Q3 2022 Wisdom Tree Investments Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Okay.
Thank you for standing by and welcome to the Vista <unk> third quarter 2022 earnings Conference call.
This time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone.
Today's program is being recorded I would now like to introduce your host for today's program.
<unk> head of corporate Communications and public relations. Please go ahead.
Good morning.
And again I would like to reference.
Mark available in a presentation.
Presentation, making pulling forward looking statements within the meaning of the private Securities litigation.
One of.
1995, a number of factors could cause actual results to differ materially from those.
The stock and forward looking statements, including but not limited to.
The risks set forth in this presentation and in the risk factors section of wisdom tooth annual report on Form 10-K for the year.
And at December 31st 2021.
Monday on quarterly report on Form 10-Q for the quarter.
At June 30 F 'twenty two.
It's interesting.
Does not undertake to update any forward looking statements.
Now, it's my pleasure to turn the call over to Watson CFO , Brian Anderson.
Thank you Jessica and welcome everyone I'll begin by reviewing the results of the third quarter and will then turn the call over to Jarrett and John will share additional updates on our business.
We've been operating against an incredibly challenging market backdrop with interest rate increases occurring at a pace not seen in decades, the combat search and inflation.
Concerns over an imminent recession.
Broad based equity markets dropped with the bear market territory during the quarter contributing to a decline in our AUM from negative market movement.
That said our results have been remarkable considering the market conditions as we have generated $1 7 billion of flows during the quarter and $8 7 billion year to date through October .
Fixed income has been the primary contributor of our success with our floating rate Treasury product USF are generating over $2 8 billion of flows during the quarter and almost $9 $7 billion year to date.
However, not to be overlooked is the 13% annualized organic growth of our U S equity product suite, which brought in $1 3 billion during the quarter and $2 $5 billion year to date.
Notwithstanding challenges we are experiencing in our commodity suite, we are delivering best in class annualized organic growth of 14% across our AUR, which sustained momentum as evidenced by eight consecutive positive flowing quarters.
Our AUM currently stands at $74 6 billion, an increase of 5% from the end of September is there momentum continues having generated almost $1 8 billion of flows in October .
And having benefited from positive market movement.
Next slide.
Revenues were $72 4 million a decrease of 6% from the prior quarter due to the impact of negative market movement on our <unk>.
Our average advisory fee also declined one basis point due to changes in our AUM mix.
Adjusted net income was $9 3 million or six cents a share.
Our non-GAAP results exclude a noncash after tax gain of $78 million for our future gold commitment payment, resulting from an increase to the discount rate used to compute the present value of the annual payment obligations.
Our non-GAAP results also exclude $6 million and other net nonoperating losses.
Next slide.
Our adjusted operating expenses were down 3% for the quarter.
This decrease was largely due to lower incentive compensation accruals as well as lower marketing and sales related expenses.
Next slide.
Now a few updates regarding our expense guidance.
As a reminder, last quarter, we had tightened the high end of our compensation guidance range by $3 million as we tempered our hiring plans.
Our compensation guidance remains at 96% to $99 million.
Our discretionary spending guidance is being reduced and now ranges from $50 million to $51 million as we continue to balance expense management against our investments for growth.
We had previously communicated a range of $51 million to $53 million.
We currently anticipate gross margins of 78% to 79% for the year at current AUM and flow levels and.
Update from 79% communicated last quarter.
Our contractual gold payments guidance remains unchanged at about $17 million for the year, while our third party distribution.
Please.
From $88 5 million given the impact of market volatility on the AUM on our platforms.
And our adjusted tax rate was approximately 26% for the quarter.
This included the impact of adjustments identified in finalizing our 2021 income tax returns.
Going forward, we anticipate a normalized income tax rate of 22% the high end of our prior guidance of 21% to 22%.
That's all I have I will now turn the call over to Jarrett.
Thanks, Brian .
I will focus my comments on what have become consistent themes, our strong organic growth in Etfs and models are strong operating leverage and our progress and potential in digital assets and blockchain enabled finance.
Starting with growth Q3 extended our quarterly net inflow streak to eight quarters and counting in total we have gathered over $8 8 billion of inflows year to date.
Industry, leading 14% organic growth rate.
This is a noteworthy streak, but the breadth and depth of our flows and strong product performance might be even more noteworthy as they position us for continued growth.
Looking at flows the more than $9 billion a year to date fixed income inflows are only part of this story in this past quarter and year to date, we have had inflows and stick debate of our major product categories. In addition to fixed income our U S equity products had gathered over.
