iShares Q&A
What are iShares?
iShares are over 50 different index funds that trade like stocks. Each share of a fund represents a portfolio of stocks designed to generally correspond to the price and yield performance of its related index. Of course, there is no assurance that the performance of the underlying index of each fund can be fully matched.
How easy is it to buy and sell iShares? Where can I buy them?
iShares trade like shares of common stock and can be bought and sold any time during the trading day on The American Stock Exchange. Just ask, and your broker can buy or sell iShares for your account. Brokerage commission rates will apply to purchases and sales of iShares. Since iShares can be accessed through any brokerage firm or financial advisor, investors can consolidate their investments anywhere without maintaining additional accounts at several financial institutions. Some actively managed mutual funds do not offer investors the same portability.
How are iShares different from close-end funds?
Closed-end, including country and regional funds listed on U.S. exchanges, frequently trade at discounts or premiums to their net asset value (NAV). Closed-end fund prices reflect supply and demand forces. But large discounts and premiums to iShares NAVs are less likely to appear due to the way fund shares are created and redeemed. Ongoing creation/redemption and the potential for arbitrage between the fund share price and portfolio value helps to keep iShares closer to the value of the underlying securities. Such mechanisms generally don’t exist in a closed-end fund.
Are there short-term redemption rules or fees levied on iShares?
No. Investors can sell their iShares at any time without restrictions or redemption fees. Of course, brokerage, commissions will be charged. Companies offering traditional mutual funds may restrict redemptions and may impose fees.
Why invest in iShares?
An investment in iShares gives you the unique opportunity to buy or sell an entire portfolio of stocks in a single transaction. iShares can also work as flexible tools for building a well-constructed portfolio: a portfolio that’s highly diversified and covers the investing styles, market sectors, industries, and regions that are appropriate for you. With iShares, it’s easy to add exposure to any combination of equity opportunities. They can complement an existing core portfolio, enabling investors to add specific kinds of exposure: an aggressive sector play; or a more conservative value tilt, for example. And they make it easy to add international exposure to a portfolio. iShares offer you a low-cost way to gain either long- or short-term exposure to their related indexes. That’s because fees for iShares, which are passively managed, are generally lower than that of actively managed funds (See "What are iShares Trust expenses?" for details).
What are the advantages to trading iShares on the Amex?
- buy and sell at any time during the trading day
- instantly acquire a portfolio related to a variety of broad-market, sector or international indexes
- no sales loads, although brokerage commissions will apply
- no high management and sponsor fees
- ability to sell short
- tax efficiencies
Does investing in iShares involve risk?
Yes. Because iShares represent portfolios of stock, they are subject to the risk that the general level of stock prices will decline. If the value of an underlying index falls, the value of the corresponding iShares will decline as well. In addition, the level of an underlying index and the value of the related iShares will continue to be reported even if trading is interrupted in some or all of the component stocks of the index. As a result, reported index levels and iShares price quotations may at times be based on non-current price information with respect to some or even all of the component stocks of the underlying index. iShares may trade below, at, or above net asset value. Although passive management and diversification are intended to reduce risk, indexing is not necessarily safer than active management.
Can iShares be sold short?
Yes. iShares may be sold short, representing the sale of "borrowed" shares in anticipation of lower prices when the borrowed shares must be replaced. iShares are also exempt from the rule that requires shares to be sold short only on an "uptick" (i.e., a last sale price higher than that of a security’s preceding last sale.) You are required to make arrangements to borrow securities before selling short.
What are iShares Trust expenses?
Fees for passively managed funds like iShares, are typically lower than actively managed funds currently on the market, since passive management usually requires fewer investment, research, trading decisions and associated expenses. Annual expenses for the iShares Trust range from .09% (9 basis points) for the iShares S&P 500 Index Fund to .99% (99 basis points) for several iShares MSCI Funds. Active managers often incur heavy research expenses, and transaction costs, which vary with portfolio turnover rates. Many equity mutual funds’ expenses can run between 1.0% and 1.5% per year.
How does the performance of iShares compare with the performance of their underlying indexes?
iShares are designed to provide investment results that generally correspond to the price and yield performance of their related indexes. One market mechanism that helps to keep iShares trading at a price close to the value of their underlying portfolios is arbitrage. Because iShares are both redeemable into the stocks of their related indexes and can be created from the stocks of the indexes on any day, arbitrage traders may move to profit from any price discrepancies between the index and iShares which in turn helps to close the price gap between the two. (iShares creations and redemptions are restricted to large transactions in multiples ranging from 50,000 to 600,000 Index Shares, usually carried out by institutional investors.) Of course, because of the forces of supply and demand and other market factors, there may be times when iShares trae at a premium or discount to fair value. In addition, iShares may use futures to simulate full investment in the respective underlying index, to facilitate trading or to reduce transaction costs.
Where can I get up-to-date price information?
The pricing of iShares is continuous on the Amex during normal trading hours. You can obtain this information from your broker, many stock quotation systems, or on a delayed basis from www.ishares.com and www.amex.com. The closing prices are also published in major newspapers on the following business day.
Do iShares pay dividends?
The iShares Trust pays out dividends to investors at least annually and may pay them on a more frequent basis.
Can dividends be reinvested?
Dividend reinvestment programs are available for iShares through participant brokers in The Depository Trust Company (DTC) Dividend Reinvestment Service. Because not all brokers participate in the Service, you should consult your broker on the availability of dividend reinvestment as well as specific procedures that apply.
How are iShares created and redeemed?
Creations and redemptions are restricted to large transactions (in multiples ranging from 50,000 to 600,000 shares) carried out by institutional investors designated as "Authorized Participants." Investors seeking to liquidate (or initiate) iShares positions, on the other hand, simply place orders through their brokerage accounts for execution on The American Stock Exchange.
When were iShares introduced?
The Amex began trading iShares on May 19, 2000.
Who issues iShares?
Barclays Global Fund Advisors, a subsidiary of Barclays Global Investors, N.A., is the advisor to each fund. SEI Investments Distribution Company is the distributor for each fund. Investors Bank & Trust Company is the administrator, custodian, transfer agent and securities lending agent for each fund.
For complete information and a prospectus, including potential risks, on iShares, call 1-800-iShares (1-800-474-2737) or visit www.ishares.com or www.amex.com. Read the prospectus carefully before you invest. iShares are subject to risks similar to those of stocks. Investment returns may fluctuate and are subject to market volatility, so that an investor's shares when redeemed or sold, may be worth more or less than their original cost. Past performance is no guarantee of future results.
