Q2 2020 Wisdom Tree Investments Inc Earnings Call
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 Act of 1995, a number of factors could cause actual results to differ materially from the results disgusting.
Looking statements, including but not limited to the risks set forth in this presentation in the risk factor section of Wisdomtree annual report on form 10-K for the year ended December 31st 2019, Wisdomtree assumes no duty and does not undertake to update any forward looking statement now it's my pleasure to turn the call over the Wisdomtree C.
So at Muni.
Thank you, Jason and good morning, everyone.
Today I'll walk through the important items for the second quarter, then turn the call over to our President Jarrett Lilien who'll provide a deeper dive on distribution in operations and then to Johnno for closing remarks before we open the lines for Q1 night.
So beginning on slide three.
We ended the quarter with assets under management of 57.6 billion.
15% from the first quarter, driven by 7 billion, a positive market move and net inflows of 126 million.
Strong inflows into our European listed products were largely offset by outflows from our you watch list that he tee up.
Beginning in Europe, we generated 1.6 billion of net inflows ranking us third in the industry, representing 30% annualized organic growth.
The flows were well diversified across our commodity and leveraged in inverse product set.
And what has been a truly historic period for energy markets. We are the clear leader in European listed energy T.F. exposures.
Our 600 million that inflows in the second quarter represented 75% market share.
Our leverage an inverse product suite at 312 million of inflows driven by our the diverse range of commodity equity exposures.
We also remain a leader in precious metals with net inflows of 449 million.
For our U.S. listed products, we had 1.5 billion of outflows of which approximately 50% were from HEDJ and DXJ Jay as our products that was not well aligned with investor sentiment.
U.S. industry flows were extremely narrow this quarter with the vast majority going to fixed income commodity and large cap growth.
Area, we have less or no exposure to.
By contrast, 41% of our USA you when we're in the worst industry flowing categories.
However, they were several bright spots.
Our cloud computing eat you have continued to rapidly scale post its launched last fall generating 324 million of inflows, bringing its 81 at the end of the quarter to 419 million one of our most successful launches ever.
We have also seen continued strong asset growth success in ex that so we aggregate and t. grow.
Products, we have highlighted in recent quarters, which we believed to be very well position.
Given these pockets of success, it's important to examine our flows on a gross basis as outflows have NAFTA. These successes.
Let's examine that on slide four.
The chart on the left reflects our flows on a gross basis and the dark blue represents gross inflows and the turquoise reflects gross outflows.
As you can see our gross sales have been strong reflecting the positive impact from investments we have made around a distribution efforts over the past several years.
During the second quarter gross sales were nearly 2 billion up nearly 40% from the year ago quarter and up nearly 20% from the second quarter of 18.
However, as you can also see redemptions were elevated.
As I touched upon in the last slide and reflected in the Middle chart. Our products that was not a line this quarter with investor sentiment.
We saw a lack of demand for non U.S. equities and value oriented strategies, which makes up 67% of our USA you win.
Those broader industry categories. So an aggregate 18 billion of outflows in the second quarter.
However, as the last chart reflects we have seen a significant improvement in trends with a rebound in flows into our U.S. equity eats yet in June and July.
We are hopeful these trends continue to accelerate and macro sentiment better aligns with our international whose value oriented U.S. product suite.
Now turning to the financial results on slide five.
Revenues were 58 million for the quarter down due to lower average Jay you win and a one basis point decline in our fee capture due to mix change.
No. Our average eight you when this quarter is up 6% from the second quarter.
On a GAAP basis, we had a net loss of 13 million.
Excluding non operating items adjusted net income was 8.5 million or five cents a share.
This quarter, we took a noncash after tax charge of 23 million for our future gold commitment payments, reflecting the significant increase in gold prices during the quarter.
We also had a charge of 1.9 million and the tax benefit of 2.8 million from the extinguishment of our debt earlier than the maturity term.
Turning to the margins on the next slide.
Our operating margin was 20% in the quarter, reflecting lower revenues from the decline in you win partially offset by cost controls.
Gross margins were 75.1% on the lower end of our 75% to 77% guidance range due to the decline in our revenues and higher costs for our oil related products given its volatility.