$2 5 billion in the year to date net inflows, representing 13% annualized growth in this suite alone.
In addition, our product performance continues to be outstanding with over 80% of our USA AUM, beating benchmarks and over 40% of our AUM in four and five star funds, while less than 7% in one and two star sense.
Contributing to our best in class organic growth is our managed models business. Our strategy is succeeding on two levels first with our platform partners, such as Merrill Lynch and Morgan Stanley and second with our.
An independent broker dealer partners through our wisdom tree portfolio and growth solutions offering.
With our platform partners engagement and activity remains high at both Morgan Stanley where are we just hit the one year anniversary of winning that mandate and at Merrill Lynch, where we are a top performing and falling manager with our multi asset income mandate in fact, I'm pleased to announce that we have been able to leverage Eric.
Success at Merrill to win an additional opportunity to launch three additional models within our multi asset income mandate that are expected to go live soon on their platform subject to final due diligence.
When we've won new mandates in the past we've said it typically takes 12 to 24 months before we start to see material flows.
Given we are already on the platform and have high engagement with Merrill advisors, I expect that timeline will be greatly accelerated.
We are seeing equal success with our RIAA and independent broker dealer partners are easy button solution that helps implement trade and rebalanced model portfolios cleared a major hurdle for IAA in IBD model adoption currently that pipeline for this segment is 40 D.
And we are adding to it every day.
As important as growth is the operational efficiency, we have built a global ETP and model business that is extremely scalable and delivered robust incremental margins over the past several years, we've made many operational improvements and now have incremental margins well more than 50.
And this means as markets normalize wisdom tree will be one of the only asset managers with both our margin improvement story and an inflow story.
We are also executing and delivering on our digital assets.
Wisdom trees core DNA its revised best structured access to various asset classes, we seek to make hard to access and sometimes hard to trade exposures easy to access and the trade.
Today's best structures, or ETF and ETP, but the next evolution in asset management is the blockchain enabled digital wrapper.
Tacking this digital asset opportunity is consistent with our DNA. It's a natural extension of what we do today and will be an important contributor and driver of future growth.
As we have discussed before our approach is to bring crypto mainstream and to bring mainstream exposures like fixed income equities and commodities into the digital world through blockchain enabled funds and Cocainize assets regarding crypto, we have already broken ground with the launch of our crypto.
<unk> and crypto basket Etp's in Europe .
Early direct index offering in the U S regarding digital assets again, we are working to provide tomorrow's best structured access to mainstream asset classes. Etfs are today's best structure blockchain enabled digital assets are tomorrow's best structure, we've already minted.
In U S. Dollar tokens, we recently hit a key milestone with FTC approval for our digital Treasury Fund and we are building out a full digital fund suite that includes recent filings for several fixed income fund as well as equity focused strategies from large captive.
<unk> basically everything a customer needs to build an entire portfolio taken.
Taken together our vision is fast becoming a reality. These are the first bricks and the foundation that will allow us to lead in the coming evolution in financial services Lane claimed to the deepest exposures in the digital wrapper and positioning us to lead an even larger opportunity our expansion in.
Black gene enabled finance, we're spending saving and investing are merged.
Now our steady March continues we continue to produce best in class organic growth on a platform with strong operating leverage and a vision that is fast becoming a reality, which will allow us to lead the next evolution in financial services with that let me now turn it over to John .
Thank you Jarrod.
As we've said before Etfs are the best structured transparent products that exist today and I am very pleased with the success of our ETF franchise is having in the face of a difficult macro environment.
It is the fact wisdom tree is one of the few providers with net inflows year to date.
<unk> did a great job showcasing how our success in solutions and models is improving the consistency and quality of our inflows I'm thrilled with the expanded model lineup. We've earned at Merrill where our momentum is accelerating equally exciting is our early success from our expanded.
RIAA outsourced CIO offering Jarrett mentioned, but it's worth repeating that our high quality pipeline is growing quickly I think our results now through that wisdom tree has successfully evolved from individual ticker sales, though still important to being a true solutions provider our comp.
Evidence has never been higher regarding future model success.
We've also made exciting progress towards the best structured transparent products up Tomorrow. We recently received SEC approval of our first blockchain enabled fund the short term digital Treasury Fund we've made good dollar token a gold token and the product roadmap does not in there we've read.
<unk> filed for nine additional funds building out a broad blockchain enabled fund suite that includes several additional fixed income funds as well as equity focused strategies.
I realized about four years ago.
Dimitri strengths are uniquely aligned with what would be needed to succeed in blockchain financial services.
Knew that it was in our DNA.
