The Top ETF Use Cases of Institutional Investors – Visual Capitalist

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The following content is sponsored by iShares
the top etf use cases of institutional investors – visual capitalist
Download the ETF Snapshot for free.
Institutional investors are relying more on ETFs during periods of severe volatility—but how exactly is this vehicle being used within their broader portfolios?
In this infographic from iShares, we highlight their three primary use cases for ETFs. It’s the third of a five-part series covering key insights from the ETF Snapshot, a comprehensive report on how institutional investors manage volatility.
To assess how institutional investors navigated this volatility, Institutional Investor published a report in 2021 based on a survey of 766 decision makers. Respondents were from various types of organizations, firm sizes, and regions.
For instance, here is how responses broke down by location:
Here’s what the survey found.


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70% of respondents (n=534) use ETFs when moving from one manager to another. The following table provides a breakdown of regional results.
*EMEA includes Europe, Middle East, and Africa
Institutional investors cited the extra utility that ETFs provide, namely in terms of maintaining beta exposure (the portion of return that can be attributed to the overall market) and minimizing performance drag (the negative effect of fees on performance).
In other words, using relatively low cost ETFs during transitions can enable an institutional investor to maintain market exposure with minimal fees.
61% of respondents (n=468) use ETFs to make tactical adjustments within their portfolios. The following table provides a breakdown of regional results.
Tactical asset allocation refers to shifts in the portfolio’s asset mix that are intended to take advantage of market pricing anomalies or strong sectors. Tactical adjustments are temporary, and a manager will eventually bring the portfolio back to its strategic asset mix after the achieving their desired results.
When asked which types of ETFs are suitable for implementing tactical adjustments, 66% responded with fixed income, 57% responded with equities, and 34% responded with factor/smart beta ETFs.
The third most common ETF use case (n=394) was liquidity management. See below for a breakdown of regional results.
When asked which types of ETFs are suitable for managing portfolio liquidity, 83% responded with fixed income, 27% responded with equities, and 22% responded with factor/smart beta ETFs. This is likely due to the events of 2020, where panic over the initial outbreak of COVID-19 caused bond market liquidity to dry up.
Thanks to their suitability in various use cases, ETFs have quickly become a core component of the institutional investor’s toolkit. In fact, 65% say they will increase their use of ETFs going forward.
Those that didn’t may soon change their minds—experts have predicted more market volatility in 2022 as supply chain issues, inflation, and geopolitical conflicts escalate.
Download the ETF Snapshot for free.
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As demand for steel grows in the low-carbon future, so will steelmaking coal’s role in sustainable production.
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Global population growth, increased urbanization, and a growing middle class will continue to drive long-term demand for steel and the steelmaking coal required to produce it.
The above infographic from Teck outlines the mineral’s key role in the low-carbon future.
Steel is the most commonly used metal and fulfills a variety of structural and construction needs, along with being an essential material for the production of vehicles, mechanical equipment, and domestic appliances.
Clean and renewable technologies also require steel to build wind turbines, solar panels, tidal power systems and bioenergy infrastructure.
While some kinds of steel can be made using recycled metal, roughly 72% of global steel production relies on steelmaking coal and certain higher grades of steel can only be made using the ingredient.
Also known as metallurgical coal or coking coal, steelmaking coal is mined to produce the carbon used in steelmaking. This is fundamentally different from thermal coal, which is used to make steam that generates electricity.
To make steel, the coal is first heated at around 1100°C to remove water and other chemicals, without the presence of oxygen. The result is a lump of near-pure carbon which is called coke.
Then, individual layers of coke, iron ore, and limestone are added to a blast furnace to make hot metal that is finally refined into steel.
The steel sector is taking action to reduce its carbon footprint. One solution that has been used in the last couple of years is Carbon Capture, Utilization and Storage (CCUS).
CCUS consists of capturing carbon dioxide (CO₂) during the steelmaking process, then transporting the CO₂ via ship or pipeline, and lastly reutilizing it in other industrial processes, such as producing fuels or as input into chemical production. The CO₂ can also be permanently stored deep underground in geological formations.
Supported by cleaner production, the global steel market is forecast to grow by 557 million tonnes during 2021-2025, progressing at a compound annual growth rate (CAGR) of 6.32%.
As demand for steel grows, so will steelmaking coal’s role in sustainable production.
Teck is one of Canada’s leading mining companies committed to responsibly producing steelmaking coal needed for a low-carbon future.
What are the different types of climate indexes? We show their key metrics and how they can help investors align with net-zero goals.
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If average temperatures continue to rise at their current rate:
To prevent the worst effects of climate change, climate experts believe we need to drive carbon emissions down to net-zero.
This infographic from MSCI shows five climate indexes that can help align investor portfolios to the goals of the Paris Agreement, mitigate emissions, and reduce fossil fuel exposure.
Net-zero targets are a clearly marked pathway for companies to reduce greenhouse gas (GHG) emissions in line with the Paris Agreement.
The Paris Agreement’s goal is to limit global warming to well below 2°C, preferably no more than 1.5°C above pre-industrial levels. Investors have a critical role to play in this transition to net-zero.
First, here are the key metrics used to assess the environmental profile of indexes:
Let’s look at five types of climate indexes from MSCI:
Objective: Reduce carbon intensity by 50% compared to benchmark, annual decarbonization of 10%, increase weight in green solutions companies.
The indexes have also shown strong performance on the Climate Value at Risk (Var) metric.
Climate Var provides a forward-looking return-based assessment of how climate change could affect company valuations. For instance, a holder of MSCI ACWI would likely see an erosion of portfolio value by about 14.44% if the world were to decarbonize in line with a 1.5°C warming scenario.
A holder of a Climate Paris Aligned Index, by contrast, would see little to no erosion in value.

