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iShares Trust

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Market Overview

iShares Trust

Global Market Overview

Global equity markets declined in U.S. dollar terms during the 12 months ended August 31, 2022 (“reporting period”). The MSCI ACWI, a broad global equity index that includes both developed and emerging markets, returned -15.88% in U.S. dollar terms for the reporting period.

For the first third of the reporting period, economic recovery supported stocks in most regions of the world. The global economy continued to rebound from the impact of restrictions imposed at the beginning of the coronavirus pandemic, as mitigation and adaptation allowed most economic activity to continue. However, substantial challenges emerged at the beginning of 2022 which negatively affected stock prices. Inflation rose significantly in many countries, reducing consumers’ purchasing power and leading many central banks to tighten monetary policy. Russia’s invasion of Ukraine presented a further challenge to the global economy, disrupting important commodities markets.

The U.S. economy grew briskly over the final half of 2021, powered primarily by consumer spending. Record-high personal savings rates allowed consumers to spend at an elevated level, releasing pent-up demand for goods and services. Growth subsequently stalled in the first half of 2022, and the economy contracted amid lower inventories and faltering business investment. Despite the economic downturn, unemployment declined substantially, falling to 3.7% in August 2022 while the number of long-term unemployed dropped below the pre-pandemic level. Although high inflation negatively impacted consumer sentiment, which declined significantly, consumer spending continued to grow.

Rising inflation led to a shift in policy from the U.S. Federal Reserve (“the Fed”). As the reporting period began, the Fed was using accommodative monetary policy to stimulate the economy. Short-term interest rates were kept at near-zero levels, and the Fed used bond-buying programs to stabilize debt markets. However, rising prices led the Fed to tighten monetary policy during the reporting period in an attempt to prevent runaway inflation. The Fed slowed and then ended its bond-buying activities, finally reversing course as it began to reduce its balance sheet in June 2022. In March 2022, the Fed began to raise short-term interest rates, followed by three more increases for a total increase of 225 basis points, the most rapid rise in decades. Interest rates rose significantly in response, leading to higher borrowing costs for businesses. In that environment, the U.S. dollar significantly appreciated relative to most foreign currencies.

Stocks declined in Europe in U.S. dollar terms as economic growth stalled and the euro declined sharply relative to the U.S. dollar. Significantly higher inflation and Russia’s invasion of Ukraine negatively impacted equities. Russia is an important trading partner with many European countries, and new sanctions imposed limits on certain types of trade with Russia. Investors became concerned that the sharp rise in energy prices during the reporting period would constrain economic growth, as Europe relies on imported energy for much of its industrial and heating needs. The European Central Bank (“ECB”) responded to elevated inflation by raising interest rates in July 2022, the first such increase in over a decade.

Despite relatively low inflation by global standards, Asia-Pacific stocks declined significantly in U.S. dollar terms. Chinese stocks faced significant headwinds amid regulatory interventions by the Chinese government and strict lockdowns following COVID-19 outbreaks. Japanese stocks also declined amid an economic contraction in the first quarter of 2022 and a sharp decline in the Japanese yen relative to the U.S. dollar. Emerging market stocks declined substantially, as higher interest rates and a strengthening U.S. dollar raised the cost of borrowing in many emerging economies.

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Investment Objective

The iShares Currency Hedged MSCI United Kingdom ETF (the “Fund”) seeks to track the investment results of an index composed of large- and mid-capitalization United Kingdom equities while mitigating exposure to fluctuations between the value of the British pound and the U.S. dollar, as represented by the MSCI United Kingdom 100% Hedged to USD Index (the “Index”). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. The Fund currently seeks to achieve its investment objective by investing a substantial portion of its assets in one underlying fund, the iShares MSCI United Kingdom ETF.

Performance

GROWTH OF $10,000 INVESTMENT

(SINCE INCEPTION AT NET ASSET VALUE)

The inception date of the Fund was June 29, 2015. The first day of secondary market trading was July 1, 2015.

