liquid Investment Grade Interest Rate Hedged Swaps Index.

Past performance is no guarantee of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares. See “About Fund Performance” on page 11 for more information.

Expense Example

 

Actual           Hypothetical 5% Return         
 

Beginning
Account Value
(05/01/21)
 
 
 
      

Ending
Account Value
(10/31/21)
 
 
 
      

Expenses
Paid During
the Period
 
 
 (a)(b) 
     

Beginning
Account Value
(05/01/21)
 
 
 
      

Ending
Account Value
(10/31/21)
 
 
 
      

Expenses
Paid During
the Period 
 
 
(a)(b) 
    

Annualized
Expense
Ratio 
 
 
(a) 
$ 1,000.00        $ 1,009.60        $ 0.51             $ 1,000.00        $ 1,024.70        $ 0.51        0.10

 

  (a) 

Annualized expense ratio and expenses paid during the period do not include fees and expenses of the underlying fund in which the Fund invests.

 
  (b) 

Expenses are calculated using the Fund’s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (184 days) and divided by the number of days in the year (365 days). Other fees, such as brokerage commissions and other fees to financial intermediaries, may be paid which are not reflected in the tables and examples above. See “Shareholder Expenses” on page 11 for more information.

 

 

 

F U N D   S U M M A R Y

  7


Fund Summary as of October 31, 2021   (continued)    iShares® Interest Rate Hedged Corporate Bond ETF

 

Portfolio Management Commentary

The Fund posted a positive return for the reporting period despite rising long-term interest rates. The Fund’s interest rate hedge contributed the most to the Fund’s return, as the rising interest rate environment increased the value of the hedge. Similarly, corporate yield spreads (the difference between yields of corporate bonds and U.S. Treasuries) declined, which supported corporate bond prices, while the relatively high yields of corporate bonds also helped the Fund’s performance.

On an unhedged basis, bonds issued by energy companies were the largest contributors to the Fund’s return. Oil prices more than doubled during the reporting period, as robust demand from the economic recovery met supply disruptions. Bonds issued by financial companies, especially banks, were also solid contributors to the Fund’s performance, as banks benefited from rising earnings, increased loan issuance, and somewhat higher bond yields relative to other types of corporate bonds. In the consumer non-cyclicals sector, bonds issued by food and beverage companies advanced, as an increase in consumption of alcohol and stockpiling of staples since the onset of the coronavirus pandemic continued throughout the reporting period. From a maturity perspective, the longest-term bonds contributed the most to the Fund’s return, as investors sought higher yields in the low interest rate environment.

Interest rate hedging activity was beneficial to the Index’s performance. Typically, increasing interest rates reduce the price of existing bonds, meaning a rise in interest rates detracts from bond fund performance. Conversely, decreasing interest rates usually increase bond prices. An interest rate hedged fund attempts to avoid these fluctuations by offsetting interest rate risk, primarily using interest rate swaps and U.S. Treasury futures contracts.

The Fund’s interest rate hedge seeks near-zero interest rate sensitivity. Consequently, the Fund’s return was minimally affected by interest rate fluctuations during the reporting period. With interest rate sensitivity hedged, the Fund fluctuated based on direct exposure to the yield premium of investment-grade corporate bonds, independent of rising interest rates.

Portfolio Information

 

ALLOCATION BY INVESTMENT TYPE

 

Investment Type   Percent of
Net Assets
 

Investment Companies

    99.0

Short-term Investments

    46.1  

Swaps, net cumulative appreciation

    2.7  

Other assets less liabilities

    (47.8

ALLOCATION BY CREDIT QUALITY (of the UNDERLYING FUND)

 

Credit Rating(a)   Percent of
Total Investment(b)
 

Aaa

    1.7

Aa

    7.0  

A

    40.9  

Baa

    47.5  

Ba

    2.2  

Not Rated

    0.7  

 

  (a) 

Credit quality ratings shown reflect the ratings assigned by Moody’s Investors Service (“Moody’s”), a widely used independent, nationally recognized statistical rating organization. Moody’s credit ratings are opinions of the credit quality of individual obligations or of an issuer’s general creditworthiness. Investment grade ratings are credit ratings of Baa or higher. Below investment grade ratings are credit ratings of Ba or lower. Unrated investments do not necessarily indicate low credit quality. Credit quality ratings are subject to change.

 
  (b) 

Excludes money market funds.

 

 

 

8  

2 0 2 1   I S H A R E S   A N N U A L   R E P O R T   T O   S H A R E H O L D E R S


Fund Summary as of October 31, 2021    iShares® Interest Rate Hedged High Yield Bond ETF

 

Investment Objective

The iShares Interest Rate Hedged HighYield Bond ETF (the “Fund”) seeks to mitigate the interest rate risk of a portfolio composed of U.S. dollar-denominated, high yield corporate bonds. The Fund is an actively managed exchange-traded fund that does not seek to replicate the performance of a specified index. The Fund currently seeks to achieve its investment objective by investing a substantial portion of its assets in one underlying fund, the iShares iBoxx $ High Yield Corporate Bond ETF. The Fund attempts to mitigate the interest rate risk of the underlying fund by holding short positions in U.S. Treasury futures or interest rate swaps.

Effective December 1, 2021, the Fund will change from operating as a transparent active ETF to tracking an underlying index, the BlackRock Interest Rate Hedged High Yield Bond Index.

Performance

 

    Average Annual Total Returns           Cumulative Total Returns  
     1 Year      5 Years     

Since

Inception

           1 Year      5 Years      Since
Inception
 

Fund NAV

    9.70      5.03      3.17       9.70      27.78      26.12

Fund Market

    9.62        5.02        3.17         9.62        27.77        26.15  

Markit iBoxx® USD Liquid High Yield Interest Rate Hedged Swaps Index

    10.60        5.15        3.67               10.60        28.54        30.67  

GROWTH OF $10,000 INVESTMENT

(SINCE INCEPTION AT NET ASSET VALUE)

 

LOGO

The inception date of the Fund was 5/27/14. The first day of secondary market trading was 5/28/14.

The Markit iBoxx® USD Liquid High Yield Interest Rate Hedged Swaps Index is an unmanaged index that reflects the duration hedged performance of U.S. dollar-denominated high yield corporate debt.

Past performance is no guarantee of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares. See “About Fund Performance” on page 11 for more information.

Expense Example

 

Actual           Hypothetical 5% Return         
 

Beginning
Account Value
(05/01/21)
 
 
 
      

Ending
Account Value
(10/31/21)
 
 
 
      

Expenses
Paid During
the Period
 
 
 (a)(b) 
     

Beginning
Account Value
(05/01/21)
 
 
 
      

Ending
Account Value
(10/31/21)
 
 
 
      

Expenses
Paid During
the Period
 
 
 (a)(b) 
    

Annualized
Expense
Ratio 
 
 
(a) 
$ 1,000.00        $ 1,017.40        $ 0.25             $ 1,000.00        $ 1,025.00        $ 0.26        0.05

 

  (a) 

Annualized expense ratio and expenses paid during the period do not include fees and expenses of the underlying fund in which the Fund invests.

 
  (b) 

Expenses are calculated using the Fund’s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (184 days) and divided by the number of days in the year (365 days). Other fees, such as brokerage commissions and other fees to financial intermediaries, may be paid which are not reflected in the tables and examples above. See “Shareholder Expenses” on page 11 for more information.

 

 

 

F U N D   S U M M A R Y

  9


Fund Summary as of October 31, 2021   (continued)    iShares® Interest Rate Hedged High Yield Bond ETF

 

Portfolio Management Commentary

The Fund posted a positive return for the reporting period. High-yield credit spreads, the difference in yield between high-yield bonds and U.S. Treasuries, declined to record lows during the reporting period due to healthy corporate balance sheets combined with strong investor demand. Previous downgrading of companies’ credit quality led to investor expectations of subsequent upgrades, contributing to the fall in yields. Rising interest rates also increased the value of the Fund’s hedge.

On an unhedged basis, bonds issued by energy companies were the largest contributors to the Fund’s return. Oil prices more than doubled during the reporting period, as robust demand from the economic recovery met supply disruptions. Consumer-oriented sectors were also strong contributors to the Fund’s performance, as rising wages and pent-up demand drove consumer spending on a wide variety of items, which led to strong performance in many industries, including automotive, gaming, healthcare, and food and beverage. Bonds issued by companies in the communications sector also posted gains, as remote work, learning, and entertainment led to a surge in demand for voice and data traffic. Most industries in the financial sector also benefited broadly from a rebound in global economic activity, especially real estate investment trusts, as business fundamentals improved.

Rising interest rates during the reporting period led to positive performance from hedging activity, which was the largest contributor to the Fund’s return. Typically, increasing interest rates reduce the price of existing bonds, meaning a rise in interest rates detracts from bond fund performance. Conversely, decreasing interest rates usually increase bond prices. An interest rate hedged fund attempts to avoid these fluctuations by offsetting interest rate risk, primarily using interest rate swaps and U.S. Treasury futures contracts.

The Fund’s interest rate hedge seeks near-zero interest rate sensitivity. Consequently, the Fund’s return was minimally affected by interest rate fluctuations during the reporting period. With interest rate sensitivity hedged, the Fund fluctuated based on direct exposure to the yield premium of high-yield corporate bonds, independent of rising interest rates.