On the next slide you can see the change in our expenses.
Our operating expenses remain well controlled down 3% sequentially and 12% from last year.
Compensation costs remained relatively flat.
Due to our improved forward revenue outlook, we are trending towards the higher end of our compensation guidance range 65 to 70 million.
Discretionary spending declined by 2 million or 18% from the first quarter, primarily due to lower marketing and sales expense given the environment.
Certain of these expenses have either completely stopped declined significantly well, we have shifted the spend to more cost effective and efficient means do more virtual and digital outreach to our clients.
Given what we have learned so far we believe certain of these efficiencies will carry forward in future periods and we now expect our full year discretionary spending to be 44 million.
As a reminder, our guidance at the beginning of the year was 51.5 million for discretionary spending, which we then reduced to 47 million last quarter.
We don't believe these reductions will have any negative effect on our long term growth outlook.
Now I'd like to comment on our recent debt transaction on the next slide.
In June we refinanced our term loan through the issuance of the convertible note.
It was an unusual structure in that it had a high conversion premium which is not the norm in this current market environment.
We were able to successfully execute the transaction and it was well received on announcement.
Note has no restrictive covenants, which provides us the most flexibility to manage our capital.
We raised 150 million and use those proceeds plus cash on hand to pay off our tome term loan of 174 million and use 25 million to repurchase 6.7 million shares.
As we think about our capital management priorities going forward, the art to build kasper strategic opportunities and pay off the note.
And second return capital to our shareholders through dividends and buybacks.
Thank you and let me now turn the call over to our President Jarrett Lilien.
Thank you I'm it and good morning.
It is covered year to date flows I will drill deeper into the strength. We saw this quarter in global sales product and operations. We are seeing momentum accelerate and this is due to our blocking and tackling approach and our focus on the things that we can control at the top of this list is client engagement.
If we can elevate quality engagement flows will follow we've established ourselves is thought leaders on topics most relevant to advisors. We've created technology tools to help advisors better managing grow their businesses. We've established access to key platforms and we continue to provide.
Innovative differentiated strong performing products, including both individual funds and model portfolios.
In the second quarter, we put all of this to work in client engagement continue to grow high quality interactions with financial advisor clients and prospects climb to new record levels with 45000 distinct interactions during the quarter, we are interacting with financial advisors in a variety.
We have ways ranging from emails phone calls Videoconferences Webinars research office hours, all the way to a virtual happy hour, we held with professional golfer John Daily.
As we talked about in recent quarters, we have focused some of our U.S. engagement efforts on the IBT channel reach CF penetration is lower but accelerating as more advisors in the channel transition to fee based relationships and gain a better appreciation of the merits of the structure.
We have entered distribution relationships with several ibds engagement with these platforms is growing these relationships are driving positive flows both in Q2 and year to date, and we expect momentum to accelerate as we deepen.
Penetration based on merit commitment and focus.
We continue to differentiate with our motto portfolio offering and models will be a key organic growth driver going forward. During the quarter. We released proprietary research indicates mostly advisors believe model portfolios will not only help them scale their businesses and improve efficiencies, but will also help.
Improve the service they provide to their clients. The results of this survey further validate our bullish outlook for models and helped position us as a thought leader in the field.
Last quarter, we talked about being added to Park Avenue Securities platform as a model provider as well as being added to sit terrorists featured strategists list earlier. This week, we announced motto relationships with the Carson group risk lies quantity ETF logic in a Ryan and the pipeline remains.
Strong on top of this is a strong stable of product with 25, four and five star funds, representing 63% of our U.S. listed a win.
Standout this quarter is W.C.L.D., our cloud computing fund to fund was launched last fall and has built an impressive performance track record outperforming the other cloud focused efforts in one of the hottest segments of the market Weve, coupled this with a global all orders in the water.
Proche focusing product sales marketing research capital markets NPR to take advantage of the opportunity in front of us.
As a result, W.C.L.D. has scaled globally from 14 million at the beginning of the year to roughly 800 million as of last Friday, making it one of our most successful fund launches ever in illustrating again, our strong global ability to execute.