Metric Description Climate Paris Aligned Index Benchmark Index
What was the historical climate performance? 88% lower carbon emissions than the reference index 11 tons CO2e/$ million invested 89 tons CO2e/$ million invested
Key climate feature* Climate Value at Risk (Var) 0% -14.44%
Index performance
(Five-year annualized return as of Sep 30 2021)
Outperformed benchmark MSCI ACWI Index 15.40% 13.80%


*As of May 2021 semi-annual index review
Objective: Reduce carbon emission intensity by 30% compared to benchmark, annual decarbonization of 7%, increase weight in green opportunity companies.
Green opportunity companies may include green bonds, companies with low carbon patents, or provide exposure to UN Sustainable Development Goals. These are companies which see opportunity from the climate transition.

Metric Description Climate Change Index Benchmark Index
What was the historical climate performance? 62% lower carbon emissions than reference index 34 tons CO2e/$M invested 89 tons CO2e/$M invested
Key climate feature Carbon intensity is at least 50% lower than that of the benchmark 32 tons CO2e/$M sales 205 tons CO2e/$M sales
Index performance
(Five-year annualized return as of Sep 30 2021)
Outperformed benchmark MSCI ACWI Index 15.70% 13.80%


Objective: Minimize carbon footprint by 50% based on exposure to carbon emissions and fossil fuel reserves.
The carbon footprint covers two key metrics:
Objective: Represent broad market performance while excluding companies that own oil, gas and coal reserves.

Metric Description Fossil Fuels Exclusion Index Benchmark Index
What was the historical climate performance? Carbon emissions were reduced by 34% compared to the reference index 59 tons CO2e/$M invested 89 tons CO2e/$M invested
Key climate feature Proportion of index invested in fossil fuel reserves 0% 5%
Index performance (Five-year annualized return as of Sep 30 2021) Outperformed benchmark MSCI ACWI Index 14.30% 13.80%


Objective: Select companies that derive at least 50% of their revenues from environmentally beneficial products and services.
The green to fossil fuel-based net revenue exposure compares revenues from green companies in relation to companies with revenues from fossil fuel. This can be used as a metric to assess the shift from fossil fuel-related activities to greener alternatives.

Metric Description Environment Index Benchmark Index
What was the historical climate performance? Included companies that derive at least 50% of revenues from green energy* 99% 9.10%
Key climate feature Green/fossil fuel-based net revenue exposure 192.7 3
Index performance
(Five-year annualized return as of Sep 30 2021)
Outperformed benchmark MSCI ACWI Index 23.60% 13.80%


*Cumulative measure across holdings, includes alternative (renewable) energy, green buildings, sustainable water and pollution prevention
As investors integrate climate concerns in their portfolios, they can use indexes from MSCI to help make more informed decisions.
Climate indexes can help investors:
These climate tools can help investors with future investment strategies—and catalyze change.
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