Portfolio Information

 

ALLOCATION BY INVESTMENT TYPE

 

Investment Type   Percent of
Net Assets
 

Investment Companies

    96.5

Short-term Investments

    43.1  

Swaps, net cumulative appreciation

    0.8  

Other assets less liabilities

    (40.4

ALLOCATION BY CREDIT QUALITY (of the UNDERLYING FUND)

 

Credit Rating(a)   Percent of
Total Investment(b)
 

Baa

    3.5

Ba

    49.2  

B

    35.8  

Caa

    10.3  

Ca

    0.2  

Not Rated

    1.0  

 

  (a) 

Credit quality ratings shown reflect the ratings assigned by Moody’s Investors Service (“Moody’s”), a widely used independent, nationally recognized statistical rating organization. Moody’s credit ratings are opinions of the credit quality of individual obligations or of an issuer’s general creditworthiness. Investment grade ratings are credit ratings of Baa or higher. Below investment grade ratings are credit ratings of Ba or lower. Unrated investments do not necessarily indicate low credit quality. Credit quality ratings are subject to change.

 
  (b) 

Excludes money market funds.

 

 

 

10  

2 0 2 1   I S H A R E S   A N N U A L   R E P O R T   T O   S H A R E H O L D E R S


About Fund Performance

 

Past performance is not an indication of future results. Financial markets have experienced extreme volatility and trading in many instruments has been disrupted. These circumstances may continue for an extended period of time and may continue to affect adversely the value and liquidity of each Fund’s investments. As a result, current performance may be lower or higher than the performance data quoted. Performance data current to the most recent month-end is available at iShares.com. Performance results assume reinvestment of all dividends and capital gain distributions and do not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares. The investment return and principal value of shares will vary with changes in market conditions. Shares may be worth more or less than their original cost when they are redeemed or sold in the market. Performance for certain funds may reflect a waiver of a portion of investment advisory fees. Without such a waiver, performance would have been lower.

Net asset value or “NAV” is the value of one share of a fund as calculated in accordance with the standard formula for valuing mutual fund shares. Beginning August 10, 2020, the price used to calculate market return (“Market Price”) is the closing price. Prior to August 10, 2020, Market Price was determined by using the midpoint between the highest bid and the lowest ask on the primary stock exchange on which shares of a fund are listed for trading, as of the time that such fund’s NAV is calculated. Since shares of a fund may not trade in the secondary market until after the fund’s inception, for the period from inception to the first day of secondary market trading in shares of the fund, the NAV of the fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain distributions have been reinvested at Market Price and NAV, respectively.

An index is a statistical composite that tracks a specified financial market or sector. Unlike a fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by a fund. These expenses negatively impact fund performance. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower.

Shareholder Expenses

As a shareholder of your Fund, you incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of fund shares and (2) ongoing costs, including management fees and other fund expenses. The expense example, which is based on an investment of $1,000 invested at the beginning of the period (or from the commencement of operations if less than 6 months) and held through the end of the period, is intended to help you understand your ongoing costs (in dollars and cents) of investing in your Fund and to compare these costs with the ongoing costs of investing in other funds.

Actual Expenses – The table provides information about actual account values and actual expenses. Annualized expense ratios reflect contractual and voluntary fee waivers, if any. To estimate the expenses that you paid on your account over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled “Expenses Paid During the Period.”

Hypothetical Example for Comparison Purposes – The table also provides information about hypothetical account values and hypothetical expenses based on your Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses. You may use this information to compare the ongoing costs of investing in your Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as brokerage commissions and other fees paid on purchases and sales of fund shares. Therefore, the hypothetical examples are useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

 

 

A B O U T   F U N D   P E R F O R M A N C E / S H A R E H O L D E R   E X P E N S E S

  11


Schedule of Investments

October 31, 2021

  

iShares® Inflation Hedged Corporate Bond ETF

(Percentages shown are based on Net Assets)

 

Security   Shares     Value  

 

 

Investment Companies

   

Exchange-Traded Funds — 95.0%

   

iShares iBoxx $ Investment Grade Corporate Bond ETF(a)(b)

    519,893     $ 69,395,318  
   

 

 

 

Total Investment Companies — 95.0%
(Cost: $69,210,295)

   

 

69,395,318

 

   

 

 

 

Short-Term Investments

   

Money Market Funds — 45.4%

   

BlackRock Cash Funds: Institutional, SL Agency Shares, 0.05%(a)(c)(d)

 

 

32,582,611

 

 

 

32,598,902

 

BlackRock Cash Funds: Treasury, SL Agency Shares, 0.00%(a)(c)

 

 

600,000

 

 

 

600,000

 

   

 

 

 
      33,198,902  
   

 

 

 

Total Short-Term Investments — 45.4%
(Cost: $33,198,903)

   

 

33,198,902

 

   

 

 

 

Total Investments in Securities — 140.4%
(Cost: $102,409,198)

 

 

 

102,594,220

 

Other Assets, Less Liabilities — (40.4)%

      (29,521,412
   

 

 

 

Net Assets — 100.0%

    $ 73,072,808  
   

 

 

 

 

 

(a) 

Affiliate of the Fund.

(b) 

All or a portion of this security is on loan.

(c) 

Annualized 7-day yield as of period end.

(d) 

All or a portion of this security was purchased with the cash collateral from loaned securities.

Affiliates

Investments in issuers considered to be affiliate(s) of the Fund during the year ended October 31, 2021 for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

 

 

   
      

Affiliated Issuer

  Value at
10/31/20
    Purchases
at Cost
   

Proceeds

from Sales

    Net Realized
Gain (Loss)
   

Change in
Unrealized
Appreciation

(Depreciation)

    Value at
10/31/21
    Shares
Held at
10/31/21
    Income    

Capital

Gain
Distributions
from
Underlying
Funds

          
 

 

   
 

BlackRock Cash Funds: Institutional, SL Agency Shares

  $ 8,309,664     $ 24,291,532 (a)    $     $ (3,123   $ 829     $ 32,598,902       32,582,611     $ 54,024 (b)    $    
 

BlackRock Cash Funds: Treasury, SL Agency Shares

    330,000       270,000 (a)                        600,000       600,000       177          
 

iShares iBoxx $ Investment Grade Corporate Bond ETF

    16,463,367       55,923,856       (2,645,469     323,059       (669,495     69,395,318       519,893       701,126          
         

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   
          $ 319,936     $ (668,666   $ 102,594,220       $ 755,327     $    
         

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

  (a) 

Represents net amount purchased (sold).

 
  (b) 

All or a portion represents securities lending income earned from the reinvestment of cash collateral from loaned securities, net of fees and collateral investment expenses, and other payments to and from borrowers of securities.

 

Derivative Financial Instruments Outstanding as of Period End

Futures Contracts

 

 

 
Description    Number of
Contracts
     Expiration
Date
     Notional
Amount
(000)
     Value/
Unrealized
Appreciation
(Depreciation)
 

Long Contracts
5-Year U.S. Treasury Note

     6        12/31/21      $ 730      $ (11,023

 

 

12  

2 0 2 1   I S H A R E S   A N N U A L   R E P O R T   T O   S H A R E H O L D E R S


Schedule of Investments   (continued)

October 31, 2021

  

iShares® Inflation Hedged Corporate Bond ETF

 

Futures Contracts (continued)

 

 

 
Description  

Number of

Contracts

   

Expiration

Date

    

Notional

Amount

(000)

    

Value/

Unrealized

Appreciation

(Depreciation)

 

 

 

Ultra Long U.S. Treasury Bond

    4       12/31/21      $ 877      $ (3,912
         

 

 

 
            (14,935
         

 

 

 

Short Contracts

         

10-Year U.S. Ultra Long Treasury Bond

    (1     12/21/21        145        3,119  

U.S. Long Bond

    (4     12/21/21        643        (6,099

Ultra Long U.S. Treasury Bond

    (2     12/21/21        393        (9,940
         

 

 

 
            (12,920
         

 

 

 
          $ (27,855
         

 

 

 

Centrally Cleared Inflation Swaps

 

 

 
Paid by the Fund   

Received by the Fund

  

Termination

Date

    

Notional

Amount

(000)

      

 

   

Upfront

Premium

Paid

(Received)

    

Unrealized

Appreciation

(Depreciation)

 
Reference      Frequency    Rate      Frequency    Value  

 

