Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Wisdomtree first quarter earnings call.
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No again the conference over to your house today, Mr., Jason Weyeneth Director of Investor Relations. Please go ahead Sir.
Thank you and good morning, before we begin I'd like to reference our legal disclaimer available in today's presentation. This presentation may contain forward looking statements within the meaning of the private Securities Litigation reform.
Massive 1995 number of factors could cause actual results to differ materially from the results discussed in forward looking statements, including but not limited to the rest set forth in this presentation and the risk factor section of Wisdomtrees annual report on form 10-K for the year ended December 31st 2019 wisdom.
Three assumes no duty and does not undertake to update any forward looking statements now it's my pleasure to turn the call over to Wisdomtrees founder and CEO Jonathan Steinberg.
Thank you, Jason and good morning, everyone.
Open the call with some comments on our business outlook before turning it over to our global head of research Jerry Schwartz disgust product positioning and performance then on it will discuss.
Q1 results and provide updated financial guidance.
Then we'll take your questions.
First and foremost I hope everyone and their families is healthy and see.
These are unprecedented times and that's we managed through this crisis.
Our priority remains to protect our most important asset.
Our employees and their families.
To that and we quickly pivoted to working from home for our entire global workforce.
The combination of our investments in technology over the past several years and our business model allowed us to seamlessly switch to a remote environment. We utilize the most modern technology infrastructure and are outsourcing business model leverage is the strength of the.
Largest and better capitalized financial service firms in the world.
Why we hope for our near term return to normalcy.
We are very capable of operating remotely indefinitely with no compromise to our high standards of operational excellence and client service.
We entered Twentytwenty with significant momentum and believed we had reached an important inflection point in our boys trajectory.
While the market volatility disrupted this momentum this step back was only temporary and we are regaining momentum as we speak.
Our Twentytwenty plan remains intact.
And as we discussed last quarter, we are focused on.
Performance and innovation.
We expect the migration from mutual funds to E T X to accelerate twentytwenty at the superiority Oh the structure shine.
This year should prove to be a difficult one for mutual funds, which are poised to deliver capital gains to patent holders as low cost basis securities were sold to meet redemption requests during the market pullback. Additionally, one of the obstacle tee up adoption that.
We've encountered at the Bull market age was advisers, who acknowledge the superior the superiority.
Women structure and price signal that products burst active mutual funds, but aren't able to transition their existing client assets to our products due to the tax consequences of switching the pullback has reduced or eliminated that friction for many advisors.
The pullback has revealed the need to review asset allocation.
Oh market research indicates advisors remain wedded to 60 40 approach and haven't taken a hard look at after that with Asian, nearly a decade.
In the current environment of near zero interest rates, we believe investor should shift their focus the high quality dividend oriented equities, while reducing fixed income exposure.
This is wisdomtree sweet spot.
We anticipate advisory utilization third party model will accelerate.
Yep.
After Siegel Cobranded model portfolios launched in February are resonating with a wide range of advisors across all channels.
Modeled portfolio business continues to gain momentum across the TV model marketplace sector and indefinite.
We added.
Park Avenue, we were added to Park Avenue Securities platform as one of a small handful of model providers.
Sure added models.
Hours to their featured strategist list.
Our relationship with L.P.L. is off to a good start including several of our funds being included in their models. In addition, the number of or peas, and finalist presentations continue to grow.
Being a trusted partner and thought leader to help our clients navigate the changing landscape is a key focus.
We have been successfully driving deeper client engagement since the launch of our solutions program in 27 team we have seen the step function change in client engagement over the past two months.
For example.
Prior to the pandemic, we hosted monthly conference calls for advisors.
After siegal.
The average those calls attracted 300 advisors.
In March we moved to a weekly format and are reaching nearly three times the number of advisors protocol.
Why do we have strong relationships with many of those advisors.
We more than half or not actively covered by our distribution team and now represent attractive prospects.
In March we created a market volatility center on our website a house content relative relevant during the crisis.
The pagers CAD 5700 unique visitors in the month of March illustrating that advisors turned to Wisdomtree were thought leadership and highly relevant and timely topics.
In aggregate, we've seen website log ins from registered users in Q1 increased 25% from Q4 and 50% from a year ago.
Across the street, our distribution teams and digital tools, we've had high quality interactions with 48000 global unique clients and prospects.
While these are difficult times, we remain committed to helping our clients navigate these markets manage their business and better serve their customers.