And the results our global looking more closely at our European listed products on Slide 10, our Europe listed a few m. sits over 20 billion today, an all time high the 28 billion to be Wham is up 45% since the 2018 acquisition to VTS Securities driven.
By 3.4 billion of net inflows by all measures. The deal has been a giant success for Wisdomtree, we quickly integrated the two firms we successfully diversified or a when base achieved immediate scale on profitability in Europe and strengthened our global team by bringing on integrating additional.
Talent.
The 1.6 billion of well diversified slows in Q2 represents the strongest quarter since the deal closed, but it doesnt fully tell the story of how impressive our performance has been second quarter saw the most volatility ever seen in the energy markets, where we have 70%.
Market share, representing 2.4 billion, a b U M across 15 products.
As an example on April Twentyth in 21st.
Front month, W.G.I. contract traded down from $15 to a negative 38, and then back to a positive nine it was the first time and all contracted ever gone negative not surprisingly this caused serious disruption in several energy products. The team responded flawlessly.
Great pressure along the way due to this extreme volatility we took action to close several of our leverage in inverse products. In addition, we took initiative to temporarily halt creations and some of our energy products to protect investors market participants and the firm including in our W.
T. Ike fruit fund CR, you D, which is the largest oil product in the European market not only did we successfully manage through this challenging environment and reopen CR you've de for creations, we use the wisdom gain to enhance the product Wisdomtree hallmark.
Resulting in best in class product designed to help investors navigate the financial markets. This is why Wisdomtree is the leading commodities platform in Europe today, and well positioned to grow in the future overall strong performance from the global team in a pay off I'm any investments we've made over there.
Past few years with that let me now turn the call over to John No for closing remarks.
Thank you Gerry and good morning, everyone I'll keep my comments brief before we turn to QNX.
We enjoyed a nice rebound in 80 when during the second quarter and we start the third quarter with a revenue tailwind from higher current UN compared to second quarter average, however market move and invest min investor sentiment are out of our control. We're laser focused on what we can control.
And in those areas I am proud of how we are executing our sales and marketing teams are leveraging our expanded distribution reach and deep data analytics capabilities to drive record client engagement and strong gross sales results.
The pipeline for new distribution relationships remains robust driven by our business development and solution team members.
Our team in Europe managed nearly flawlessly do unprecedented volatility in energy markets driving better outcomes for clients and for Wisdomtree.
Our technology team continues to deliver tools that are value added for clients and enhance the productivity of our teammates or corporate finance and legal teams successfully refinanced our debt removing a near term overhang and affording us greater financial flexibility.
We're now nearly five months into working 100% remotely as a firm we hit our stride immediately and then Amit discussed the new operating environment is driving some expense efficiencies.
We have a talented nimble and entrepreneurial team and I am proud of the way we have adapted we're well positioned for growth we have to write team and the right strategy and we're seeing momentum in important lead indicators.
Thank you for your interest in Wisdomtree, and we will now take your questions.
Ladies and gentlemen, if your question or comment at this time. Please press the star than the one key on your Touchtone telephone. If your question. It's been answered your question with yourself from the Q. Please press the pound team.
Our first question comes from Craig Siegenthaler with credit Suisse.
Thanks, Good good morning, everyone I'm curious given the very low yields available in much the fixed income markets do you expect to see lower body DTF flows in the second here and also which higher yielding products, yeah, like I'd or you marketing to investors with could benefit from an extended period of.
Great.
Hey, Thank you very much Craig.
Jeremy do you mind reply.
Sure.
So.
There one thing we talk about how bond funds were one of the biggest categories for gross out and while we started.
Certainly the last five years, we've been making a lot of investment one day exciting thing for US is we're gaining share in some of these category from a smaller base of course, but we thought about 20 million says flows across our Onstream next year and in particular, when you talk about their though the fears about those higher duration and ultra low [laughter] tenure.
We have a five star farms Shag, which is the short end of that yield enhanced AG I guess crossed $100 million and is very well positioned for the low rate with that five our performance.
We're seeing also in terms of the market environment with ultra low rate people are looking at higher yield bonds. We have no against Forestar finds in the Io category and.