 
        U.S. CPI Urban                   
1.74%      At Termination    Consumers NSA      At Termination      08/20/22      $ (10    $ 633     $      $ 633  
        U.S. CPI Urban                   
1.75%      At Termination    Consumers NSA      At Termination      08/20/23        (10      793              793  
        U.S. CPI Urban                   
2.97%      At Termination    Consumers NSA      At Termination      10/13/24        (4,000      40,332       42        40,290  
        U.S. CPI Urban                   
1.80%      At Termination    Consumers NSA      At Termination      08/20/25        (10      1,027              1,027  
        U.S. CPI Urban                   
2.57%      At Termination    Consumers NSA      At Termination      04/19/26        (1,250      66,055       17        66,038  
        U.S. CPI Urban                   
2.70%      At Termination    Consumers NSA      At Termination      09/01/26        (2,500      58,266       14        58,252  
        U.S. CPI Urban                   
2.68%      At Termination    Consumers NSA      At Termination      09/07/26        (2,000      47,372       27        47,345  
        U.S. CPI Urban                   
2.74%      At Termination    Consumers NSA      At Termination      09/15/26        (2,000      38,624       27        38,597  
        U.S. CPI Urban                   
2.92%      At Termination    Consumers NSA      At Termination      10/21/26        (3,500      26,729       46        26,683  
        U.S. CPI Urban                   
3.13%      At Termination    Consumers NSA      At Termination      10/27/26        (10,000      (33,898     133        (34,031
        U.S. CPI Urban                   
3.15%      At Termination    Consumers NSA      At Termination      10/29/26        (2,000      (9,374     27        (9,401
        U.S. CPI Urban                   
2.37%      At Termination    Consumers NSA      At Termination      05/15/28        (1,775      98,251       41        98,210  
        U.S. CPI Urban                   
2.66%      At Termination    Consumers NSA      At Termination      10/01/28        (2,000      38,481       37        38,444  
        U.S. CPI Urban                   
2.96%      At Termination    Consumers NSA      At Termination      10/26/28        (3,000      (13,152     55        (13,207
        U.S. CPI Urban                   
3.01%      At Termination    Consumers NSA      At Termination      10/27/28        (2,000      (15,331     37        (15,368
        U.S. CPI Urban                   
2.97%      At Termination    Consumers NSA      At Termination      11/01/28        (2,000      (9,757     37        (9,794
        U.S. CPI Urban                   
2.19%      At Termination    Consumers NSA      At Termination      12/03/28        (2,663      206,034       (74,540      280,574  
        U.S. CPI Urban                   
1.89%      At Termination    Consumers NSA      At Termination      08/20/30        (1,410      192,006       28,433        163,573  
        U.S. CPI Urban                   
1.90%      At Termination    Consumers NSA      At Termination      08/20/30        (5,900      798,904       33,637        765,267  
        U.S. CPI Urban                   
2.24%      At Termination    Consumers NSA      At Termination      01/12/31        (2,000      177,872       47        177,825  

 

 

S C H E D U L E   O F   I N V E S T M E N T S

  13


Schedule of Investments  (continued)

October 31, 2021

  

iShares® Inflation Hedged Corporate Bond ETF

 

Centrally Cleared Inflation Swaps (continued)

 

 

 
Paid by the Fund   

Received by the Fund

   Termination     

Notional

Amount

      

 

 

Upfront
Premium

Paid

    

Unrealized

Appreciation

 
Reference      Frequency    Rate      Frequency    Date      (000)      Value   (Received)      (Depreciation)  

 

 
        U.S. CPI Urban                   
2.40%      At Termination    Consumers NSA      At Termination      02/09/31        $(3,000    $  211,806   $ 70      $ 211,736  
        U.S. CPI Urban                   
2.47%      At Termination    Consumers NSA      At Termination      04/07/31        (2,000    123,005     47        122,958  
        U.S. CPI Urban                   
2.67%      At Termination    Consumers NSA      At Termination      05/19/31        (1,000    35,286     23        35,263  
        U.S. CPI Urban                   
2.57%      At Termination    Consumers NSA      At Termination      06/02/31        (3,000    137,045     2,870        134,175  
        U.S. CPI Urban                   
2.60%      At Termination    Consumers NSA      At Termination      09/30/31        (2,000    33,540     47        33,493  
        U.S. CPI Urban                   
2.40%      At Termination    Consumers NSA      At Termination      06/29/41        (500    24,449     19        24,430  
        U.S. CPI Urban                   
2.45%      At Termination    Consumers NSA      At Termination      06/29/41        (1,000    38,584     38        38,546  
        U.S. CPI Urban                   
2.38%      At Termination    Consumers NSA      At Termination      07/16/41        (300    14,829     4        14,825  
        U.S. CPI Urban                   
2.40%      At Termination    Consumers NSA      At Termination      05/15/48        (362    12,134     (30,782      42,916  
        U.S. CPI Urban                   
1.83%      At Termination    Consumers NSA      At Termination      10/18/49        (418    104,119     (11,789      115,908  
        U.S. CPI Urban                   
1.94%      At Termination    Consumers NSA      At Termination      08/20/50        (10    2,374            2,374  
        U.S. CPI Urban                   
1.95%      At Termination    Consumers NSA      At Termination      08/20/50        (600    140,419     16,730        123,689  
        U.S. CPI Urban                   
2.23%      At Termination    Consumers NSA      At Termination      01/06/51        (300    36,987     15        36,972  
        U.S. CPI Urban                   
2.41%      At Termination    Consumers NSA      At Termination      07/30/51        (1,000    34,719     49        34,670  
        U.S. CPI Urban                   
2.42%      At Termination    Consumers NSA      At Termination      08/02/51        (2,000    58,610     98        58,512  
                     

 

 

 

 

    

 

 

 
                      $2,717,773   $ (34,444    $ 2,752,217  
                     

 

 

 

 

    

 

 

 

Balances Reported in the Statements of Assets and Liabilities for Centrally Cleared Swaps

 

     

Premiums

Paid

    

Premiums

Received

    

Unrealized

Appreciation

    

Unrealized

Depreciation

 

Centrally Cleared Swaps(a)

     $82,667        $(117,111)        $2,834,018        $(81,801)  

 

  (a) 

Includes cumulative appreciation (depreciation) on centrally cleared swaps, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statements of Assets and Liabilities and is net of any previously paid (received) swap premium amounts.

 

Derivative Financial Instruments Categorized by Risk Exposure

As of period end, the fair values of derivative financial instruments located in the Statements of Assets and Liabilities were as follows:

 

 

 
     Interest
Rate
Contracts
     Inflation
Linked
Contracts
     Total  

 

 

Assets — Derivative Financial Instruments

        

Futures contracts

        

Unrealized appreciation on futures contracts(a)

   $ 3,119      $      $ 3,119  

Swaps — centrally cleared

        

Unrealized appreciation on centrally cleared swaps(a)

   $      $ 2,834,018      $ 2,834,018  
  

 

 

    

 

 

    

 

 

 
   $ 3,119      $ 2,834,018      $ 2,837,137  
  

 

 

    

 

 

    

 

 

 

 

 

14  

2 0 2 1   I S H A R E S   A N N U A L   R E P O R T   T O   S H A R E H O L D E R S


Schedule of Investments  (continued)

October 31, 2021

  

iShares® Inflation Hedged Corporate Bond ETF

 

Derivative Financial Instruments Categorized by Risk Exposure (continued)

 

 

 
     Interest
Rate
Contracts
    

Inflation

Linked
Contracts

     Total  

 

 

Liabilities — Derivative Financial Instruments

        

Futures contracts

        

Unrealized depreciation on futures contracts(a)

   $ 30,974      $      $ 30,974  

Swaps — centrally cleared

        

Unrealized depreciation on centrally cleared swaps(a)

   $      $ 81,801      $ 81,801  
  

 

 

    

 

 

    

 

 

 
   $  30,974      $  81,801      $  112,775  
  

 

 

    

 

 

    

 

 

 

 

  (a)

Net cumulative appreciation (depreciation) on futures contracts and centrally cleared inflation swaps contracts are reported in the Schedule of Investments. In the Statements of Assets and Liabilities, only current day’s variation margin is reported in receivables or payables and the net cumulative unrealized appreciation (depreciation) is included in accumulated earnings (loss).

 

For the period ended October 31, 2021, the effect of derivative financial instruments in the Statements of Operations was as follows:

 

 

 
    

Interest

Rate

Contracts

    

Inflation

Linked

Contracts

    

Total

 

 

 

Net Realized Gain (Loss) from:

        

Futures contracts

   $ (98,154    $      $ (98,154

Swaps

            404,190        404,190  
  

 

 

    

 

 

    

 

 

 
   $ (98,154    $ 404,190      $ 306,036  
  

 

 

    

 

 

    

 

 

 

Net Change in Unrealized Appreciation (Depreciation) on:

        

Futures contracts

   $ (6,454    $      $ (6,454

Swaps

            2,803,908        2,803,908  
  

 

 

    

 

 

    

 

 

 
   $ (6,454    $   2,803,908      $   2,797,454  
  

 

 

    

 

 

    

 

 

 

Average Quarterly Balances of Outstanding Derivative Financial Instruments

 

Futures contracts:

        

Average notional value of contracts — long

   $ 1,373,633  

Average notional value of contracts — short

   $ (531,356

Inflation swaps:

  

Average notional value — pays fixed rate

   $ 34,981,200  

For more information about the Fund’s investment risks regarding derivative financial instruments, refer to the Notes to Financial Statements.

Fair Value Hierarchy as of Period End

Various inputs are used in determining the fair value of financial instruments. For a description of the input levels and information about the Fund’s policy regarding valuation of financial instruments, refer to the Notes to Financial Statements.

 

 

S C H E D U L E   O F   I N V E S T M E N T S

  15


Schedule of Investments  (continued)

October 31, 2021

  

iShares® Inflation Hedged Corporate Bond ETF

 

Fair Value Hierarchy as of Period End (continued)

The following table summarizes the Fund’s financial instruments categorized in the fair value hierarchy. The breakdown of the Fund’s financial instruments into major categories is disclosed in the Schedule of Investments above.

 

 

 
     Level 1      Level 2      Level 3      Total  

 

 

Investments

           

Assets

           

Investment Companies

   $ 69,395,318      $      $      $ 69,395,318  

Money Market Funds

     33,198,902                      33,198,902  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 102,594,220      $      $      $ 102,594,220  
  

 

 

    

 

 

    

 

 

    

 

 

 

Derivative financial instruments(a)

           

Assets

           

Futures Contracts

   $ 3,119      $      $      $ 3,119  

Swaps

            2,834,018               2,834,018  

Liabilities

           

Futures Contracts

     (30,974                    (30,974

Swaps

            (81,801             (81,801
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ (27,855    $      2,752,217      $             —      $ 2,724,362  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  (a) 

Derivative financial instruments are swaps and futures contracts. Swaps and futures contracts are valued at the unrealized appreciation (depreciation) on the instrument.