We have found that past market dislocation had been followed by large market share gains for each year.
We are prepared for the same scenario.
This environment normalizes.
He kept product structure offers the best transparency liquidity and tax efficiency in asset management.
We are committed to the health and wellbeing of the franchise.
Like all asset managers market declines have been pack business and that comment will discuss we own a wheel responsibly managing our costs.
What wisdomtree remains differentiated confident and well position we have the right strategy.
We are positioned on the rightside secular trends and despite the challenging environment, we're seeing encouraging signs that our investments are paying off I'll now turn the call over Jeremy.
Thanks, John starting on slide four out of the crisis, we see increased demand for equities in an extended low interest rate environment and further but we recent government measures to counter the pandemic will drive inflation increased demand for commodities.
Our broad product offering with the strong performance position us well to capitalize on the sizable opportunities.
One simple wait to summarize performance utilizes Morningstar stars.
Over 60% of our U.S. listed a U M in four and five star funds their top performers for the respective asset classes.
Looking beyond the star ratings, 74% or anyone is beating more than 70% of their peers roughly half are you when it's in funds in the top two deaths house.
Crude is in the five star bucket is two very U.S. different strategies for U.S. large caps and small cap stocks.
The case for didn't waiting remains quite strong we anticipate more flows they didn't family from our motto portfolio collaboration with professors Siegel. It's all its broad usage of our income oriented models and funds.
To highlight a couple of other areas, but you can see in the chart in the right our quality given gross suite with 4 billion. If anyone has performed very well through the crisis and on a longer term basis.
Standouts from current at U.M. flows performance and the size of the future opportunity is quality strategies for the U.S. large cap and international developed large cap growth to the most important equity allocations in global portfolios.
On an asset weighted basis, the French and the sweet outperform between 540 basis points inactive fund by 20 basis points the marched downturn.
Three year basis, they generate 40 basis points and 210 basis points. It annual outperformance. This is modern Alpha example of our product development strength.
We also performed very well and relative basis during the downturn across our ex state owned enterprises suite.
Our brought emerging markets Fund IX s., so we owe stressed the importance of innovative product and the rapid skewing product or Kim our team can deliver in the right environment.
Access to eat was the first fun to screen for seed ownership tilting exposures towards technology companies and away from state banks energy.
At the end of 2017 access that we had just under 20 million, but today the French it's over 1 billion in a U M, but consistent inflows over the past several quarters and it ranking the top 15% of OEM funds over the last five years.
Enhance core fund price compared with 32 basis points can scale meaningfully higher from here well they track record of excellent performance unique proprietary strategy, even levels that opened even greater future adoption.
Access that we illustrates how integrate them funds can quietly build track records before accelerating he when we continue to plant the seeds of future growth.
On slide five second key theme, where position for as a return and inflation he market dynamic we're preparing your clients for in 2021.
And our weekly calls series professors Siegel increase it emphasizes how in our war against Kobin No. One is being called onto pay extra taxes or to buy criminal war bonds to finance all the additional government spending we're rightfully cutting taxes green billions of dollars into the pockets of those most impacted.
But who will ultimately pay for all this relief.
Bondholders the fed is buying all the bonds. The treasury is floating to finance the war against Cobot. The last four weeks U.S. money supply increase at the same rate is the one year following the Lehman crisis.
Huge increasing liquidity will likely not come freely the direct ramifications of all this added liquidity to the system. Once the economy opens up and we do believe we'll be back up and running in 2021 could spark inflation rates of 345% free number of years.
Diversified broad baskets of exposure to commodities precious metals like gold and silver industrial metals that have a beta to economic growth Andy global recovery enter bitcoin you TP all could be priced asset class exposure is as we reopened the global economy.
Our European a U M inflows are starting to reflect positioning for this three points to highlight the strengths of our European products that.
Gold day, you EM is an all time high and we expect further gains its inflation returns as we expect volatility in the markets has increased trini volumes in the short unleveraged commodities category remain a market leader with focused resources to further capitalize on the opportunity.
We see an elevated flows to our European oral platform, maybe tactical and streaky the strength of our European business is evident with or 84% market share in the energy space. Its leadership position that was clear the last few months.
Stepping back or Big picture view is the environment for inflation hedges, becoming much more important we're excited about the potential for European commodities platform and our strong performing equity focused U.S. products suite.