From that WSA try which is that high yield bond funds has ranked in the top two deaths out this year and you haven't really even had a major default cycle. Yet so we think that positioning compared to traditional bond elsewhere. They aren't make any qualitative assessment of what bonds can be back does that we think thats very strong.
And then we have things like our floating rate you SFR, which is the shortest end of the maturity that if you do get a rate rising cycle in the future.
Out of well positioned as a leader there, but if you think about the ultra low rate. That's also why commodities gold and silver are incredibly strong tied to the low rate environment. So we have a lot of different positions for that low rate environment.
[laughter].
Thank you Jeremy.
Yes, Thank you Jeremy and list it was nice to see all the creations in WGCL, Dave can you talk about some of the other fanatic initiatives you may have in growth. These sectors like tech in healthcare, where the industry is actually seeing a lot of positive demand trends right now.
Jeremy again would you take that called Jeremy obviously, our director of research.
Thank you.
Yeah. We are so we're very excited now it's about 800 million globally and cloud and we've had some more funds in that pipeline and one that I can speak to today is actually we have a modern tech platform funds P.L.A.T. that we are rebranding we're actually calling it the gross leaders fund is we think it better.
Describes what what's happening in those platform fund you see on days like today, you see a Facebook in Amazon. These are big exposure to that modern tech platform and your covenants are growing at rates double things in the NASDAQ and acting when did the predominant I've excuse being the predominant parse that growth fund, we think we're going to be.
Our prediction at from being an equally weighted tragic towards more market cap, Andy equal weighting and.
And so we're excited about this repositioning a plateau and we've talked a lot about the model business. We're going also incorporate w. crowd and Platte into a more next generation economy model that we think we'll have legs and help position both those funds in an open architecture setting for the future. So we're very excited about all that and I think we'll continue on.
Thats around this category.
Thank you.
Thank you Jeremy.
Okay.
Our next question comes from Michael Cyprys with Morgan Stanley.
Hey, good morning, Thanks for taking my question I, just wanted to come back some of the new distribution relationships that you alluded to just hoping you could share a little bit more color around the new relationships that you added in the quarter with Orion among others, what those relationships consistent what are your your expectations and aspirations there and if you could also just comment on the pipeline you mentioned, that's a very strong I guess how.
With that compare versus year ago, any color you could share about that types affirms the size of firms that are embedded in the pipeline.
John would you please answer this.
Sure.
The platform relationships are really important they give us access really broad access to a variety of advisors.
They're all sizes or you know from smaller from the tech side, all the way to the larger and the more I'm sort of a hands on side.
The pipeline currently versus a year ago is stronger and we.
We expect to have some other announcements over the coming months, we think are very exciting, but a very strong pipeline and very important are these relationships.
Okay, just maybe a follow up question just on some of the gold products that you have a gold is up I guess nearly 30%. This year. So far you gathered maybe around 400 million flows are so that's about 5% organic growth into your goal DTR I guess, how does that compare versus your expectations for what you would have thought you would get.
Given such a strong rallying and gold and maybe you could talk about some of the competitive dynamics there how that's evolving in the marketplace in some of the initiatives that you haven't place to further accelerate and capture the momentum in gold Dts right now.
Jeremy why don't you start with that one as well.
Sure you know in our prepared remarks, we talked about disruption that we've seen in the energy markets in the second quarter.
There was also some disruption in the gold markets and specifically some that we experienced due to the pandemic there were some logistical challenges around.
Physical transportation of gold.
That impacted perceived liquidity, especially in our lowest fee Swiss gold product, which did impact spreads and flows.
That was short lived it has been resolved, but it makes it harder to read too much into the quarter and it means really it's important to step back and take a look at our overall gold positioning where we remain a leader I'm in very well positioned for the future we have.
As a whole range of physical gold.
He's with.
Various features various fees.
Really appeal to the whole spectrum of market participants are we also have the best gold economics in the market and so we're very confident with our gold positioning and expect to be a major beneficiary I'm going forward.
Great Mike, We obviously, we obviously didnt expect pandemic and the inability to move gold bar, so from an expectation standpoint.
Unusual and something we didn't expect so but again Jared spoke about.
How it has normalized but I'd also say just to reiterate what Jeremy spoke about.