 

See notes to financial statements.

 

 

16  

2 0 2 1   I S H A R E S   A N N U A L   R E P O R T   T O   S H A R E H O L D E R S


Schedule of Investments

October 31, 2021

  

iShares® Interest Rate Hedged Corporate Bond ETF

(Percentages shown are based on Net Assets)

 

Security   Shares     Value  

Investment Companies

   

Exchange-Traded Funds — 99.0%

   

iShares iBoxx $ Investment Grade Corporate Bond ETF(a)(b)(c)

 

 

5,311,881

 

 

$

709,029,875

 

   

 

 

 

Total Investment Companies — 99.0%
(Cost: $707,005,068)

   
      709,029,875  
   

 

 

 

Short-Term Investments

   

Money Market Funds — 46.1%

   

BlackRock Cash Funds: Institutional, SL Agency
Shares, 0.05%(a)(d)(e)

 

 

322,459,229

 

 

 

322,620,459

 

BlackRock Cash Funds: Treasury, SL Agency Shares, 0.00%(a)(d)

 

 

7,390,000

 

 

 

7,390,000

 

   

 

 

 
      330,010,459  
   

 

 

 

Total Short-Term Investments — 46.1%
(Cost: $330,010,459)

   

 

330,010,459

 

   

 

 

 

Total Investments in Securities — 145.1%
(Cost: $1,037,015,527)

   

 

1,039,040,334

 

Other Assets, Less Liabilities — (45.1)%

      (322,950,776
   

 

 

 

Net Assets — 100.0%

    $ 716,089,558  
   

 

 

 

 

(a) 

Affiliate of the Fund.

(b) 

All or a portion of the security has been pledged in connection with outstanding centrally cleared swaps.

(c) 

All or a portion of this security is on loan.

(d) 

Annualized 7-day yield as of period end.

(e) 

All or a portion of this security was purchased with the cash collateral from loaned securities.

Affiliates

Investments in issuers considered to be affiliate(s) of the Fund during the year ended October 31, 2021 for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

 

 

   

    

 

Affiliated Issuer

 

Value at

10/31/20

   

Purchases

at Cost

   

Proceeds

from Sales

   

Net Realized

Gain (Loss)

   

Change in

Unrealized

Appreciation
(Depreciation)

   

Value at

10/31/21

   

Shares

Held at

10/31/21

   

Income

   

Capital

Gain

Distributions

from

Underlying

Funds

   

    

 
 

 

   
 

BlackRock Cash Funds: Institutional, SL Agency Shares

  $ 173,299,904     $ 149,366,273 (a)    $     $ (63,036   $ 17,318     $ 322,620,459       322,459,229     $ 943,860 (b)    $    
 

BlackRock Cash Funds: Treasury, SL Agency Shares

    11,240,000             (3,850,000 )(a)                  7,390,000       7,390,000       2,838          
 

iShares iBoxx $ Investment Grade Corporate Bond ETF

    445,044,213       381,035,380       (119,480,304     6,670,564       (4,239,978     709,029,875       5,311,881       12,346,167          
         

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   
          $ 6,607,528     $ (4,222,660   $ 1,039,040,334       $ 13,292,865     $    
         

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

  (a) 

Represents net amount purchased (sold).

 
  (b) 

All or a portion represents securities lending income earned from the reinvestment of cash collateral from loaned securities, net of fees and collateral investment expenses, and other payments to and from borrowers of securities.

 

Derivative Financial Instruments Outstanding as of Period End

Centrally Cleared Interest Rate Swaps

 

 

 
Paid by the Fund  

Received by the Fund

 

Effective

Date

  

Termination

Date

    

Notional
Amount

(000)

   

Value

     Upfront
Premium
Paid
(Received)
    

Unrealized
Appreciation

(Depreciation)

 
Rate      Frequency   Rate      Frequency

 

 
1.17%      Semi-annual   3-Month LIBOR, 0.13%      Quarterly   N/A      12/08/21      $ (41,731   $ (47,568    $ (31,558    $ (16,010
0.23%      Semi-annual   3-Month LIBOR, 0.13%      Quarterly   N/A      10/19/22        (57,770     40,699        934        39,765  
2.38%      Semi-annual   3-Month LIBOR, 0.13%      Quarterly   N/A      01/12/23        (14,338     (345,291      (272,001      (73,290

 

 

S C H E D U L E   O F   I N V E S T M E N T S

  17


Schedule of Investments  (continued)

October 31, 2021

  

iShares® Interest Rate Hedged Corporate Bond ETF

 

Centrally Cleared Interest Rate Swaps (continued)

 

 

 
Paid by the Fund   

Received by the Fund

   Effective    Termination      Notional
Amount
     

 

     Upfront
Premium
Paid
     Unrealized
Appreciation
 
Rate    Frequency    Rate    Frequency    Date    Date      (000)     Value      (Received)      (Depreciation)  

 

 
2.46%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      01/12/25      $ (29,448   $ (1,369,026)      $ (1,800,764    $ 431,738  
0.35%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      09/22/25        (36,500     1,076,644        20,557        1,056,087  
0.40%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      10/19/25        (70,900     2,014,212        588,048        1,426,164  
0.93%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      05/17/26        (1,000     11,802        8        11,794  
0.93%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      05/17/26        (17,100     202,581        (6,327      208,908  
0.86%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      08/23/26        (8,000     134,536        70        134,466  
0.92%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      09/14/26        (5,600     81,565        50        81,515  
0.87%    Annual    1-Year SOFR, 0.05%    Annual    N/A      10/01/26        (7,500     44,061        67        43,994  
1.01%    Annual    1-Year SOFR, 0.05%    Annual    N/A      10/29/26        (950     (434      9        (443
0.49%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      09/22/27        (65,232     3,138,572        847,169        2,291,403  
1.08%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      08/19/28        (11,800     256,892        12,674        244,218  
3.25%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      10/18/28        (34,860     (4,268,447      (5,301,441      1,032,994  
1.19%    Annual    1-Year SOFR, 0.05%    Annual    N/A      10/20/28        (38,300     (65,625      493        (66,118
1.23%    Annual    1-Year SOFR, 0.05%    Annual    N/A      10/22/28        (1,460     (6,533      19        (6,552
0.77%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      04/01/30        (18,514     1,106,395        (138,285      1,244,680  
0.78%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      10/19/30        (27,400     1,796,084        453        1,795,631  
1.22%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      02/12/31        (25,180     767,996        890,446        (122,450
1.63%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      05/25/31        (18,080     (80,180      (148,883      68,703  
1.03%    Annual    1-Year SOFR, 0.05%    Annual    N/A      08/23/31        (1,000     26,101        16        26,085  
1.28%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      08/23/31        (5,000     145,132        79        145,053  
1.37%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      09/22/31        (10,460     217,992        166        217,826  
1.43%    Annual    1-Year SOFR, 0.05%    Annual    N/A      10/28/31        (7,000     (76,858      114        (76,972
0.91%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      09/25/35        (26,000     2,618,287        131,500        2,486,787  
1.59%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      09/14/36        (3,200     55,385        63        55,322  
1.44%    Annual    1-Year SOFR, 0.05%    Annual    N/A      10/05/36        (3,600     (6,281      72        (6,353
1.46%    Annual    1-Year SOFR, 0.05%    Annual    N/A      10/29/36        (8,360     (45,810      168        (45,978
2.34%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      12/08/36        (20,706     (1,745,784      (2,278,568      532,784  
1.11%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      10/19/40        (21,700     2,390,898        1,240,757        1,150,141  
2.03%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      05/17/41        (14,180     (622,334      (535,273      (87,061
1.57%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      08/23/41        (17,970     621,620        38,322        583,298  
0.86%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      03/30/45        (23,747     4,312,532        1,172,624        3,139,908  
1.16%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      10/19/45        (23,700     2,948,953        3,898,543        (949,590
1.61%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      08/23/46        (4,820     165,230        12,983        152,247  
1.58%    Annual    1-Year SOFR, 0.05%    Annual    N/A      10/01/46        (3,000     (71,508      82        (71,590
1.67%    Annual    1-Year SOFR, 0.05%    Annual    N/A      10/12/46        (4,700     (197,402      131        (197,533
1.66%    Annual    1-Year SOFR, 0.05%    Annual    N/A      10/22/46        (2,190     (88,608      61        (88,669
1.06%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      09/18/50        (22,605     3,726,804        463,932        3,262,872  
1.18%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      10/19/50        (18,750     2,543,988        2,460,004        83,984  
2.08%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      05/17/51        (5,900     (463,711      (25,818      (437,893
1.63%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      09/16/51        (2,500     75,089        77        75,012  
1.52%    Annual    1-Year SOFR, 0.05%    Annual    N/A      09/29/51        (4,900     (80,769      151        (80,920
1.55%    Annual    1-Year SOFR, 0.05%    Annual    N/A      10/20/51        (8,600     (204,851      (2,655      (202,196
                   

 

 

    

 

 

    

 

 

 
                    $ 20,733,030      $ 1,239,269      $ 19,493,761  
                   

 

 

    

 

 

    

 

 

 

Balances Reported in the Statements of Assets and Liabilities for Centrally Cleared Swaps

 

      Premiums
Paid
     Premiums
Received
     Unrealized
Appreciation
     Unrealized
Depreciation
 

Centrally Cleared Swaps(a)

   $ 11,780,842      $ (10,541,573)      $ 22,023,379      $ (2,529,618)  

 

  (a) 

Includes cumulative appreciation (depreciation) on centrally cleared swaps, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statements of Assets and Liabilities and is net of any previously paid (received) swap premium amounts.