I'll now turn the covered Amish guess, our first quarter results in financial outlook.
Thank you Jeremy and good morning, everyone.
Beginning on slide six we started the quarter with strong momentum.
Are you I'm reached near an all time high of 64.6 billion in mid February we generated over 1 billion of inflows by the end of February and we had six months of positive flows in the U.S., including HEDJ and DXJ Jay.
However, we ended the quarter with assets under management of 50.3 billion. After experiencing nearly 12 billion from negative market movement and outflows of 536 million all due to the current market conditions.
However, we have taken in approximately 1.6 billion of net inflow so far in April.
Looking deeper at the flows we generated 734 million of inflows from our European listed products, representing 13% organic growth driven largely by flows into our oil and gold products.
We were the industry leader inflows in the energy eats yes, and this strong demand continued in April.
On the U.S. side, we had outflows of 1.3 billion of which HEDJ and DXJ, Jay made up 55% of those outflows.
Despite that headline we did see bright spots in that 40% of our funds generated inflows for the quarter and into volatile month of March over 20% of our funds generated flows.
Rx data on emerging markets fund international hedge quality dividend growth and our U.S. dividend growth strategies generated almost 500 million of flows in the quarter.
Now turning to the financial results on slide seven.
Revenues were just under 64 million for the quarter.
I don't due to lower average or your web at a one basis point decline in our fee capture due to mix change.
On a GAAP basis, we had a net loss of 8.6 million.
Excluding non operating items adjusted net income was 11.2 million or seven cents a share.
As we disclosed last quarter, we're currently pursuing an exit from our investment in Advisorengine.
While the process is still continuing it has not yet finalized.
This quarter, we took a noncash impairment charge of 19.7 million writing down the remaining value of our investment to eight and a half million.
Given the process is ongoing we can't comment beyond their prepared remarks today, but let me emphasize again that we do not anticipate the exit of our investment will drive any asset attrition or change in our organic growth outlook.
We also had a 2.2 million after tax non cash charge for future goal commitment payments, reflecting the increase in gold prices during the quarter and lastly, we had a two and a half million net gain from the sale of our Canadian operations.
Turning to margins on the next slide.
You will notice that the first quarter, where we are now reporting as one business segment rather than to.
Our adjusted operating margin increased to 25 per cent for the quarter as we controlled our cost base to help partly offset lower average at U.M.
Gross margins were flat at 77.3% within our initial guidance range.
On the next slide you can see the changes in our expenses.
Our operating expenses remain well controlled declining 11% sequentially.
We had a significant decline in our variable costs, particularly discretionary spending around sales and marketing as well as compensation.
Fund operating costs also declined due to lower average a U M.
Given the current operating environment, we are making reductions to our initial guidance around full year costs.
Turning to slide 10.
Given the significant decline in the U.M., we expect compensation to be between 65 to 70 million for the full year absent any outsized moved in our Hey, you EM.
This is the result of lower incentive compensation levels as there will be no head count reductions this year as a result of the Corona virus.
Gross margins are now expected to be between 75% to 77%.
The reduction in the range is primarily from the decline in our revenue, partly offset by savings from our recent announcement a phone closures.
Third party distribution fees are now expected to be lower to approximately 6 million because on the top the decline in already you win.
We are reducing our discretionary spending by four and a half million to 47 million for the full year.
Our goal commitment expense is based on us paying 9500 ounces of gold the year times, the average price of goals for the period.
Just on the current spot price of gold kind of assuming prices stay flat. This expense would be 16 million for the full year.
And lastly, our consolidated tax rate is expected to now be or approximately 23% due to lower nondeductible expenses.
These expense reductions are prudent given the current market environment and in no way hampers, our long term growth potential.
If we experienced a recovery in the markets later this year, we may revisit the guidance accordingly.
With regard to our capital.
Our priority remains to pay down our debt and support our dividend.
In February we began discussions with our advisors to refinance our debt.
We do not have issues with our leverage at current you one levels and we have ample liquidity on our balance sheet.
We continue to work with our advisors to optimize the execution and timing.
Now at the current turn the call back over to John.
Thank you on that and Jeremy we can now open the call two questions.
As a reminder, ladies and gentlemen, if you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone.
To withdraw your question press the pound key.
My first question comes from Craig Siegenthaler with Credit Suisse. Your line is now open.
Thanks, Good morning, everyone.
