Experts at Schroders discuss why they are optimistic about the market for ETFs.

Schroders has four active exchange-traded funds under its belt this year so far, and more are coming by the end of this year, Tom Stephens, head of ETFs at the UK firm, told journalists last week.

Most recently, Schroders launched two active ETfs, expanding the geographic solutions in its growing suite of products to meet client demand. The market has surged in recent years as investors and advisors have sought lower-cost ways of obtaining market exposure. (An ETF is a basket of securities such as stocks and/or bonds that are held in a single fund that is bought or sold on an exchange.)

The Schroder Europe Equity Active UCITS ETF and Schroder Japan Equity Active UCITS ETF, which are the two new ETFs, will provide investors with access to actively managed regional equity strategies aimed at identifying companies with attractive value and quality characteristics in Europe and Japan respectively.

The launches build on the expansion of Schroders’ active ETF offering. The Europe and Japan Equity ETFs share an underlying investment philosophy and process with existing Schroders’ Equity ETFs. The ETFs were listed on the XETRA Deutsche Borse, followed by further listings on the London Stock Exchange, Borsa Italiana and SIX Swiss Exchange. See here.

Stephens said he also plans to launch more products in the next few weeks, including one domiciled in Taiwan. He said Taiwan is a fast-growing market for ETFs. They have also had five ETFs in Australia for a decade and expect to launch a US product in a matter of weeks.

Jamie Fowler, head of UK Wealth Schroders said they like the US and it is a more mature market.

Active ETFs in the US offer significant tax advantages over traditional active mutual funds, though they traditionally carry slightly higher tax risks than passive index ETFs. Active ETFs in the US also offer better tax advantages than they do in Europe.

Luxembourg- and Dublin-domiciled ETFs offer more tax advantages than other European jurisdictions. A number of investment managers such as Dimensional Fund Advisors, a large US-based active exchange-traded fund manager, also recently launched its first active European ETF. US-headquartered investment managers Invesco and Franklin Templeton have recently launched a number of ETFs as well as Geneva-headquartered Pictet Asset Management. See more here, here and here.

Active ETFs appear to have wind in their sails. Yesterday, MSCI, the index provider, carried a survey showing that 87 per cent of 450 advisors in the US and Europe predict active ETFs to be more widely used over the next two years. They're also expecting further growth in use of passive ETFs (up by 62 per cent). And significantly for asset managers, 58 per cent think new active ETF allocation from a manager they use already would likely squeeze out an existing mutual funds or UCITS holding, MSCI said.