 

 

 

18  

2 0 2 1   I S H A R E S   A N N U A L   R E P O R T   T O   S H A R E H O L D E R S


Schedule of Investments  (continued)

October 31, 2021

  

iShares® Interest Rate Hedged Corporate Bond ETF

 

Derivative Financial Instruments Categorized by Risk Exposure

As of period end, the fair values of derivative financial instruments located in the Statements of Assets and Liabilities were as follows:

 

 

 
    

Interest

Rate

Contracts

 

 

 

Assets — Derivative Financial Instruments

  

Swaps — centrally cleared

  

Unrealized appreciation on centrally cleared swaps(a)

   $ 22,023,379  
  

 

 

 

Liabilities — Derivative Financial Instruments

  

Swaps — centrally cleared

  

Unrealized depreciation on centrally cleared swaps(a)

   $ 2,529,618  
  

 

 

 

 

  (a)

Net cumulative appreciation (depreciation) on centrally cleared interest rate swaps contracts are reported in the Schedule of Investments. In the Statements of Assets and Liabilities, only current day’s variation margin is reported in receivables or payables and the net cumulative unrealized appreciation (depreciation) is included in accumulated earnings (loss).

 

For the period ended October 31, 2021, the effect of derivative financial instruments in the Statements of Operations was as follows:

 

 

 
    

Interest

Rate

Contracts

 

 

 

Net Realized Gain (Loss) from:

  

Swaps

   $ 433,028  
  

 

 

 

Net Change in Unrealized Appreciation (Depreciation) on:

  

Swaps

   $ 15,640,151  
  

 

 

 

Average Quarterly Balances of Outstanding Derivative Financial Instruments

 

Interest rate swaps:

        

Average notional value — pays fixed rate

   $ 629,011,800  

For more information about the Fund’s investment risks regarding derivative financial instruments, refer to the Notes to Financial Statements.

Fair Value Hierarchy as of Period End

Various inputs are used in determining the fair value of financial instruments. For a description of the input levels and information about the Fund’s policy regarding valuation of financial instruments, refer to the Notes to Financial Statements.

The following table summarizes the Fund’s financial instruments categorized in the fair value hierarchy. The breakdown of the Fund’s financial instruments into major categories is disclosed in the Schedule of Investments above.

 

 

 
     Level 1      Level 2      Level 3      Total  

 

 

Investments

           

Assets

           

Investment Companies

   $ 709,029,875      $      $      $ 709,029,875  

Money Market Funds

     330,010,459                      330,010,459  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,039,040,334      $      $      $ 1,039,040,334  
  

 

 

    

 

 

    

 

 

    

 

 

 

Derivative financial instruments(a)

           

Assets

           

Swaps

   $      $   22,023,379      $      $ 22,023,379  

Liabilities

           

Swaps

            (2,529,618             (2,529,618
  

 

 

    

 

 

    

 

 

    

 

 

 
   $      $ 19,493,761      $             —      $ 19,493,761  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  (a)

Derivative financial instruments are swaps. Swaps are valued at the unrealized appreciation (depreciation) on the instrument.

 

See notes to financial statements.

 

 

S C H E D U L E   O F   I N V E S T M E N T S

  19


Schedule of Investments

October 31, 2021

  

iShares® Interest Rate Hedged High Yield Bond ETF

(Percentages shown are based on Net Assets)

 

Security   Shares     Value  

 

 

Investment Companies

   

Exchange-Traded Funds — 96.5%

   

iShares iBoxx $ High Yield Corporate Bond ETF(a)(b)

    1,508,855     $ 131,164,765  
   

 

 

 

Total Investment Companies — 96.5%
(Cost: $132,323,116)

      131,164,765  
   

 

 

 

Short-Term Investments

   

Money Market Funds — 43.1%

   

BlackRock Cash Funds: Institutional, SL Agency Shares, 0.05%(a)(c)(d)

    56,290,502       56,318,647  

BlackRock Cash Funds: Treasury, SL Agency Shares, 0.00%(a)(c)

    2,310,000       2,310,000  
   

 

 

 
      58,628,647  
   

 

 

 

Total Short-Term Investments — 43.1%
(Cost: $58,628,647)

      58,628,647  
   

 

 

 

Total Investments in Securities — 139.6%
(Cost: $190,951,763)

      189,793,412  

Other Assets, Less Liabilities — (39.6)%

      (53,872,959
   

 

 

 

Net Assets — 100.0%

    $   135,920,453  
   

 

 

 

 

 

(a) 

Affiliate of the Fund.

(b) 

All or a portion of this security is on loan.

(c) 

Annualized 7-day yield as of period end.

(d) 

All or a portion of this security was purchased with the cash collateral from loaned securities.

Affiliates

Investments in issuers considered to be affiliate(s) of the Fund during the year ended October 31, 2021 for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

 

 
Affiliated Issuer   Value at
10/31/20
    Purchases
at Cost
    Proceeds
from Sales
   

Net Realized

Gain (Loss)

   

Change in
Unrealized
Appreciation

(Depreciation)

    Value at
10/31/21
    Shares
Held at
10/31/21
    Income    

Capital

Gain
Distributions
from
Underlying
Funds

 

 

 

BlackRock Cash Funds: Institutional, SL Agency Shares

  $ 31,857,833     $ 24,470,449 (a)    $     $ (12,818   $ 3,183     $ 56,318,647       56,290,502     $ 504,630 (b)    $  

BlackRock Cash Funds: Treasury, SL Agency Shares

    550,000       1,760,000 (a)                        2,310,000       2,310,000       282        

iShares iBoxx $ High Yield Corporate Bond ETF

    60,409,118       86,939,538       (18,144,223)       19,536       1,940,796       131,164,765       1,508,855       3,591,951        
       

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 
        $ 6,718     $ 1,943,979     $ 189,793,412       $ 4,096,863     $  
       

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

 

  (a) 

Represents net amount purchased (sold).

 
  (b) 

All or a portion represents securities lending income earned from the reinvestment of cash collateral from loaned securities, net of fees and collateral investment expenses, and other payments to and from borrowers of securities.

 

Derivative Financial Instruments Outstanding as of Period End

Centrally Cleared Interest Rate Swaps

 

 

 
Paid by the Fund   

Received by the Fund

   Effective    Termination      Notional
Amount
     

 

     Upfront
Premium
Paid
     Unrealized
Appreciation
 
Rate    Frequency    Rate    Frequency    Date    Date      (000)     Value      (Received)      (Depreciation)  

 

 
0.22%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      09/18/22        $(11,150)     $ 5,946      $ 486      $ 5,460  
2.38%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      01/12/23        (13,705     (330,047      3,306        (333,353
0.33%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      06/30/23        (8,900     32,235        33        32,202  
0.44%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      06/17/24        (6,120     68,480        6,839        61,641  
0.33%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      09/15/25        (28,900     865,526        125,033        740,493  

 

 

20  

2 0 2 1   I S H A R E S   A N N U A L   R E P O R T   T O   S H A R E H O L D E R S


Schedule of Investments  (continued)

October 31, 2021

  

iShares® Interest Rate Hedged High Yield Bond ETF

 

Centrally Cleared Interest Rate Swaps (continued)

 

 

 
Paid by the Fund   

Received by the Fund

   Effective    Termination      Notional
Amount
     

 

     Upfront
Premium
Paid
     Unrealized
Appreciation
 
Rate    Frequency    Rate    Frequency    Date    Date      (000)     Value      (Received)      (Depreciation)  

 

 
0.87%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      06/17/26      $ (5,600   $ 84,408      $ (13,067    $ 97,475  
0.87%    Annual    1-Year SOFR, 0.05%    Annual    N/A      09/29/26        (3,850     21,738        35        21,703  
1.42%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      04/07/28        (9,450     (21,042      (56,615      35,573  
1.23%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      06/08/28        (5,780     60,415        (26,458      86,873  
1.12%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      09/03/28        (1,960     39,102        24        39,078  
1.14%    Annual    1-Year SOFR, 0.05%    Annual    N/A      10/12/28        (2,500     3,209        32        3,177  
1.21%    Annual    1-Year SOFR, 0.05%    Annual    N/A      10/22/28        (2,100     (7,105      27        (7,132
0.77%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      04/01/30        (10,500     627,479        395,099        232,380  
1.59%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      06/04/31        (4,614     (4,697      (74,564      69,867  
1.36%    Annual    1-Year SOFR, 0.05%    Annual    N/A      10/20/31        (2,470     (11,386      40        (11,426
0.86%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      03/30/45        (80     14,529        2,375        12,154  
0.87%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      03/30/50        (10     2,064               2,064  
1.06%    Semi-annual    3-Month LIBOR, 0.13%    Quarterly    N/A      09/18/50        (15     2,473        38        2,435  
                   

 

 

    

 

 

    

 

 

 
                    $ 1,453,327      $ 362,663      $ 1,090,664  
                   

 

 

    

 

 

    

 

 

 

Balances Reported in the Statements of Assets and Liabilities for Centrally Cleared Swaps

 

         
      Premiums
Paid
     Premiums
Received
     Unrealized
Appreciation
     Unrealized
Depreciation
 

Centrally Cleared Swaps(a)

   $ 533,367      $ (170,704      $1,442,575        $(351,911)  

 

  (a)

Includes cumulative appreciation (depreciation) on centrally cleared swaps, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statements of Assets and Liabilities and is net of any previously paid (received) swap premium amounts.

