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Decoding active ETFs

Learn why active ETFs are becoming an increasingly important part of investor toolkits around the world.
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Types of ETFs

Fixed income ETFs

Diversified portfolio of fixed income securities
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Equity ETFs

Basket of stocks with exposure to a specific market segment or index
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Active ETFs

Funds actively managed by professional portfolio specialists
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Commodity ETFs

Specific commodity or a fund that holds a variety of commodity-related assets
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Digital asset ETFs

Funds with exposure to blockchain technology and the digital asset ecosystem
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How institutional investors use ETFs

Investment managers are using ETFs for a number of reasons, including diversification, ease of execution, product depth, and liquidity.

Gain broad, diversified exposure to global equity and fixed income to form the foundation of your portfolio

A large asset manager, managing a blend of index and active mutual funds, sought to differentiate their investment style while maintaining low tracking error.

The client adopted these enhanced ETFs as core components of their portfolios: 

  • Take modest active risk relative to benchmarks
  • Leverage AI and big data for insights
  • Offer broad, diversified exposure in an ETF wrapper
  • Provide consistent alpha with strong risk controls

ETFs enabled them to maintain benchmark alignment while subtly tilting toward outperforming factors and themes.

Short-term shifts in portfolio positioning made to capitalize on market opportunities or mitigate risks

A global asset manager was looking to express a tactical investment into China in response to short-term macroeconomic signals and policy shifts, and needed a fast, cost-efficient, and liquid way to implement this view without disrupting their strategic asset allocation.

The client allocated funds into an ETF that tracks the FTSE China A50 Index.

ETFs allowed the client to: 

  • Achieve precise exposure to a targeted segment of the Chinese equity market
  • Avoid the operational complexity and cost of direct stock selection
  • Maintain flexibility to unwind the position as market conditions evolved

Maintain exposure in a liquid investment vehicle to meet cash flow needs

A large institutional investor was looking to maintain strategic asset allocation while managing short-term liquidity needs; they needed to reduce cash drag and preserve market exposure during a portfolio transition period.

They implemented a liquidity sleeve using equity and fixed income ETFs. This was done with the selection of ETFs with high liquidity, tight bid-ask spreads, and strong secondary market support. By doing so, they used ETFs as a temporary placeholder for target exposures while waiting to deploy capital into less liquid instruments.

ETFs allowed the client to: 

  • Preserve beta exposure and minimize tracking error
  • Reduce operational complexity and transaction costs
  • Enable faster rebalancing and smoother capital deployment

Maintain exposure in a liquid investment vehicle to meet cash flow needs

A large institutional investor was looking to maintain strategic asset allocation while managing short-term liquidity needs; they needed to reduce cash drag and preserve market exposure during a portfolio transition period.

They implemented a liquidity sleeve using equity and fixed income ETFs. This was done with the selection of ETFs with high liquidity, tight bid-ask spreads, and strong secondary market support. By doing so, they used ETFs as a temporary placeholder for target exposures while waiting to deploy capital into less liquid instruments.

ETFs allowed the client to: 

  • Deliver efficient, scalable access to a high-growth market
  • Reduce operational burden and compliance risk
  • Meet growing investor demand for India exposure

Combine financial goals with positive societal or environmental impact

An institutional investor wanted to align their core equity holdings with the low-carbon transition while maintaining benchmark-relative performance. They also needed to meet regulatory expectations under SFDR and ESMA while demonstrating a credible decarbonization strategy to stakeholders.

The client transitioned some of their AUM across ETFs with sustainable strategies, including those (or some) that align with the EU Climate Transition Benchmark (CTB) framework. They also adjusted fund names and investment methodologies to reflect sustainability objectives more clearly, while integrating top-down and bottom-up decarbonization metrics, including exposure to renewable energy and critical minerals.

ETFs allowed the client to:

  • Achieve regulatory alignment with SFDR and ESMA naming guidelines
  • Deliver measurable sustainability outcomes while preserving investment performance
  • Strengthen trust and brand positioning as a sustainability leader

This reflects how ETFs can be used as scalable, transparent tools for implementing sustainable investment mandates.

Insights

Thought leadership

Boy in yellow raincoat curiously watching a green plant in a glass jar

How active ETFs are unlocking innovation and opportunity

Jan 12, 2026

Learn about investing with active ETFs and why they are an increasingly important part of investor toolkits around the world.

SITUATIONS - strategy

Innovation meets opportunity

How years of constant fixed income ETF innovation are empowering investors to navigate today’s markets and build portfolios for the new era.

Highway turning at night

The great yield reset

Bond ETFs and the generational opportunity in fixed income

Transcript
ETFs are one of the world’s most innovative financial products and can help investors build portfolios with better diversification, build portfolios with better flexibility. But not all ETFs are equal. As one of the leaders in the ETF market for more than two decades (Source: BlackRock; as of 31 December 2024), iShares lives by one mission. We are champions of investor progress for millions by relentlessly pursuing better ways to invest. iShares ETFs deliver access to diverse global investment opportunities through a range of high quality ETFs that perform as designed. Since 1996, iShares has always been pioneering innovative trends in the ETF industry. iShares offers more than 1000 ETFs across 16 domiciles (Source: iShares Global Business Intelligence; data as of 31 December 2024.). And is now one of the leading ETF issuers in the world with US$4.2 trillion AUM, with 30+ years of investment experience in global markets, with 20+ years investment experience in Asian markets (Source: BlackRock; as of 31 December 2024.). Helping investors achieve their financial goals. iShares by BlackRock

Why iShares

Trusted ETF leader
For over two decades, iShares’ suite of innovative tools and analytics has eased investors’ access to the world’s largest digital assets in regulated financial instruments.

Sustained record of performance
iShares delivers strong performance through tight tracking, deep liquidity, and institutional-quality indices.

Powered by BlackRock
Expert portfolio management actively seeks to optimize returns, risk, and cost.

Learn more about iShares

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