Our deep knowledge of regulation, our trusted brand, our special culture, our strength and compliance and our leadership in product innovation has driven this cost effective early success.
Our efficiency and effectiveness implementing our digital asset strategy has been noteworthy it's been reported Facebook spent around $300 million attempting to bring a regulated branded digital wallet with exposures to market and they failed.
Since the start of our digital asset journey several years ago Wisdom tree has spent less than $20 million on coke innovation and on wisdom tree Prime our digital wallet.
As we've discussed on prior calls wisdom tree Prime is currently in beta testing and remains on track for a national rollout towards the end of Q1 next year.
Additionally, I want to repeat what I said last quarter digital assets will begin generating revenue in 2023 without a significant uptick in costs versus 2022 levels.
I am very excited about where wisdom tree is headed.
Have a tremendous and holistic opportunity ahead in both Etfs models and advisory solutions business as well as an early mover in digital assets and blockchain enabled financial services. So a week ago, we announced that wisdom tree is changing its name to wisdom tree.
Inc.
Changing our ticker symbol to W. P.
By dropping investments from our name and dropping Etfs for Mark ticker, we're expanding our mission and recognizing the importance of this moment. This brand enhancement is less limiting in nature and a natural evolution as a company.
Our momentum remains strong and I look forward to sharing our ongoing success in the coming quarters.
With that operator can you turn the call over to our head of Investor Relations, Jeremy Campbell to take some questions from our shareholders.
Certainly I'd like to hand, the program over to Jeremy Campbell head of Investor Relations. Please go ahead Sir.
Thanks, Jonathan and good morning, everybody similar to prior quarters, we are going to take a couple of questions from our direct shareholders off the same platform. So.
So the first question here is how it wasn't free thinking about the spot bitcoin approval process. At this point what is the next step and what is the realistic path to getting a spot bitcoin ETF approved and launched.
Thank you.
Jeremy.
Assets will you pick this call. This question, yeah happy to happy to Jonathan Thank you.
So there has been some recent headlines recently on the spot.
Yes.
Important to note is that this is for the U S. We already have this product live in ETP format today in Europe .
So in the U S. But our objective has always been to work productively with regulators theres been a lot of news you have some other providers are in the process of doing the FCC or kind of other things like that.
Certainly not part of our plan at all or we want to be working productively with them and we expect to be first are among the first to ultimately get there I don't have an exact timeline on what that might be right now clearly the FCC still have concerns but for us it's important to be working with and productively to try to address that.
On another note, we actually did get a very important approval from the FCC. This past quarter for the region to be short term Treasury Digital fund I know that was mentioned earlier in the remarks.
For us that's actually been one of the most important developments of bigger for us.
Senior people at the SEC actually recently kind of flagged that as one of the innovation friendly things that <unk> been focused on in doing so.
We're focused on engaging with them productively on lots of things a bit quaint ETF is included in that and we think we'll get there someday, but there is no immediate timeline on that right now and we're focused on a number of other initiatives, including <unk> digital assets with them and Jared I think you wanted to add a couple of points.
Yes, let me jump in as well I think it's very important to distinguish between bitcoin and blockchain enabled finance and a lot of people confuse the two.
For us Cryptos interesting, but it's really only a use case for what can be done on the blockchain.
A lot of people talk about crypto winter again that may impact crypto, but the March towards blockchain enabled finance that much more exciting opportunity is unwavering.
We think blockchain enabled finance is is a place where we are leading and it will change the way financial services are conducted and really here. This is about the future. We have the opportunity to lay claim to the deepest exposures and the next evolution in asset management.
<unk>. This is a huge opportunity and that one is completely on track.
Great question.
Question number two is along the lines of a couple of ones I kind of got bonded together, but.
It's the first being as equity markets have Wayne have you seen interest in dividend products as investors search for yield and the other one is how have fixed income products stared in this higher rate environment.
Great Army.
Yes.
I'm going to start with the fixed income the second segment first.
It's really been for wisdom tree, we've had.
$10 billion in fixed income flows year to date. So this is really just been a breakout year for waste increased fixed income team and it speaks to our core product development and innovation excellence, we identified an opportunity to launch the first to market beta instrument with floating rate treasuries about eight years ago.
And this has just been the star performing asset class this year.
As rates have moved up and.
And we've captured that.
The one week treasury getting 4% income it really attracting a growing set of buyers in that floating rate treasury vehicle, but what's exciting for the team and fixed income and future opportunities as now our team has been talking about for the first time in a decade. There is now income back in fixed income and the high yield.