 

Derivative Financial Instruments Categorized by Risk Exposure

As of period end, the fair values of derivative financial instruments located in the Statements of Assets and Liabilities were as follows:

 

   
    

Interest

Rate
Contracts

 

 

 

Assets — Derivative Financial Instruments

  

Swaps — centrally cleared

  

Unrealized appreciation on centrally cleared swaps(a)

   $ 1,442,575  
  

 

 

 

Liabilities — Derivative Financial Instruments

  

Swaps — centrally cleared

  

Unrealized depreciation on centrally cleared swaps(a)

   $ 351,911  
  

 

 

 

 

  (a) 

Net cumulative appreciation (depreciation) on centrally cleared interest rate swaps contracts are reported in the Schedule of Investments. In the Statements of Assets and Liabilities, only current day’s variation margin is reported in receivables or payables and the net cumulative unrealized appreciation (depreciation) is included in accumulated earnings (loss).

 

For the period ended October 31, 2021, the effect of derivative financial instruments in the Statements of Operations was as follows:

 

 

 
    

Interest

Rate
Contracts

 

 

 

Net Realized Gain (Loss) from:

  

Swaps

   $ (579,414
  

 

 

 

Net Change in Unrealized Appreciation (Depreciation) on:

  

Swaps

   $ 1,538,324  
  

 

 

 

Average Quarterly Balances of Outstanding Derivative Financial Instruments

 

   

Interest rate swaps:

  

Average notional value — pays fixed rate

   $ 78,718,800  

 

 

S C H E D U L E   O F   I N V E S T M E N T S

  21


Schedule of Investments  (continued)

October 31, 2021

  

iShares® Interest Rate Hedged High Yield Bond ETF

 

For more information about the Fund’s investment risks regarding derivative financial instruments, refer to the Notes to Financial Statements.

Fair Value Hierarchy as of Period End

Various inputs are used in determining the fair value of financial instruments. For a description of the input levels and information about the Fund’s policy regarding valuation of financial instruments, refer to the Notes to Financial Statements.

The following table summarizes the Fund’s financial instruments categorized in the fair value hierarchy. The breakdown of the Fund’s financial instruments into major categories is disclosed in the Schedule of Investments above.

 

 

 
     Level 1      Level 2      Level 3      Total  

 

 

Investments

           

Assets

           

Investment Companies

   $ 131,164,765      $      $      $ 131,164,765  

Money Market Funds

     58,628,647                      58,628,647  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 189,793,412      $      $      $ 189,793,412  
  

 

 

    

 

 

    

 

 

    

 

 

 

Derivative financial instruments(a)

           

Assets

           

Swaps

   $      $ 1,442,575      $      $ 1,442,575  

Liabilities

           

Swaps

            (351,911             (351,911
  

 

 

    

 

 

    

 

 

    

 

 

 
   $      $ 1,090,664      $             —      $ 1,090,664  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  (a) 

Derivative financial instruments are swaps. Swaps are valued at the unrealized appreciation (depreciation) on the instrument.

 

See notes to financial statements.

 

 

22  

2 0 2 1   I S H A R E S   A N N U A L   R E P O R T   T O   S H A R E H O L D E R S


Statements of Assets and Liabilities

October 31, 2021

 

    

iShares

Inflation

Hedged

Corporate

Bond ETF

    

iShares

Interest Rate

Hedged Corporate
Bond ETF

    

iShares

Interest Rate
Hedged High

Yield Bond

ETF

 

ASSETS

       

Investments in securities, at value (including securities on loan)(a):

       

Affiliated(b)

  $ 102,594,220      $ 1,039,040,334      $ 189,793,412  

Cash

    2,603        678,207        71,110  

Cash pledged:

       

Futures contracts

    26,000                

Centrally cleared swaps

    3,544,000               2,338,000  

Receivables:

       

Securities lending income — Affiliated

    4,675        48,836        74,421  

Dividends

    6        93,423        9  
 

 

 

    

 

 

    

 

 

 

Total assets

    106,171,504        1,039,860,800        192,276,952  
 

 

 

    

 

 

    

 

 

 

LIABILITIES

       

Collateral on securities loaned, at value

    32,598,903        322,683,495        56,325,341  

Payables:

       

Variation margin on futures contracts

    3,206                

Variation margin on centrally cleared swaps

    493,984        1,030,913        25,615  

Investment advisory fees

    2,603        56,834        5,543  
 

 

 

    

 

 

    

 

 

 

Total liabilities

    33,098,696        323,771,242        56,356,499  
 

 

 

    

 

 

    

 

 

 

NET ASSETS

  $ 73,072,808      $ 716,089,558      $ 135,920,453  
 

 

 

    

 

 

    

 

 

 

NET ASSETS CONSIST OF:

       

Paid-in capital

  $ 69,946,070      $ 714,047,406      $ 147,168,708  

Accumulated earnings (loss)

    3,126,738        2,042,152        (11,248,255
 

 

 

    

 

 

    

 

 

 

NET ASSETS

  $ 73,072,808      $ 716,089,558      $ 135,920,453  
 

 

 

    

 

 

    

 

 

 

Shares outstanding

    2,400,000        7,450,000        1,550,000  
 

 

 

    

 

 

    

 

 

 

Net asset value

  $ 30.45      $ 96.12      $ 87.69  
 

 

 

    

 

 

    

 

 

 

Shares authorized

    Unlimited        Unlimited        Unlimited  
 

 

 

    

 

 

    

 

 

 

Par value

    None        None        None  
 

 

 

    

 

 

    

 

 

 

(a) Securities loaned, at value

  $ 31,936,157      $ 315,896,438      $ 55,022,169  

(b) Investments, at cost — Affiliated

  $ 102,409,198      $ 1,037,015,527      $ 190,951,763  

See notes to financial statements.

 

F I N A N C I A L   S T A T E M E N T S

  23


Statements of Operations

Year Ended October 31, 2021

 

    iShares
Inflation
Hedged
Corporate
Bond ETF
   

iShares

Interest Rate
Hedged

Corporate

Bond ETF

   

iShares

Interest Rate
Hedged High

Yield Bond

ETF

 

 

 

INVESTMENT INCOME

     

Dividends — Affiliated

  $ 701,303     $ 12,349,005     $ 3,592,233  

Interest — Unaffiliated

    11              

Securities lending income — Affiliated — net

    54,024       943,860       504,630  
 

 

 

   

 

 

   

 

 

 

Total investment income

    755,338       13,292,865       4,096,863  
 

 

 

   

 

 

   

 

 

 

EXPENSES

     

Investment advisory fees

    69,132       1,640,532       603,091  

Miscellaneous

          173       173  
 

 

 

   

 

 

   

 

 

 

Total expenses

    69,132       1,640,705       603,264  

Less:

     

Investment advisory fees waived

    (51,849     (1,093,688     (556,699
 

 

 

   

 

 

   

 

 

 

Total expenses after fees waived

    17,283       547,017       46,565  
 

 

 

   

 

 

   

 

 

 

Net investment income

    738,055       12,745,848       4,050,298  
 

 

 

   

 

 

   

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS)

     

Net realized gain (loss) from:

     

Investments — Unaffiliated

          22,541        

Investments — Affiliated

    (3,123     (473,132     (114,645

In-kind redemptions — Affiliated

    323,059       7,080,660       121,363  

Futures contracts

    (98,154            

Swaps

    404,190       433,028       (579,414
 

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

    625,972       7,063,097       (572,696
 

 

 

   

 

 

   

 

 

 

Net change in unrealized appreciation (depreciation) on:

     

Investments — Affiliated

    (668,666     (4,222,660     1,943,979  

Futures contracts

    (6,454            

Swaps

    2,803,908       15,640,151       1,538,324  
 

 

 

   

 

 

   

 

 

 

Net change in unrealized appreciation (depreciation)

    2,128,788       11,417,491       3,482,303  
 

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain

    2,754,760       18,480,588       2,909,607  
 

 

 

   

 

 

   

 

 

 

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

  $ 3,492,815     $ 31,226,436     $ 6,959,905  
 

 

 

   

 

 

   

 

 

 

See notes to financial statements.

 

24  

2 0 2 1   I S H A R E S   A N N U A L   R E P O R T   T O   S H A R E H O L D E R S


Statements of Changes in Net Assets

 

   

iShares

Inflation Hedged Corporate Bond ETF

    

iShares

Interest Rate Hedged Corporate Bond

ETF

 
 

 

 

    

 

 

 
    Year Ended
10/31/21
     Year Ended
10/31/20
     Year Ended
10/31/21
     Year Ended
10/31/20
 

 

 

INCREASE (DECREASE) IN NET ASSETS

          

OPERATIONS

          

Net investment income

  $ 738,055      $ 256,326      $ 12,745,848      $ 5,278,486  

Net realized gain (loss)

    625,972        (68,354      7,063,097        (416,576

Net change in unrealized appreciation (depreciation)

    2,128,788        407,386        11,417,491        11,692,070  
 

 

 

    

 

 

    

 

 

    

 

 

 

Net increase in net assets resulting from operations

    3,492,815        595,358        31,226,436        16,553,980  
 

 

 

    

 

 

    

 

 

    

 

 

 

DISTRIBUTIONS TO SHAREHOLDERS(a)

          

Decrease in net assets resulting from distributions to shareholders

    (735,803      (257,076      (9,086,966      (4,725,247
 

 

 

    

 

 

    

 

 

    

 

 

 

CAPITAL SHARE TRANSACTIONS

          

Net increase in net assets derived from capital share transactions

    52,336,980        9,742,193        243,946,436        311,943,315  
 

 

 

    

 

 

    

 

 

    

 

 

 

NET ASSETS

          

Total increase in net assets

    55,093,992        10,080,475        266,085,906        323,772,048  

Beginning of year

    17,978,816        7,898,341        450,003,652        126,231,604  
 

 

 

    

 

 

    

 

 

    

 

 

 

End of year

  $ 73,072,808      $ 17,978,816      $ 716,089,558      $ 450,003,652  
 

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) 

Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

See notes to financial statements.