Just given the sharp decline interest rates in the quarter, how do you reposition your role fixed income suite for the Karen backdrop, including some of the cash alternative products like a fellow team.
Thanks, Craig Jeremy would you take the first crack at that answered please.
Yes, great Great question, Craig we've been sizing on our team a lot about our head of fixed income strategy, Kevin Fagenson talking about a barbell, where we combine our floating rate treasury product you SFR with our enhanced yield core Aggie.
<unk> you would enhance AG.
Let people sort of cargo their duration and you know that has really worked well for people both products is steel meaningfully.
That's far if you think about no. The comments I made about a return to and we shouldn't next year or having a sort of floating rate vehicle at the short end of the current it'd be really really helpful. Looking forward. A there's also been this little bit additional premium yield on the treasury space evening government treasuries no credit risk that does mean Daddy.
The preferred vehicle over traditional T. Bills. So we've continued to see interest in that through flagship I'm treasuries compared to the bonds that you mentioned with with more credit risks, we should come under more pressure up to the treasury ended at U.S. as far as is it good good answer as well as our core you would enhance core position.
People can you know go for additional income given historically low rate.
Got it thanks, and actually I am I misquoted that check or actually making U.S. So far in my question I got confused a competing product but I.
Can you talk about the sustainability of demand you're seeing <unk> from your commodity products in Europe, which go along with a lot of the themes Jeremy here talking about earlier and I was especially looking for color around C. R. <unk> D, which has a lot of inform them out.
So Jeremy why don't you start and then Jarrett Lilien, our president and CEO well, maybe Gerry you will add on to Jeremys comment if you have anything to add.
Great No I. So we we outlined this idea that all this government spending we think can lead to more inflation pressures once the economy open. So a you know oil and is one of those perhaps more tactical specific items, we think the longer term view for inflation coming.
Back as a much bigger story next year and so whether it's broad based commodities gold the whole platform really we think has a lot of longer term interest and demand if our view that inflation coming back is correct. I mean, we think it get broader beyond oil, but for sure on you know the interests in oil was.
Very clear American leadership position was very clear, we <unk>, we highlighted <unk> 80% of.
The web that is our market share, but inflows basis. It was over 100% and so we think the the leadership position. We havent oil is it's been well cement to there.
Yeah, and it gets easier adding to that a little bit.
You know really is about being well positioned and all of the forecast and all the views for the future as Gerry mentioned are there, but then you know our physician in not only goal, but energy industrial metals.
Those are leadership positions.
Across the board with an overwhelming market share and I believe a year to date, we are the number one leader in bringing in new revenue to these products amongst all or competition. So you know we've got the we've got the product and we've got the performance the other thing.
I just.
Mentioned is how good our team is we've got this incredibly robust platform very strong process strong operations strong structure. The most experienced team and we are managing through unprecedented disruption.
You've had the pandemic.
And if we if we look at specifically oil the pandemic, reducing I'm, obviously demand and then OPEC deciding to have a price where at the same time and not really cutting supplied by enough you have a double whammy, that's bringing unprecedented.
Disruption in volatility to the market and I think our team is doing an unbelievable job. That's just showing a why we're the leader in the market.
And I'll just add you know.
No.
We have seen this unprecedented demand in oil and you referenced crowd, which has been the asset gathering leader we have another a number of other funds against the same benchmarks, but crowd is the one that has taken a and C C or you de the most we have though temporarily.
The halted creation in an abundance of prudence really rep, recognizing the unusual a dynamic that's taking place in energy at the moment, but we think that will be a very short lived halt.
But net net the franchise has just been terrific. Thank you Craig for your questions.
And just adding to that I mean that just shows again expertise it we've got in our team.
And overall and energy 27 energy focus products, taking in over two and a half billion dollars of flows a year to date.
Our next question comes from Dan Fannon with Jefferies. Your line is now open.
Good morning, he actually James filling in for Dan. Thanks for taking your question.
So I appreciate the commentary on some of the Tailwinds for the tee up structure.
But there were of course, some negative headlines on the vehicle kinda.
Throughout the first quarter. So I was just curious as to how wisdomtrees product tell about mid south of market liquidity.
Concerns and then how that fits into your views going forward.
[noise] I think the negative headlines really only revolved around fixed income, but gerrick why don't you.
Why don't you answered the question as you see fit.
Yeah, I mean to me that that.
He is one of these sort of frustrating things.
People can persist and talk about.