Space, you can get over 8% yields while still screening for quality in a very systematic fashion.
Five years ago Wisdom tree launched proprietary quality screened high yield and investment grade Etfs.
In the high yield category in particular, our high yield ETF Wf H Y has performed well versus the traditional beta high yield Etfs since that launch even without a serious credit cycle that could demonstrate the value out of our focus on quality in that in that segment. So this looks like a re.
Really good setup for future relative performance future flows.
High yield category again, 8% yields there now.
We also have very good core investment grade fixed income <unk> why is there a yield enhanced aggregate fund at scale with over $1 billion in assets higher duration than the traditional aggregate bond index and Etfs, So with money does flow back to higher duration at some point.
With our success in fixed income generally this year, we're now much better positioned deeper client relationships to cross sell these other bond Etfs really than we've been in our entire history as a firm. So it's a very exciting moment for fixed income stalwarts.
To come back to the equity question and.
The team talked about earlier, we've had $2 5 billion of equity inflows year to date for U S equities, which has been again, a 13% annualized rate.
And you had this 15 year stretch where growth stocks dominated value and that was largely a headwind for our firm I'm going back to our inception.
But this is completely reversed and more specifically the.
Value strategies, focusing on dividends and we focus on a lot on hydrogen stocks just performed incredibly well.
You talked about the four and five stars and few other ways to talk about the performance.
Had 20 different Etfs in the U S within the top decile.
Thanks to our peer groups and 75% of our all of our U S listed AUM is in the top quartile. So you could see the whole approach. They are set up incredibly well across equities youre seeing that in strong performance, which is catalyzing those strong inflows.
And a few of the Etfs just as Ted.
Overemphasize the flow picture in.
In the 16 year history, we've had for the original dividend suite sure. Those Etfs are having their best flow year since we launched.
Large cap dividend has taken a $500 million this year best year. Since we've launched DHS is a high dividend Etfs.
Actually positive on our performance year to date, when the S&P 100 down 20% highlighting again, the strong relative performance, but globally. This strategy, we havent use it form and ETF form has taken a $500 million. This year and so you can really see across the board from fixed income to equities the improved track record a very.
Compelling macro environment for what we focus on.
I wasn't tree, we think is going to support sales over the coming quarters.
Great. Thanks, Jeremy Thank you and the last question from our SAP platform is where do you see the opportunity to gather assets going forward and continue organic growth.
Jarrett why don't you start there.
Great Alright.
I see really three main areas for continued organic growth and those would be.
Digital assets, our ETF lineup and managed models.
Taking those one at a time digital assets, we just covered it.
But really again, a huge opportunity to own the deepest exposures and what we see as the next evolution in asset management, So a very large opportunity.
Of our Etfs lineup.
<unk> also just covered that but I'd just reiterate.
We've got best in class organic growth, we've got breadth and depth of our slows we've got outstanding fund performance and that gives us momentum that we see continuing and an example of that.
In the third quarter, we had net inflows of $1 75 billion October Rd, as net inflows of $1 9 billion. So momentum is there and it's continuing.
Managed models. We also spent a little time talking about that on the prepared remarks.
But let me go into that a little more because this is also very exciting. It's one of the most important macro trends in all of wealth management and again as I said earlier, our strategy succeeding on two levels first with platform partners, such as Merrill Lynch and Morgan Stanley , But then second with Ara.
As an independent broker dealer partners.
And through our portfolio and growth solutions offering and here, we helped implement trade and rebalanced model portfolios and growth for all of that is really threefold, we want to get to have more partners. So we want more wealth management partners.
We want more of our models.
On those platforms with our partners and then we want to grow our mind share with the advisors that are in all of those platforms and those are the three areas of focus but just touching on our pipeline, it's robust and it's growing every day.
We mentioned in the prepared remarks, it Merrell, we've got new models being launched there later this year. So that's an example of an existing relationship where we're doing well we've got traction and now we're adding existing sorry additional models.
Yesterday, we had a press release on a new partnership.
Private advisor group.
We are a preferred partner for their 750 advisers in $29 billion in assets and we got to be a preferred partner after a rigorous due diligence process, where they evaluated our investment management capabilities, our technology and our distribution support so again.
Another piece and evidence of great success, and then our portfolio and growth solutions offering.
We've got a pipeline of 40 firms there generally between the size of 100 100 million to $750 million, where there we have a different approach and get a large.
A meaningful portion of those firms asset so all in all.
This is working we've got a long runway for growth and a really important point is model inflows are recurring in nature.
As you establish these relationships new money comes in it builds in the models.
Stackable on existing flows and it's also.