 

F I N A N C I A L   S T A T E M E N T S

  25


Statements of Changes in Net Assets (continued)

 

   

iShares

Interest Rate Hedged High Yield Bond

ETF

 
 

 

 

 
    Year Ended
10/31/21
    Year Ended
10/31/20
 

 

 

INCREASE (DECREASE) IN NET ASSETS

   

OPERATIONS

   

Net investment income

  $ 4,050,298     $ 4,490,364  

Net realized loss

    (572,696     (10,296,906

Net change in unrealized appreciation (depreciation)

    3,482,303       1,769,252  
 

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

    6,959,905       (4,037,290
 

 

 

   

 

 

 

DISTRIBUTIONS TO SHAREHOLDERS(a)

   

From net investment income

    (3,454,455     (3,757,382

Return of capital

          (29,722
 

 

 

   

 

 

 

Decrease in net assets resulting from distributions to shareholders

    (3,454,455     (3,787,104
 

 

 

   

 

 

 

CAPITAL SHARE TRANSACTIONS

   

Net increase (decrease) in net assets derived from capital share transactions

    70,089,848       (44,062,036
 

 

 

   

 

 

 

NET ASSETS

   

Total increase (decrease) in net assets

    73,595,298       (51,886,430

Beginning of year

    62,325,155       114,211,585  
 

 

 

   

 

 

 

End of year

  $ 135,920,453     $ 62,325,155  
 

 

 

   

 

 

 

 

(a) 

Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

See notes to financial statements.

 

26  

2 0 2 1   I S H A R E S   A N N U A L   R E P O R T   T O   S H A R E H O L D E R S


Financial Highlights

(For a share outstanding throughout each period)

 

    iShares Inflation Hedged Corporate Bond ETF  
 

 

 

 
          Period From  
    Year Ended       Year Ended       Year Ended          05/08/18 (a) 
    10/31/21       10/31/20       10/31/19       to 10/31/18  

 

 

Net asset value, beginning of period

          $ 27.66                   $ 26.33               $ 24.31               $ 25.00  
   

 

 

      

 

 

      

 

 

      

 

 

 

Net investment income(b)

      0.63          0.71          0.91          0.37  

Net realized and unrealized gain (loss)(c)

      2.82          1.36          2.01          (0.70
   

 

 

      

 

 

      

 

 

      

 

 

 

Net increase (decrease) from investment operations

      3.45          2.07          2.92          (0.33
   

 

 

      

 

 

      

 

 

      

 

 

 

Distributions(d)

                  

From net investment income

      (0.66        (0.74        (0.90        (0.36
   

 

 

      

 

 

      

 

 

      

 

 

 

Total distributions

      (0.66        (0.74        (0.90        (0.36
   

 

 

      

 

 

      

 

 

      

 

 

 

Net asset value, end of period

    $ 30.45        $ 27.66        $ 26.33        $ 24.31  
   

 

 

      

 

 

      

 

 

      

 

 

 

Total Return(e)

                  

Based on net asset value

      12.60        8.00 %(f)         12.26 %(g)         (1.34 )%(h) 
   

 

 

      

 

 

      

 

 

      

 

 

 

Ratios to Average Net Assets

                  

Total expenses(i)

      0.20        0.20        0.20        0.20 %(j)  
   

 

 

      

 

 

      

 

 

      

 

 

 

Total expenses after fees waived(i)

      0.05        0.05        0.05        0.05 %(j)  
   

 

 

      

 

 

      

 

 

      

 

 

 

Net investment income

      2.14        2.64        3.60        3.04 %(j)  
   

 

 

      

 

 

      

 

 

      

 

 

 

Supplemental Data

                  

Net assets, end of period (000)

    $ 73,073        $ 17,979        $ 7,898        $ 9,725  
   

 

 

      

 

 

      

 

 

      

 

 

 

Portfolio turnover rate(k)(l)

      0        13        0        0 %(h)(m)  
   

 

 

      

 

 

      

 

 

      

 

 

 

 

(a) 

 Commencement of operations.

(b) 

 Based on average shares outstanding.

(c) 

 The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the  timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities.

(d) 

 Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

(e) 

 Where applicable, assumes the reinvestment of distributions.

(f) 

 Includes payment received from an affiliate, which had no impact on the Fund’s total return.

(g) 

 Includes payment received from an affiliate, which impacted the Fund’s total return. Excluding the payment from an affiliate, the Fund’s total return would  have been 12.22%.

(h) 

 Not annualized.

(i) 

 The Fund indirectly bears its proportionate share of fees and expenses incurred by the underlying fund in which the Fund is invested (“acquired fund fees  and expenses”). This ratio does not include these acquired fund fees and expenses.

(j) 

 Annualized.

(k) 

 Portfolio turnover rate excludes in-kind transactions.

(l) 

 Portfolio turnover rate excludes the portfolio activity of the underlying fund in which the Fund is invested. See the underlying fund’s financial highlights for  its respective portfolio turnover rates.

(m) 

Rounds to less than 1%.

See notes to financial statements.

 

F I N A N C I A L   H I G H L I G H T S

  27


Financial Highlights (continued)

(For a share outstanding throughout each period)

 

    iShares Interest Rate Hedged Corporate Bond ETF  
 

 

 

 
    Year Ended
10/31/21
   

Year Ended

10/31/20

    Year Ended
10/31/19
    Year Ended
10/31/18
    Year Ended
10/31/17
 

 

 

Net asset value, beginning of year

  $ 91.84                 $ 93.50        $ 95.79        $ 96.62        $ 92.49  
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Net investment income(a)

    2.23          2.38          3.35          3.16          2.76  

Net realized and unrealized gain (loss)(b)

    3.68          (1.69        (0.97        (1.16        3.73  
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Net increase from investment operations

    5.91          0.69          2.38          2.00          6.49  
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Distributions(c)

                     

From net investment income

    (1.63        (2.35        (3.12        (2.83        (2.36

From net realized gain

                      (1.55                  
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total distributions

    (1.63        (2.35        (4.67        (2.83        (2.36
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Net asset value, end of year

  $ 96.12        $ 91.84        $ 93.50        $ 95.79        $ 96.62  
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total Return(d)

                     

Based on net asset value

    6.46        0.79        2.63        2.08        7.11
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Ratios to Average Net Assets

                     

Total expenses(e)

    0.30        0.30        0.30        0.30        0.30
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total expenses after fees waived(e)

    0.10        0.10        0.10        0.10        0.10
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Net investment income

    2.33        2.64        3.59        3.27        2.91
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Supplemental Data

                     

Net assets, end of year (000)

  $ 716,090        $ 450,004        $ 126,232        $ 215,530        $ 77,295  
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Portfolio turnover rate(f)(g)

    5        7        4        2        0 %(h)  
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

 

(a) 

 Based on average shares outstanding.

(b) 

 The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the  timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities.

(c) 

 Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

(d) 

 Where applicable, assumes the reinvestment of distributions.

(e) 

 The Fund indirectly bears its proportionate share of fees and expenses incurred by the underlying fund in which the Fund is invested (“acquired fund fees  and expenses”). This ratio does not include these acquired fund fees and expenses.

(f) 

 Portfolio turnover rate excludes in-kind transactions.

(g) 

 Portfolio turnover rate excludes the portfolio activity of the underlying fund in which the Fund is invested. See the underlying fund’s financial highlights for  its respective portfolio turnover rates.

(h) 

 Rounds to less than 1%.

See notes to financial statements.

 

28  

2 0 2 1   I S H A R E S   A N N U A L   R E P O R T   T O   S H A R E H O L D E R S


Financial Highlights (continued)

(For a share outstanding throughout each period)

 

    iShares Interest Rate Hedged High Yield Bond ETF  
 

 

 

 
    Year Ended
10/31/21
    Year Ended
10/31/20
    Year Ended
10/31/19
    Year Ended
10/31/18
    Year Ended
10/31/17
 

 

 

Net asset value, beginning of year

  $ 83.10                 $ 87.86        $ 90.47        $ 91.78        $ 87.42  
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Net investment income(a)

    3.81          4.31          5.51          4.98          4.57  

Net realized and unrealized gain (loss)(b)

    4.15          (5.53        (2.92        (1.46        4.21  
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Net increase (decrease) from investment operations

    7.96          (1.22        2.59          3.52          8.78  
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Distributions(c)

                     

From net investment income

    (3.37        (3.51        (5.18        (4.83        (4.42

Return of capital

             (0.03        (0.02                  
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total distributions

    (3.37        (3.54        (5.20        (4.83        (4.42
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Net asset value, end of year

  $ 87.69        $ 83.10        $ 87.86        $ 90.47        $ 91.78  
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total Return(d)

                     

Based on net asset value

    9.70        (1.32 )%         3.00        3.93        10.26
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Ratios to Average Net Assets

                     

Total expenses(e)

    0.65        0.65        0.65        0.65        0.65
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total expenses after fees waived(e)

    0.05        0.05        0.05        0.05        0.05
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Net investment income

    4.37        5.12        6.22        5.46        5.04
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Supplemental Data

                     

Net assets, end of year (000)

  $ 135,920        $ 62,325        $ 114,212        $ 416,178        $ 137,670  
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Portfolio turnover rate(f)(g)

    1        1        1        0 %(h)          0
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

 

(a) 

 Based on average shares outstanding.