We are the leader in all precious metals in Europe, and so our market share and strength in.
I would have palladium platinum they all benefit from the same dynamic of zero interest rate global printing money social unrest political instability. The whole suite is incredibly well positioned for the moment in time, particularly with the fed saying rates will stay at zero maybe 2024.
So anyway were.
Very pleased with the outlook for the whole suite.
Great. Thanks.
Our next question comes from Robert Lee with KBW.
Hi, This is Jeff Dresdner on for Rob Rob Me. Thanks for taking my question.
Yeah.
Similar question on fixed income flows.
Broadly for the industry, we're seeing pretty massive implies.
Yes and.
Comparative to essentially flat flows year to date.
For your fixed income products, there any plant, that's perhaps ramp up for some more fixed income products or how do you see the outlook for that.
Jeremy why don't you start.
Well I I'd say.
No.
You're building track record on some funds that had been in the market in the biggest and most important category. So there was a question on Aggie, they mentioned to yield enhanced aggregate, which seems like the core fixed income re waiting the AG from market cap towards yield with constraints that is the biggest category. There is in terms of the core bond I'm and then we have that at this that I mentioned.
AG, which is the short end version of that we had factory strategies for the investment grade market and for the high yield market and so we think we have really the biggest categories. I'm of course, we look at what are the other big categories were not in our ways and we have things that we're working on for some some further segments, but I think we are in the biggest cat.
Degrees and then it's working to positioning the strength and people seem to track record.
Said buying is just another example, you had things like the bank in Japan buying equities bite you test now you have the U.S. fed buying bonds.
So I think a lot of people I thought you need an active manager you need to be able to use finding different structures for each yes, but the fed is giving the structure a big endorsement and I think in general I mentioned, we're gaining share even though it's from a smaller base, we were gaining share in three of those most important categories.
And we think our performance track records in investment grade high yield and core bond so to speak for itself and keep gaining share overtime.
Great. Thanks, and then just follow up quickly with one more.
In terms of model portfolios and the inclusion of some more passive.
Cheaper products you feel the need to include or even develop similar products for Nirvana portfolios and how do you see that.
John you want to start with this.
Yeah, and Jerre can chime in as well I mean really important part of our model portfolios is that they are open architecture and I think directly to your question. They the lowest fee beta where you're really not differentiating or adding additional value by coming up with a me too products.
We don't have to do that we can go outside for those generic commodity you know low fee beta products. So those are in our models.
Because of the open architecture nature, and so I don't think we have to add anything there, but you know jerre.
Do you want to talk to that a little more as well.
No I would just echo what you said I mean, you can now get fair in beta products for freight I mean, there are certainly low very low fee and that's not been our my we'd have to we believe in modern alpha and trying to add value on top of what's in the market. So I decided echo what you said.
Great. Thanks for taking my question.
Our next question comes in Brennan Hawken with CBS.
Hey, good morning, Thanks for taking my question just just one left for me.
You guys seems like you've got some good momentum in third party distribution in particular on the I'd be de channel.
Which is encouraging how should we think about third party.
<unk> expense line.
As it has to think about it just as a percentage of revenue from wide I think that that ticked up.
One Q into two Q2, 0.1% to 2.3% based on you know quick math.
Well that continue to trend higher.
From here given given your momentum and ultimately what should lead to good flows or is this the right level for some stability how should we calibrate for that line.
Do you mind, taking this sure Brendan.
So that line I don't remember, we gave guidance last quarter that we thought it would be around $6 million a year and we're kind of running at that run rate. If you annualize the first half.
If you think about the components of it for the platforms. Some of them have a fix minimum fees some of them have a percentage of our expense ratio that we share.
So I think right now that 6 million is still good.
As we are.
Optimistic that we will see a ramp up in the third party some of that.
It will take some time to ramping we've incorporated that into guidance of 6 million.
But if we do see that ramping up faster, which is a good thing.
We'll update that number but I think the fixed for for this year is a good number right now.
And I guess some of the some of those dynamics, but the fact that it's a blend of of asset in fixed fee make it a little bit harder to try to use percentage of revenue type metrics away. We have in the past and so thats rider to think about it okay. Okay that helps yes, exactly that's why we decide.
