After California-headquartered Scharf Investments’ launched two exchange-traded funds in August, Jason Marcus talks to this news service on the evolving ETF outlook and the mutual fund-to-ETF conversion process.

With so much focus these days on rising tax, the ways that investment returns can be earned with as little tax friction as possible are bound to be a priority.

Exchange-traded funds are far more tax-efficient than mutual funds, Jason Marcus, chief operating officer and chief compliance officer of Scharf Investments, told WealthBriefing in a recent interview.

ETFs offer more significant tax benefits in the US than traditional mutual funds, mainly through superior tax efficiency, making them a powerful tool for long-term wealth building by minimising the impact of annual taxes on returns. ETFs use a process whereby “authorised participants” exchange baskets of securities for ETF shares rather than cash. This keeps capital gains within the fund low, often resulting in zero or minimal distributions.

To drive the point home, Marcus said ETFs have outperformed mutual funds over the long-term. “During the last five years, ETF assets have nearly doubled, while mutual fund assets have increased more modestly,” he said. Active ETFs also captured 37 per cent of industry inflows in 2025 and the conversion wave is accelerating.The global ETF industry reached a record $17.34 trillion in assets at the end of July 2025, an increase of nearly 17 per cent since the end of 2024. Europe has seen similarly strong expansion, with the market reaching $2.58 trillion.

“We prefer ETFs to mutual funds as they are fully transparent on pricing and easier to manage,” he said. “We lean towards healthcare and IT, including firms like Microsoft and Oracle. We are also positive about the outlook in 2026.”

Marcus recently led the 351 conversion of Scharf's strategies into the Scharf ETF (KAT, ~$770 million assets under management) and Scharf Global Opportunities ETF (GKAT, ~$120 million AuM). A 351 conversion allows firms to compete immediately at scale rather than spending years gathering assets. But Marcus said conversions can go wrong, from regulatory missteps to operational failures that damage shareholder value.

For more than two decades, the rise of “passive investing” has been a strong wealth management theme. The idea of trying to beat a market benchmark in the long term to earn “Alpha” by picking stocks was regarded as a mug’s game, so the argument went. Active management fell out of favour to some extent as stocks were lifted on a tide of cheap money after 2008. ETFs have thrived.

Scharf Global Opportunity Strategy ETF
Scharf Investments aims to identify common equities with low valuations combined with sustainable earnings, cash flow, and/or book value. The firm invests in companies located both in the US and abroad, and in developed or emerging markets.

Top holdings include tech multinational Microsoft, pharmaceutical firms AstraZeneca and Novartis, as well as asset manager Brookfield.

Scharf Quality Value Strategy ETF
The Scharf Quality Value Strategy aims to invest in high quality, enduring franchises priced at substantial discounts to fair value. The team identifies companies with low valuations combined with consistent and sustainable earnings, cash flow and/or book value. The goal is to provide capital appreciation over the course of a market cycle while losing notably less than relevant benchmarks in falling markets.

Top holdings include tech multinationals Microsoft and Oracle, asset manager Brookfield and pharmaceutical business Novatis. See more here.

A number of investment managers have been launching ETFs recently, notably in Europe, even though they don’t have the same tax advantages as in the US. Dimensional Fund Advisors, a large US-based active exchange-traded fund manager, for instance, has officially launched its first active European ETF in November. US-headquartered investment managers Invesco and Franklin Templeton have also launched a number of ETFs recently. See more here and here.

US-based State Street Investment Management published its 2025 EMEA Wealth Manager Survey last month, showing that ETFs remain dominant, with rising demand for both index and active strategies. In a time of macroeconomic uncertainty and industry change, the survey shows that 88 per cent of wealth managers expect to use ETFs more frequently in client portfolios. See more here.

There can be challenges around ETFs and the whole notion of tracking an index. According to Dimensional Fund Advisors, a US-based firm that stresses its systematic investment approach, the way that indices used by ETFs are re-set during a year to allow for firms entering or leaving an index means that investors can lose out. In a way, this runs in parallel with rising worries about “concentration risk.” For example, the “Magnificent Seven” tech stocks have disproportionately driven US equity returns in recent years.