Or the negatives of the structure, but where are they actually it's been the opposite even in the fixed income market, which is where people really had traditionally pointed to it I think there's even article in the financial times. This morning about how the structure has proven itself so through this.
Incredibly disruptive time, not only has the structure held up but it's been a price discovery vehicle. It's been a liquidity vehicle. So you know I'd say the opposite I'd say those are people holding onto losing argument and it's a really similar thing on the you know act.
Management side, you know again and again active management Underperforms in every time, there's disruption people say, okay. We'll maybe now active management will perform <unk> never has in these situations and it's not now so again the structure and one of the things that we look at with disruptions like this.
It is how it accelerates trends in the market.
And we see the trend of mutual fund to eat yes, being accelerated right now happening at the end of 2018 happen in the financial crisis in 2008, when there are disruptions in the marketplace T. S. T sizable market share and we look for that to happen again here. So the structure direct.
Answered your question is holding up extremely well and more than that I think it should be.
Really getting rid of all of the critics at this point.
This is Jeremy to add one performance point on the you know where I think most of the comments come on has been the high yield bond market and you know the people talk about the lack of liquidity. This is where we must use active manager it to get access to these high yield bonds at risk of defaulting and that's where a narrative we.
You want to these modern alpha our own proprietary index strategies that screen for quality and fundamentals ability to payback that the bonds and I mentioned, 60% of are you anywhere in four and five Star Fund our two fundamental based high you won't find our both foreign five stars with really strong performer.
And so being a you know at the top there how you would category. So I'd say that was we look forward to the future asset gathering opportunity given the strong performance track records as it was too high yield funds are are generating.
Thank you Gerry Thank you Jeremy.
Our next question comes from Brennan Hawken with CBS. Your line is now open.
Hi, Good morning can you hear me.
Yes, we can.
Great.
Thanks for taking the question just curious I saw a there was some debt pay down here. This quarter could you maybe talk about how you're thinking about your plans for.
Capital, whether or not I'm paying down debt is gonna be a priority here or whether or not you're thinking about buyback. How do you balance that given the attractive valuation stock versus you know a need for some conservatism given the level of uncertainty in the marketplace. Thank you.
It why don't you take that question. Please first sure Hey, Brandon you know as I mentioned.
Our remarks, you know our priority the capital remains to continue to pay down our debt and continue to support the dividend bars buybacks as I mentioned last quarter because of some of the ER. The covenants that we have on our term loan were unable to buy back stock right now.
We are in the process of refinancing our debt we had to put that on whole given what was going on in the market, but we're going to start that process back up again as soon as a practical and markets sort of stabilize it we can get could it terms and good pricing.
But we feel comfortable when we're thinking about putting back capital pay down the debt and supporting the dividend those are the two players of our capital right now.
Great. Thanks, and I'll admit I apologies if you if you referenced this but is there a way to think about where you guys would like to land as far as the ultimate leverage levels and how you calibrate for that.
Sure I mean, a lot of it will depend upon our earnings power and the outlook that we see on our a U.S. leveraged today, we feel we feel very comfortable with the levers that we took on when we first took on a term loan we felt very comfortable with so a lot of it will just depend on market outlook, but you can be sure we're not going to take on a.
A term loan that that has a leverage cover that we feel uncomfortable with.
Fair enough.
Thanks for taking my questions from February to stay safe.
Thank you you to Stacy.
Our next question comes from Robert Lee with KBW. Your line is now open.
Hi, Good morning. This is Jeff Strassner on probably Ah. Thanks for taking my question and I hope everybody thinks its unhealthy just a quick question on guidance.
I'm just curious the updated guidance include see the market rebound in April or is that as of quarter. Thanks.
Why don't you take.
A question please.
Yeah, so that as of a you know that includes any rebound that we did see in April. So this is our most most updated guidance.
Okay and manage the follow up on that.
In terms of flexibility around that if the market continues to two rebounds, our or who see another downturn or how are you thinking about that.
Sure. So you know, there's obviously flexibility that we haven't our expenses. We do have variable expenses that are tied to you on predominantly our our compensation and fund related costs.
So we if we do see some sort of you know continued downturn some of our expenses will naturally come down.
If we do and Conversely, if we do see an uptick we might see you know an increase in some of those expenses as well. So it really will just depend upon you know what's going on in the market at the time.
Great. Thank you.
Our next question comes from my carrier with Bank of America. Your line is open.
