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INSTITUTIONAL GUIDE TO ETFs

Attributes and Applications of ETFs

ETFs (exchange traded funds) are an integral part of the investment process for many institutional investors, traders and risk managers. They are changing the way institutions construct portfolios, fine-tune risk and manage operational tasks like cash management and portfolio transitions.

Key attributes of iShares ETFs

Flexibility
ETFs have a variety of applications, including core allocations, tactical adjustments and risk management.
Liquidity
Multiple layers of liquidity, potentially making ETFs more cost-efficient to trade than their underlying securities.
Access
Access to broad and niche exposures, making investment views instantly actionable.
Operational efficiency
Immediate exposure to a portfolio of securities in a single trade without the operational costs.
Transparency
Ability to view underlying
ETF holdings daily.
Securities Lending
Shares of the ETF itself may be lent out by an investor to help generate incremental yield.

Institutional applications of ETFs

Institutional uses of ETFs span both strategic and tactical objectives. The table below, from the 8th annual Greenwich Associates Institutional ETF Study, highlights the key applications of ETFs for institutional investors.

StrategyObjectiveInstitutional usage
Asset managers & family officesInstitutional fundsInsurersRIAsConsultants
Core allocation Build a long-term strategic holding in a portfolio 73% 60% 62% 72% 80%
Tactical adjustments Over- or underweight certain styles, regions or countries on the basis of short-term views 61% 56% 81% 74% 40%
International diversification Gain efficient access to foreign markets 55% 40% 48% 68% 30%
Liquidity management Maintain exposure in a liquid investment vehicle to meet cash flow needs 45% 52% 52% 58% 90%
Portfolio completion Fill in gaps in a strategic asset allocation 42% 40% 48% 66% 50%
Risk management Mitigate undesired portfolio risk and hedge asset allocation decisions 42% 24% 19% 46% 50%
Rebalancing Manage portfolio risk in between rebalancing cycles 36% 52% 52% 64% 50%
Cash equitization Put long-term cash positions to work with ETFs to minimize cash drag 27% 32% 24% 32% 50%
Interim beta Maintain market exposure while refining a long-term view 27% 28% 10% 20% 50%
Transition management Facilitate manager transitions with ETFs 24% 52% 48% 34% 80%

Source: 8th Annual Greenwich Associates Institutional ETF Study, 2018. Based on 180 U.S. responses. BlackRock sponsored the study.

Greenwich Associates ETF research
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