(b) 

 The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the  timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities.

(c) 

 Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

(d) 

 Where applicable, assumes the reinvestment of distributions.

(e) 

 The Fund indirectly bears its proportionate share of fees and expenses incurred by the underlying fund in which the Fund is invested (“acquired fund fees  and expenses”). This ratio does not include these acquired fund fees and expenses.

(f) 

 Portfolio turnover rate excludes in-kind transactions.

(g) 

 Portfolio turnover rate excludes the portfolio activity of the underlying fund in which the Fund is invested. See the underlying fund’s financial highlights for  its respective portfolio turnover rates.

(h) 

 Rounds to less than 1%.

See notes to financial statements.

 

F I N A N C I A L   H I G H L I G H T S

  29


Notes to Financial Statements   

 

1.     ORGANIZATION

iShares U.S. ETF Trust (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust is organized as a Delaware statutory trust and is authorized to have multiple series or portfolios.

These financial statements relate only to the following funds (each, a “Fund,” and collectively, the “Funds”):

 

iShares ETF  

Diversification   

Classification   

 

Inflation Hedged Corporate Bond(a)

    Diversified     

Interest Rate Hedged Corporate Bond

    Diversified     

Interest Rate Hedged High Yield Bond

    Diversified     

 

  (a) 

The Fund’s classification changed from non-diversified to diversified during the reporting period.

Currently each Fund seeks to achieve its investment objective by investing a substantial portion of its assets in an iShares fund (an “underlying fund”). The financial statements, including the accounting policies, and schedules of investments for the underlying funds are available on iShares.com and should be read in conjunction with the Funds’ financial statements.

2.     SIGNIFICANT ACCOUNTING POLICIES

The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Each Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. Below is a summary of significant accounting policies:

Investment Transactions and Income Recognition: For financial reporting purposes, investment transactions are recorded on the dates the transactions are executed. Realized gains and losses on investment transactions are determined using the specific identification method. Dividend income and capital gain distributions from the underlying funds, if any, are recorded on the ex-dividend date. Interest income is recognized daily on an accrual basis.

Segregation and Collateralization: In cases where a Fund enters into certain investments (e.g., futures contracts and swaps) that would be treated as “senior securities” for 1940 Act purposes, a Fund may segregate or designate on its books and record cash or liquid assets having a market value at least equal to the amount of its future obligations under such investments. Doing so allows the investment to be excluded from treatment as a “senior security.” Furthermore, if required by an exchange or counterparty agreement, the Funds may be required to deliver/deposit cash and/or securities to/with an exchange, or broker-dealer or custodian as collateral for certain investments or obligations.

In-kind Redemptions: For financial reporting purposes, in-kind redemptions are treated as sales of securities resulting in realized capital gains or losses to the Funds. Because such gains or losses are not taxable to the Funds and are not distributed to existing Fund shareholders, the gains or losses are reclassified from accumulated net realized gain (loss) to paid-in capital at the end of the Funds’ tax year. These reclassifications have no effect on net assets or net asset value (“NAV”) per share.

Distributions: Dividends and distributions paid by each Fund are recorded on the ex-dividend dates. Distributions are determined on a tax basis and may differ from net investment income and net realized capital gains for financial reporting purposes. Dividends and distributions are paid in U.S. dollars and cannot be automatically reinvested in additional shares of the Funds. The character and timing of distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP.

Indemnifications: In the normal course of business, each Fund enters into contracts that contain a variety of representations that provide general indemnification. The Funds’ maximum exposure under these arrangements is unknown because it involves future potential claims against the Funds, which cannot be predicted with any certainty.

3.     INVESTMENT VALUATION AND FAIR VALUE MEASUREMENTS

Investment Valuation Policies: Each Fund’s investments are valued at fair value (also referred to as “market value” within the financial statements) each day that the Fund’s listing exchange is open and, for financial reporting purposes, as of the report date. U.S. GAAP defines fair value as the price a fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. Each Fund determines the fair values of its financial instruments using various independent dealers or pricing services under policies approved by the Board of Trustees of the Trust (the “Board”). If a security’s market price is not readily available or does not otherwise accurately represent the fair value of the security, the security will be valued in accordance with a policy approved by the Board as reflecting fair value. The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to oversee the pricing function for all financial instruments.

Fair Value Inputs and Methodologies: The following methods and inputs are used to establish the fair value of each Fund’s assets and liabilities:

 

 

30  

2 0 2 1   I S H A R E S   A N N U A L   R E P O R T   T O   S H A R E H O L D E R S


Notes to Financial Statements  (continued)   

 

   

Exchange-traded funds and closed-end funds traded on a recognized securities exchange are valued at that day’s last traded price or official closing price, as applicable, on the exchange where the fund is primarily traded. Funds traded on a recognized exchange for which there were no sales on that day may be valued at the last traded price.

   

Investments in open-end U.S. mutual funds (including money market funds) are valued at that day’s published NAV.

   

Futures contracts are valued based on that day’s last reported settlement or trade price on the exchange where the contract is traded.

   

Swap agreements are valued utilizing quotes received daily by independent pricing services or through brokers, which are derived using daily swap curves and models that incorporate a number of market data factors, such as discounted cash flows, trades and values of the underlying reference instruments.

If events (e.g., market volatility, company announcement or a natural disaster) occur that are expected to materially affect the value of such investment, or in the event that application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, in accordance with a policy approved by the Board as reflecting fair value (“Fair Valued Investments”). The fair valuation approaches that may be used by the Global Valuation Committee include market approach, income approach and cost approach. Valuation techniques such as discounted cash flow, use of market comparables and matrix pricing are types of valuation approaches and are typically used in determining fair value. When determining the price for Fair Valued Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that each Fund might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant and consistent with the principles of fair value measurement. The pricing of all Fair Valued Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.

Fair Value Hierarchy: Various inputs are used in determining the fair value of financial instruments. These inputs to valuation techniques are categorized into a fair value hierarchy consisting of three broad levels for financial reporting purposes as follows:

   

Level 1 – Unadjusted price quotations in active markets/exchanges for identical assets or liabilities that each Fund has the ability to access;

   

Level 2 – Other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market-corroborated inputs); and

   

Level 3 – Unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available, (including the Global Valuation Committee’s assumptions used in determining the fair value of financial instruments).

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Investments classified within Level 3 have significant unobservable inputs used by the Global Valuation Committee in determining the price for Fair Valued Investments. Level 3 investments include equity or debt issued by privately held companies or funds that may not have a secondary market and/or may have a limited number of investors. The categorization of a value determined for financial instruments is based on the pricing transparency of the financial instruments and is not necessarily an indication of the risks associated with investing in those securities.

 

4.

SECURITIES AND OTHER INVESTMENTS

Securities Lending: Each Fund may lend its securities to approved borrowers, such as brokers, dealers and other financial institutions. The borrower pledges and maintains with the Fund collateral consisting of cash, an irrevocable letter of credit issued by an approved bank, or securities issued or guaranteed by the U.S. government. The initial collateral received by each Fund is required to have a value of at least 102% of the current market value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter at a value equal to at least 100% of the current value of the securities on loan. The market value of the loaned securities is determined at the close of each business day of the Fund and any additional required collateral is delivered to the Fund or excess collateral is returned by the Fund, on the next business day. During the term of the loan, each Fund is entitled to all distributions made on or in respect of the loaned securities but does not receive interest income on securities received as collateral. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions.

As of period end, any securities on loan were collateralized by cash and/or U.S. Government obligations. Cash collateral invested in money market funds managed by BlackRock Fund Advisors (“BFA”), the Funds’ investment adviser, or its affiliates is disclosed in the Schedule of Investments. Any non-cash collateral received cannot be sold, re-invested or pledged by the Fund, except in the event of borrower default. The securities on loan, if any, are also disclosed in each Fund’s Schedule of Investments. The market value of any securities on loan and the value of any related cash collateral are disclosed in the Statements of Assets and Liabilities.

Securities lending transactions are entered into by the Funds under Master Securities Lending Agreements (each, an “MSLA”) which provide the right, in the event of default (including bankruptcy or insolvency) for the non-defaulting party to liquidate the collateral and calculate a net exposure to the defaulting party or request additional collateral. In the event that a borrower defaults, the Funds, as lender, would offset the market value of the collateral received against the market value of the securities loaned. When the value of the collateral is greater than that of the market value of the securities loaned, the lender is left with a net amount payable to the defaulting party. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of an MSLA counterparty’s bankruptcy or insolvency. Under the MSLA, absent an event of default, the borrower can resell or re-pledge the loaned securities, and the Funds can reinvest cash collateral received in connection with loaned securities. Upon an event of default, the parties’ obligations to return the securities or collateral to the other party are extinguished, and the parties can resell or re-pledge the loaned securities or the collateral received in connection with the loaned securities in order to satisfy the defaulting party’s net payment obligation for all transactions under the MSLA. The defaulting party remains liable for any deficiency.

 

 

N O T E S   T O   F I N A N C I A L   S T A T E M E N T S

  31


Notes to Financial Statements  (continued)   

 

As of period end, the following table is a summary of the securities on loan by counterparty which are subject to offset under an MSLA:

 

 

 

iShares ETF and Counterparty

   
Market Value of
Securities on Loan
 
 
    
Cash Collateral
Received
&n