Hi, guys. This is actually Sean counting on for Mike.
I'm, just going back to the movement from mutual funds and to eat tee up with the real realize nation of capital gain. So we saw large sell off in mutual funds and one Q and were just wondering if you've already began to see those flows and to eat yes, you do that or if that's something you would expect later in the year.
Jared why don't you started and maybe I'll follow on after you.
Sure Yeah Big picture.
We're seeing it Oh, we also big picture you know for a while this is going to be a lousy period for mutual funds. I mean this is one of those situations, where they could have negative performance, but also be distributing taxable gains which is about.
The worst customer experience. It you could happen really points out one of the flaws in that structure.
So we're seeing it we expect to see it continue as for our slows immediately in March and April Oh, we saw a very tactical short term tight moves into a lotta categories, where were not represented are underrepresented.
And out of some categories, where we are represented so that was the short term sort of impact, but we're already starting to see that normalize a as Jerry said, you know with 26, four and five star funds over 60% of our a U M in those funds.
We're extremely well positioned and now beginning to see that more normalized reaction in distribution and beginning to see those flows widened out and include us in the products.
[noise] and I'll, just add I would say that I.
I would expect the attrition with the outflows in mutual funds to accelerate as you get closer to year end. So that you will you know if you're a talented advisor you get your.
I'd to get your customers out before they are hit with these capital gains, particularly when those funds are probably down on for Wisdomtree. It's a huge opportunity around education for EPS really helping with our solutions and quite frankly are outsourced CIO model.
Business, where we're seeing a lot of interest and Ah, though you know as Gerry said.
Just a March and April it was all very very tactical we're starting to see people behave more strategically on a going forward basis. So a very encouraged by the trend but more to come.
And let me add one more thing John.
We're going to remember I mean.
February seems like five years ago, but at the end of February in the U.S.
We had just finished six consecutive months of inflows, including HEDJ and DXJ, Jay and that was the first time it that it happened in over five years.
Great streak going March and April very disruptive for everybody, but that momentum has just been that's been interrupted and is now continuing.
Okay. Thank you.
Thanks for your question.
Our next question comes from Michael Cypress with Morgan Stanley. Your line is open.
Hey, good morning, Thanks for taking the question I was just hoping you could dive into the model portfolios little bit more you can give us a little bit more color on what the flows for that you saw amongst your products into or out of models in the quarter, where the web.
Stands today that you guys see sitting in models and maybe you could talk about some of the initiatives that you guys have in place to get your products into various model portfolios in the coming months ahead.
Mike. Thank you for the question Jared why don't you start and then Jeremy I think you'll probably have stopped at.
Sure.
Well first of all its its again.
Other one of those trends that we see accelerating.
Look at you know this disruption has accelerated mutual funds to each yes reviews of asset allocation, which actually fever quality income generating equities, which is one of our sweet spot, but another trend is also models and outsourced CIO.
So we're seeing an acceleration of that from time to time, we will.
Update on numbers, but we're not giving out anything specific numbers today, but what I can say in the model switched to me is really encouraging is we had net inflows into models in the first quarter. So even in this time of disruption net inflows into models.
Obviously, there was market moves, but we're now back up to new highs in our overall a lemon models.
And why obviously this is exciting is it this is sticky a long term money.
As John mentioned in his prepared remarks, we have had a lot of great success in signing up some great partners such as LTL Park avenues Terra all excited by that but the number of our abilities that we have in the pipeline right now.
Is it has accelerated and so we expect to be bringing on a number of new partners. So overall, you know again, it's back to the seem as being well positioned of having continued momentum and major macro trends accelerating in our favor.
Right.
Yeah, and Jeremy just a few quick comments.
It's gonna be this month is the 19th year I've been working with professors Siegel and the 15th year full time for Wisdomtree and you know the model initiative that we've got would professor Siegel. The weekly calls series that we're doing with him I'm trying to emphasize on the engagement from advisors notes if some of the most exciting thing.
Things since I've been here and when I when I think about how we're trying to package our solution with the model platform. It's really some of our best execution of Professor Seagulls, leading thought our leading thought how do we get broader scale and adoption with advisors not focusing on single takers I'm going to wait.
Model oriented solution set is is it really big trend for us and we're excited about that future run rate adoption. I mean, we're obviously going to continue focusing on the single takers and we still had a lot of green solution, but that that model opportunity is is really begun and exciting.