The switch to more of a fixed dollar at the beginning of this year because it was very hard for you guys and sort of track it given the with the the mix of how it was changing.
That makes a lot of sense. Thanks.
Our next question comes from my carrier with Bank of America.
Hi, guys. This is actually shown on for Mike.
So you mentioned that some of the cost savings in the current environment are sustainable longer term. We were just wondering if you could size the amount of savings that are permanent versus temporary and just let us know where they're coming from.
Sure.
So you know a lot of it.
Savings going forward and how much of it will realize will really depend upon how the economy and the market conditions open up going forward.
If you look at this quarter, we found our major savings around our marketing and advertising.
Our sales related activities Teeny and conference spending and then some general overhead expenses.
I'd say, we're thinking about it we do believe some of that will carry forward.
Things that we're doing of shifting more to digital marketing.
Shifting more towards streaming services for our advertising.
Our virtual client events like the things that Jared spoke about in his remarks.
These are much more cost efficient and scalable for us and I'd say you know we're also re imagining our physical footprint we've operated.
The pandemic started flawlessly remotely and I think some of that will carry forward, it's hard to put hard to put a number on a right now.
We're working through all that and we'll give more guidance around it when we when we announce R.
2021 guidance.
But putting maybe a little more color to that too this is jarrett.
Also in the prepared remarks, he think about our client engagement, we are remote but we are more in touch with our clients than ever before and that's that's not a number that peaked in March and then fell off actually it continues to increase as we've learned new things and you know you wish up.
Pandemic had never happened of course, but we never would have had this experiment of how does it look when you operate remotely and what we're finding is that where we're operating extremely well and they are a lot of new tricks that we're learning a lot a new things that won't disappear no matter what.
The future holds.
When we get back to normal again, there are things we've learned that we will put to use going forward and those will include.
More efficient way and spending less money and getting more for the money we do spend.
Okay. Thanks, and then just one on capital given the restructured debt in the current cash position can you guys discuss the pace of share repurchases versus debt pay down and then any potential.
Smaller M&A.
Sure.
Yep.
So.
When we're thinking about managing our capital and the particularly the buyback we are definitely open to buy back. So we just bought back 25 million worth the stock back in June but.
But I'd say over the short term our priorities are to build cash and to support our dividend.
As the earnings power improves we will definitely look at buybacks more but right now on the priorities is to build up cash because the know is do three years from now.
So that's how I would sort of think about or for the short term.
Thank you. Our next question comes from Ryan Bailey with Goldman Sachs.
Good morning, and thank you for taking my questions. Sir you indicated that you'd be at the high end of the comp guide range, but low into discretionary expense side and some of this is corporate related but I was wondering if you can speak sure balancing paying and retaining talent, but some of the non comp expenses that might be needed to drive okay.
[noise] Aamodt, maybe you will start in Gerrick you might have some additional color you might want to add.
Sure so.
Because of the other revenue outlook, increasing we did say we first at the beginning of the at last quarter, we lowered the guidance for comp just given the environment on the revenue outlook is look better. So we're still trending towards the higher end of that lower comp range that we gave.
And the new environment would be as you've seen yet we are still able to engage with our clients very effectively.
And much more efficiently.
Maybe just components a more about that.
But we are seeing our ability to transfer to be much more efficient and still increased client engagement and to continue to drive flows.
And I think you note talking about sort of developing retaining talent.
I think some of that of course is comp and but where it performance.
Based organization and so you know when last quarter, we talked about it.
It was a different environment today is it better environment.
Who knows what the future holds.
But we all know that that see environment, we live in.
As for morale and retaining talent you know again, another ironic thing that I think everybody's fine or at least most firms are finding and certainly we are finding that.
Our conductivity art team. This is tighter than it's been at other times, we are more together.
Ral is very good and a lot of it is down to the execution that we talked about.
Which is very satisfying and wanted if you look at Europe at record highs managing through incredible volatility.
That is something to feel really good about in the U.S. same thing as we all know these are difficult times, we've managed very well if you look at something that did I know the team is very proud about you look you look at our top 10 names.
I'm not only are they really all in slowing for very long period of time.