Past performance is not an indication 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” for more information.

Expense Example

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Portfolio Management Commentary

Stocks in the U.K. declined for the reporting period in U.S. dollar terms, as the country’s economy contracted in the second quarter of 2022 and inflation reached 40-year highs. The Bank of England raised interest rates multiple times and warned of a prolonged recession.

The industrials sector was the largest detractor from the Index’s return, as industrial production grew at a relatively slow pace. A multinational construction rental company with operations in the U.S. declined sharply despite benefiting from the relatively strong U.S. housing market. In addition, a multinational consumer credit rating agency declined despite strong earnings, as lower mortgage refinancing activity and declining consumer spending clouded the earnings outlook.

The financials sector also detracted from the Index’s performance. The insurance industry generally benefited from higher interest rates, but rising inflation led to uncertainty about cost increases and demand for insurance products. A large multinational insurer declined sharply as slower growth abroad and outflows from mutual funds weighed on earnings growth.

The consumer discretionary and consumer staples sectors also detracted from the Index’s return, as high inflation drove up input costs and tempered demand. Household durables stocks declined, as the cooling housing market and rising cost of living weighed on sales of big-ticket items. The personal products industry also weakened, largely driven by a multinational consumer products company, as inflation increased production expenses and sapped consumer demand. On the upside, the energy sector was a relatively large contributor in U.S. dollar terms due to rising oil and gas prices.

In terms of currency performance during the reporting period, the British pound depreciated by approximately 15% relative to the U.S. dollar. Rising interest rates in the U.S. along with high inflation and energy costs in Britain pressured the British pound.

The British pound’s negative performance meant hedging activity contributed to the Index’s return. A fully hedged investor seeks to bypass the currency fluctuations — both on the upside and on the downside — related to holding foreign-currency-denominated securities. The Index’s hedging activity offset the negative impact of the British pound’s performance relative to the U.S. dollar, resulting in an Index return that was relatively close to the return of British equities measured in British pounds.

Portfolio Information

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Investment Objective

The iShares MSCI United Kingdom ETF (the “Fund”) seeks to track the investment results of an index composed of U.K. equities, as represented by the MSCI United Kingdom Index (the “Index”). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index.

Performance

GROWTH OF $10,000 INVESTMENT

(AT NET ASSET VALUE)

Past performance is not an indication 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” for more information.

Expense Example

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Portfolio Management Commentary

Stocks in the U.K. declined for the reporting period in U.S. dollar terms, as the country’s economy contracted in the second quarter of 2022 and inflation reached 40-year highs. The Bank of England raised interest rates multiple times and warned of a prolonged recession. In addition, comparatively high interest rates in the U.S. and the U.K.’s dependence on foreign imports led to a sharp depreciation in the British pound relative to the U.S. dollar, which detracted from the Index’s return in U.S. dollar terms.

The industrials sector was the largest detractor from the Index’s return, as industrial production grew at a relatively slow pace. A multinational construction rental company with operations in the U.S. declined sharply despite benefiting from the relatively strong U.S. housing market. In addition, a multinational consumer credit rating agency declined despite strong earnings, as lower mortgage refinancing activity and declining consumer spending clouded the earnings outlook.

The financials sector also detracted from the Index’s performance. The insurance industry generally benefited from higher interest rates, but rising inflation led to uncertainty about cost increases and demand for insurance products. A large multinational insurer declined sharply as slower growth abroad and outflows from mutual funds weighed on earnings growth.

The consumer discretionary and consumer staples sectors also detracted from the Index’s return, as high inflation drove up input costs and tempered demand. Household durables stocks declined, as the cooling housing market and rising cost of living weighed on sales of big-ticket items. The personal products industry also weakened, largely driven by a multinational consumer products company, as inflation increased production expenses and sapped consumer demand. On the upside, the energy sector was a relatively large contributor due to rising oil and gas prices.

Portfolio Information

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Investment Objective

The iShares MSCI United Kingdom Small-Cap ETF (the “Fund”) seeks to track the investment results of an index composed of small-capitalization U.K. equities, as represented by the MSCI United Kingdom Small Cap Index (the “Index”). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index.