Thanks, Jeremy.
And any other thoughts maybe you would eat can you hear me okay.
Yes, we can yep.
Okay, great and he additional thoughts you could share maybe on third party models, so maybe not I understand and here you on your specific model. So what about the models and say other you know wire House IB D. Alright type platforms and getting your single Tickers into other People's models, just any color you could share and thoughts around traction it initiatives there.
Part of the L.P.L. was dish or some of our exposure being added to their models. So we are seeing that when.
I have expressed in the past would have a frustration with sort of modern Outfought war, the TV data being used more broadly with in.
So to the wires and third party models. It seems like it's getting better and I would say that our model businesses like a Trojan horse really penetrating in.
In major ways getting.
You know modern alpha really to advisors in <unk> in large quantity of pickers and significant percentages in those portfolios. So again I think it's.
An excel you know I mean again going back to the theme that John was talking about we're seeing an acceleration the cost Oh, the crisis and I think that it would probably a proved to be an accelerant for adoption of model modern output in third party models as well as all models being adopted by advice.
Yes.
Great. Thank you I'll get back into queue for a follow up.
Our next question comes from Quito, Some with Northcoast Research. Your line is now open.
Good morning, guys, just a housekeeping here in terms of a yasmin closing a few funds here I didn't know is there a rule of thumb in terms of how much you guys are saving from closing each fund.
Hey, Tom It would you take that question. Please sure they keep us on it.
Oh tamoxifen only a rule of thumb, it's about $150000. It cost us that's the minimum fees to launch a fun.
So that's a good you know rule of thumb to keep in mind.
Gotcha, and then in terms of the other kinds of the discretionary costs that you're talking to issue I was looking out for the revised guidance here I'm trying to reconcile that with your efforts to grow the.
The assets under management and I understand the it calls for single seems to be relatively new engagement buzz or other things you're doing too I guess maximize your dollars interim have you guys trying to drive a U M.
Sure John would you like to start on that.
Yeah.
That's one of the.
Exciting things about the moment.
You know, where we're in an environment where.
A lot of things are turned upside down where we are remote our customers our remote.
And you know.
Being in touch and having them be engaged is more important than ever and so far I think were punching way above or wait and succeeding there. It's John no mention again in prepared remarks, if we'd had quality interactions with 48000 global customers.
On average that was five.
Interactions with each of those customers. So you know about 200.
40000 interactions and that was things, yes like to see Eagle calls where calls with others thought leaders, but video calls Webinars we do.
Something that we just instituted which are smaller interactions on very specific subjects with members of our research team do a number of those day. So again you know on a siegel call you'll have something you know between you'll have to 802000 listeners on one of those calls.
We have this other program research hours, where you might have a you know.
20 to 40 people on one of those calls so more personal and more more focus.
We've been increasing the number of blogs that we put out.
Our we've made our web tools more accessible johnno mentioned in the market volatility centers and we're exploring a whole bunch of other things I think honestly. This is an area, where we're going to outcompete and right now I think we are punching above our weight.
It is sort all hands on Dec, how can we creatively.
Our clients in a value add away and right now its working in spades and I think client engagement leads directly to flows so.
This is a top initiative for us today and going forward.
Great appreciate it I'll just add.
And I'll just add that.
Some of the savings.
Honestly travel and T. any that's just taken out of our hands that savings just happened I'm pulling back on television I think is not costing like anything in this environment.
I'm not sure that that too.
Constructive medium in light of all of the news around the virus and the shutdown of the country. So net net this was easy decisions to make and then we're not expecting it in any way to.
Reduce your ability to grow.
Period.
And I kinda.
I mean.
Crowded.
<unk> discipline.
We're making good decisions, but sometimes are hard closing a fund is never an easy decision, but if it's upscale or we can spend that money that or somewhere else, we'd like to be on TV. It's been asked another area, where we innovated the whole ticker AD was really something we innovate.
And that we can spend that money better Indies virtual engagements and were and they're paying dividends. So it's it's just the plan you saw our margins actually go up but where we're spending the money better and I think getting better results for it.
Great. Thank you.
We have a follow up question from Michael Cypress with Morgan Stanley. Your line is the open.
Great. Thanks for taking the follow up I, just wanted to circle back to some of the points around volatility in the marketplace and maybe specifically on some of the commodity E. T AFS and the oily tasks are they I think Johnny you had mentioned each at home some of the creation redemptions I would just hope they are hoping you could.