These are the bright spot Saddam it talked about in prepared remarks, but the net inflows.
Our top 10 products are more at the half your point than they were for all of last year. So this is momentum that you can kind of count on its multi year momentum that's building and again that source of optimism really is good for morale, but it gets back to I guess, so hard to your question.
Our performance based organization, we know it and we live and die by those rules.
And let me just add that.
The whole industry suffered in March and April from this extreme negative market move went on so we're not in any way disadvantage from the ability to retain or to recruit new people.
So I'll end on that.
Sorry, maybe to jump on it too I mean, yeah, if you look.
At the outside versus the inside.
We started the year.
Globally.
So it's remarkable where we are today.
Versus where we were a quarter ago.
And that is.
Pretty stark contrast to the rest of the industry.
Got it that's very interesting I was wondering maybe I could ask about the extra and I'd say as well on a combined 81 basis. They look like they represent probably the lowest am we've seen it became quote unquote flagship products serve I'm just wondering how you think about re rent. Thanks.
Fencing on the potential organically from those products from you.
Jeremy can you start with that.
Well, we fill all I think and from the concept generally I mean, why the things encouraging we have one of the products that are in a broader sense, So Europe and Japan into scheme of broad international are much smaller than the two trillion plots and international develop generally and we have one strategy ice TG that what.
Raised over $100 million and still currency hedging generally and wonder I think the highest if any currency hedging TEAC. This year. So that was very encouraging that our broad based exposure, which is equally a finger long run opportunity is continues to gain asset, but we continue to innovate and developed international and.
Any emerging markets and have done things like international multi factor that we think is.
A well position long term strategy its own let history, but it's off to a a good start and we think we'll also continue that's part of this innovation and part of it you know continuing to push some of the funds with longer track Records.
And Jeremy is there is there.
Market sentiment.
Shift that could be constructive though.
Typically for a hedge or Dx Jay.
I mean coming into just the last few months you have a fairly strong dollar. It started weakening just just recently across and say last three months on and so.
The dollar moves bounced around and I think part of that volatility helps us make the case generally that people don't know, which way currency and go in and makes the this for a stronger strategic rationale for not betting on currencies by hedging.
And I'd say so it.
Partly to redevelop tied to.
Those currency movements.
In short run.
And as second added a different take on it too those strategies are good strategies and they're they're performing in line with how they were built and when we see outflows were still maintaining our share of the various categories. So you know when I look at it is that.
Okay, if the categories remain out of favor.
From these lower asset levels, it's not really like they can hurt us as much as they could have.
234 years ago.
But also as as John who is sort of alluding to there. They could go back in favor and the biggest point is from these levels. There's real diversification in US flows I mean, those two are.
At moved down there is still good funds with good asset levels, but they're not as meaningful.
As the word of the results in the diversification of our holdings is much better much more balance than it's been at any time really in the last five years.
And I might add that.
As the global economy sort of opens up again towards further in the year, you'll you'll start looking to 2021 and Japan.
Is expecting to open have there are limits, which should have been in twentytwenty in 2021 that might actually prove to be a significant catalyst specifically for Dx Jay towards the end of the year.
Got it thank you thanks.
Answering my questions.
[laughter].
Our next question comes from Keith how soon with Northcoast research.
I understand the more of the model platforms and the success that you guys are having is it possible to kind of conceptualize. The growth that you guys have had you know I guess compared to last quarter and.
Top of that.
Is there any thought this business might be stickier than your traditional business in terms of keeping the are you on there.
Jeremy.
Yeah.
Obviously, one of our top initiatives and it's it's not something that we.
Dreamed up like this quarter, it's something that we've been working on for over three years and to be successful here is much more than just a model. It's a whole package. So we start with a great stable of those strong funds that we talked about 24, four and five star fun.
The open architecture that I mentioned earlier.
Earlier answer is very important and actually differentiating in the marketplace. We have a real team with a rigorous and institutional investment process. We brought Scott Welch over from it was a CIO dynasty, obviously, we've got Jeremy Schwartz year on the call Jeff.
Let me see go.
We've got a top team the research study that we did bringing proprietary insight.
To the markets were building and have built.