Performance

GROWTH OF $10,000 INVESTMENT

(AT NET ASSET VALUE)

Past performance is not an indication 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” for more information.

Expense Example

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Portfolio Management Commentary

Small-capitalization stocks in the U.K. declined for the reporting period, as the country’s economy slipped into contraction in the second quarter of 2022 and inflation reached 40-year highs. The Bank of England raised interest rates to the highest levels in 13 years and warned of a prolonged recession. The declining value of the British pound relative to the U.S. dollar also diminished the value of U.K. stocks in U.S. dollar terms.

The consumer discretionary sector detracted the most from the Index’s return. Internet and direct marketing retail companies experienced declining sales due to a reduction in online spending by consumers. Additionally, persistent supply chain problems affected international deliveries from online retailers. In the restaurants industry, disruptions to supply precipitated by the war in Ukraine increased prices for energy and wheat, weighing on the profitability of makers of baked goods.

Industrials stocks also detracted from the Index’s performance, particularly in the trading companies and distributors industry. The costs of raw materials rose, pressuring sellers of building materials. Additionally, the U.K. housing market cooled as interest rates rose, weakening the prospects for new home construction. Retailers of home improvement materials were further impacted as worsening inflation led to a reduction in consumer spending on discretionary home renovation projects.

Financials stocks were another source of weakness for the Index’s return, driven by capital markets companies. Challenges for asset managers during the reporting period included increased market volatility, outflows from higher-growth stocks, and negative publicity surrounding the suspension of investments in Russia. In the real estate sector, office real estate investment trusts declined significantly as the increase in remote working during the coronavirus pandemic led to higher office vacancies and prompted investors to question the future viability of office investments.

Portfolio Information

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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 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.

Disclosure of Expenses

Shareholders of each Fund may incur the following charges: (1) transactional expenses, including brokerage commissions on purchases and sales of fund shares and (2) ongoing expenses, including management fees and other fund expenses. The expense examples shown (which are based on a hypothetical investment of $1,000 invested at the beginning of the period and held through the end of the period) are intended to assist shareholders both in calculating expenses based on an investment in each Fund and in comparing these expenses with similar costs of investing in other funds.

The expense examples provide information about actual account values and actual expenses. Annualized expense ratios reflect contractual and voluntary fee waivers, if any. In order to estimate the expenses a shareholder paid during the period covered by this report, shareholders can divide their account value by $1,000 and then multiply the result by the number under the heading entitled “Expenses Paid During the Period.”

The expense examples also provide information about hypothetical account values and hypothetical expenses based on a fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses. In order to assist shareholders in comparing the ongoing expenses of investing in the Funds and other funds, compare the 5% hypothetical examples with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

The expenses shown in the expense examples are intended to highlight shareholders’ ongoing costs only and do not reflect any transactional expenses, such as brokerage commissions and other fees paid on purchases and sales of fund shares. Therefore, the hypothetical examples are useful in comparing ongoing expenses only and will not help shareholders determine the relative total expenses of owning different funds. If these transactional expenses were included, shareholder expenses would have been higher.

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Affiliates

Investments in issuers considered to be affiliate(s) of the Fund during the year ended August 31, 2022 for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

Derivative Financial Instruments Outstanding as of Period End

Forward Foreign Currency Exchange Contracts

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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:

For the period ended August 31, 2022, the effect of derivative financial instruments in the Statements of Operations was as follows:

Average Quarterly Balances of Outstanding Derivative Financial Instruments

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

Derivative Financial Instruments - Offsetting as of Period End

The Fund’s derivative assets and liabilities (by type) were as follows:

The following tables present the Fund’s derivative assets and liabilities by counterparty net of amounts available for offset under an MNA and net of the related collateral received and pledged by the Fund:

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Derivative Financial Instruments - Offsetting as of Period End (continued)

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.

See notes to financial statements.

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