Give us a little bit of an update there and how you're thinking about the product the vehicle there and how if at any way that's altered your views around a leveraged ETF products any T.F. that a invest in futures contracts.
It's a great question I'm, Joe you want to start.
Sure.
Again, I think this gets back to illustrating the strength of the platform our process or operations in our structure again unprecedented times of disruption.
To your question, we've had some as a highly leveraged products actually terminate.
Three of those oil products, all too that were three X long and one that was a three X short.
But that's actually how they were made to work if the market moves you know, 33% against you and you've got three extra leverage.
The fund is over and so.
That is operating as it was drawn up and we will look I'm at the appropriate time to relaunch. Some of those products are we've also suspended creations in now three products and as John said, we expect those suspensions to be somewhat short lived but that's just.
About prudently managing through a volatility volatile market you want to do it's good for your customer, but what's also good for your partners in the market and so you know I think the platform is operating extremely well and the lessons that we're learning.
[laughter] did are obviously things that we will learn and and we can enhance the platform going forward, but when I look at one of the things. We're learning is just how good our platform how good our structure and how good our team is.
[laughter], let me add so.
Jeremy You go ahead, Jeremy and all and go ahead.
Think there's one also interesting based on oil in particular that also highlights the strength of the platform beyond where the disruption was the heavier so the negative negative all prices was very specific to west, Texas intermediate, which is called WT <unk> oil that goes through Cushing, Oklahoma like one.
Not for delivery and the issue with all these storage tanks were full and yet he people to.
The oil there is also Brent oil, which we have a very robust platform around it never went negative considerably higher prices given that much more flexible delivery of Brent oil and we actually having a meaningful amount to be went 30% of the 2.2 billion over 650 million of our assets are in Brett.
Go out and it Brent becomes a longer term winter up from just the disruption in W. <unk>, we have a robust platform for people to Ted personally than that rental contract as well.
And let me just does include a we're very committed to the long short business.
Particularly in mobile for certain investors that our tactical this kinda market volatility is created significant downward tuna ready to make a lot of money. So we are committed to it.
In terms of futures as opposed to physically back product, where you own gold or own bonds or equities certain exposures can only be accessed through futures.
War swaps.
We do that when it is necessary and we choose you know we a world class partners, but that does add a level of stress when you see this macro.
Decline around the world. If there is stress to the system I don't want anyone on the phone could think that we're not working hard to.
Manage through this kind of stress Oh, I think we're doing a good job at it but you know the futures for oil is the only way to access it. So again, we're completely committed to it going forward.
Great. Thank you.
Our next question comes from Ryan Bailey with Goldman Sachs. Your line is now open.
Good morning, perhaps just one question John or we tend to agree with you on the deposit office when he takes share on the other side of volatility from mutual funds I was just wondering.
What your views are on retail or advisors sensitivity true pricing once we get that potential so its backing out flows.
[noise] you know, we're very comfortable with our pricing again, we put the if we do beta we want to be first to market with data because it is.
We're really how you get best economics, the beta can be difficult to defend other than pricing other than establishing onscreen liquidity integral awareness. We have done a very good job of doing that and I think we have tremendous economics relative to others. As an example on let's say gold in Europe.
In terms of the rest of our business, which is proprietary modern alpha trying to beat the market. The most important number is after the returns we feel very strongly positioned and very comp with where we have position.
Also when you think about decompression it has mostly been or where it is most dramatic isn't beta.
Now prior to that's a sell off from the crisis.
No it's been almost a straight up markets show beta regardless of the pricing has been a very smart asset allocation decision as the markets have turned over a beta has led the markets down again. It gives you a great opportunity to sell differentiated value add strategies.
Mike I feel very good, particularly because alpha is mostly a week from wisdomtree in a in the mutual fund structure, we feel incredibly well positioned to help transition advisers, who are trying to avoid capital gains at the ended the year to transition their book of business into.
Wisdomtree modern outflow strategies. So again, we feel good about the pricing if that was the question I hope I answered it.
Yes, thank you that the middle and stuff like that.
And that will conclude today's question and answer session I'd like to turn the call back to Mr. Steinberg for closing remarks.
I just want to thank all of you I want to wish you. All I hope you are healthy and safe again and managing through the crisis with his little disruption as possible. Thank you if you're interested in Wisdomtree and we'll speak to again in next quarter by everybody.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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