Tools for advisors, and the advisor education and advisor cockpit, So there's real commitment and focus and this is all the way.
Through out the firm so to your point.
This is something that is a very important and the assets are very sticky.
As evidenced by our experience. This year were in a very choppy year weve been either flat or been positive on inflows every month of the year and that's one of the really attractive parts of this but all in all.
This is this is something where I think we've established leadership shipped position because it does take commitment is about a bigger package and we've made that investment and we're starting to see the pay off now.
Okay, and just to reiterate one thing so I mean, you really we as a firm it's shown a tremendous amount of asset volatility more than most firms and it is you exactly hit one of our motivation is that the sticky net of the model business. So I.
I mean, that's engine unintentional it's really.
Premeditated push the cost of that element and also premeditated because you know model portfolios are the fastest growing area.
Media you sold product landscape.
Sure the fastest growing representing.
Trillions and trillions of dollars of AIU M., So it's a big market growing fast and it's growing with advisors from all channels are increasing their use of third party models. So this is a hot area, we identified eight years ago and again starting to see the pay off now.
Is it possible.
Well.
Go ahead.
Is it possible how much of your inflows have been driven by the model platform.
John Yeah. It today.
No we're not disclosing those numbers are not breaking them out yet I.
We're spending a lot of time on obviously being such a T. initiative is next year, what kind of metrics that we will provide and we'll want to provide metrics just show.
The the kind of growth and traction that we're seeing.
But we're not breaking that out at the moment.
Okay. Thank you.
Our next question comes from Michael Cypress with Morgan Stanley.
Thanks for taking the follow up question just wanted to circle back on the cloud Computing fund nice to see the successor early on at the funds like can you just remind us if there's any sort of limitation or capacity constraint on on how big This fund can get and then I was hoping you could just give us a little bit of insights on how this funding strategy came to be but was the product development process. The Genesis.
Behind this funding and given the early success that you're having with this product how is that impacting your approach and strategy to product development and marketing from here.
Jeremy Please start.
Listen we are always looking at how do we innovate in the market and provide value added and we often do develop index is primarily ourselves we started the self indexing from but we have relationships all across the street. This was a very unique opportunity to work with a premier venture capital firm Bessemer venture partners, who.
Worked with the NASDAQ to create this basket for the cloud and where as we as we heard about it and we talked with Bessemer.
The team you know we do have we think the leading not only sort of leading thought leader on what they are investing in early stage and are they having private cloud business. There's 100 private cloud companies are going to clean public over the coming years. All hundred then we'll have a billion dollar market cap today in the private markets.
It was we think we have a real edge in identifying the companies and then you see that playing out and year to date W. cloud is one of the top few.
For me testing the entire industry. So it was one where there were few legacy products, but we weren't going to be the legacy product. We thought this was a better execution and so it was a nice relationship and this is scaling we've got other examples I I didn't bring this up earlier, but in Europe, we had an artificial intelligence product. That's also scale to over 100 million.
Set the leading edge of where we think the next 20 to 30 years, there's going be a huge advancement in artificial intelligence and we have that was another one where we did work with a group who is providing some signals. They had some expertise that we havent developed and I look at what tenant outside provider provide versus what can we do ourselves you know the bar is high teens outside providers.
We have a great team that can do a lot of me things, but if there is a unique age where the product is fairly different we want we've done that in the bond space with things like our yield enhanced AG. We've done in other places too, but I think you'll you'll see us continue to invest around.
Showing success as we said in Europe with AI and they also do that but battery solutions product in Europe.
And we're showing with cloud I think you're going see more from us here.
Hi, Jerry how about capacity constraints.
Oh, sorry.
I was alluding to that I should mention it talking about the hundred private companies that are going becoming public over the course of the few years. It's a it's a big basket today, having these are already on growing big companies, but we expect a lot more to come public and it's going to increase the capacity driven.
Radically over the coming here, so I have no concern about capacity.
Great. Thank you.
And I'm not showing any further questions at this time electronic call back over to our host for any closing remarks.
Thank you all for your time and interest today, and we will speak to you soon have a great day bye bye.
Ladies and gentlemen. This concludes todays presentation you may now disconnect have a wonderful day.
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