Sticky.
It tends to stick around so very excited about organic growth and again through those three areas digital assets, our ETF lineup and managed models.
Thanks Derek.
Jonathan feel free to open it up for some questions from our sell side analysts.
Certainly and as a reminder, ladies and gentlemen, if you have a question at this time just simply press star one on your telephone.
First question comes from the line of Dan Fannon from Jefferies. Your question. Please.
Thanks, Good morning, I guess just to follow up on the managed model discussion can you talk about what the.
AUM is today within this channel I know you've mentioned some big firms and then.
How are discussions kind of going with other larger platforms or is it you can't really be on all of them. Because there is some euro and some are you precluded from getting on other platforms given your existing relationships.
Jaret you want to take that first.
Sure so.
In the past, we've talked about asset levels and ratios of new flows being around 12% those ratios and asset levels.
Our holding.
In terms of the partner opportunities Yeah, we have out there.
Partner opportunities.
A second ago the pipeline across the board is pretty robust.
And there are no restrictions.
So far we're on one platform there are no restrictions on being another so.
A big area, where we.
Or are expecting to see it continue to contributor to our growth and if I didn't mention it.
We had on our AUM levels.
Sure.
Zero in this initiative early in 2020, we're now over $2 billion today.
Thanks, Jeff.
Next question.
Certainly one moment for our next question.
And our next question comes from the line of Brendan Hopkins from UBS. Your question. Please.
Good morning, Thank you for taking my question.
Will's comments suggested that the spot they couldnt ETF efforts are not finished so could you help us understand what your next steps here or have you received feedback.
And.
From the SEC and can.
Can you share any of that and why are the concerns that bitcoin is not considered a security.
That is traded on an exchange a structural impediment to a spot ETF in the U S.
Well why don't you take that.
Yes, I mean, so I think the maybe.
Maybe just restating what I think you said in terms of the concerns with.
Stop <unk> approval in the U S. So the SEC's biggest concern so far has been around the potential for market manipulation.
They're in their rejection letters they consistently referenced that.
No price discovery for the pick one spot market happens on.
Venues that they don't have oversight over or that no U S. Regulator has oversight over which has the potential for market manipulation. I think you can really get into the weeds. On this you can point to examples in the past you could talk about how price discovery happens on the futures markets.
That could be we could definitely spent a lot of time talking about that but I mean big picture I think.
Like I said in my earlier remarks, we're not planning on joining grayscale lawsuit or anything like that we want to keep working productively with the SEC.
And in past media interviews I've said this I can't just be wisdom tree is a single asset manager alone there is going to need to be some kind of ecosystem development evolution here, but the next steps are just continuing to be on that journey engaging with.
Members of the SEC and D C more broadly on on this topic, but also like I said, it's not stopping us from doing other things in the digital asset space like we did with WTS why be found on the SEC's regulators to be open to that kind of responsible innovation and other formats.
Yes, let me great job.
Let me just add one thing.
The bitcoin ETP has nothing.
Related to wisdom tree prime launching so that's not going to be a deterrent for mark.
Launching that product just wanted to get that out there that they are unrelated.
Yes, and where I wanted to jump in is again, let's not miss the forest for the trees.
Cryptos interesting.
But the real opportunity is blockchain enabled finance, that's what wisdom tree Prime is about.
No.
Hold ups on the crypto ETF approval.
We don't do anything to the opportunity that we're working on for blockchain enabled finance we've got the one fund approved we've got nine more filed.
<unk> got great momentum here and it's a mistake to confuse crypto, which is a use case for the black chain, it's a big mistake to confuse that with the broader opportunity that we're really pursuing in blockchain enabled finance and Thats wisdom tree prime.
Yes.
They've clearly suffered.
Once a functional rail and the other is sort of an asset class.
Anyway.
On that point, though I'd love to ask another you have your first blockchain blockchain enabled fund.
<unk> SEC approval so are.
Are you now in a position where you might be more comfortable to try to explain the benefits of using those rails and I think it's it's it's.
Interesting and at least ironic if not.
More significant than that.
Treasuries are like one of the most traditional asset classes and yet it's being administered on one of the most.
Most innovative and new platforms and so.
How should we think about potential operational or efficiency improvements and benefits that you can garner through this new and unusual administration.
Jared you want if you want to start on this one that may come in over the top upwards, but you guys Alright, Yes, let me start.
Yeah I'll start so.
Some of the things, we really liked about Etfs, we think etfs are better than mutual funds that liquidity transparency standardization right.
<unk> have greater liquidity than mutual funds do total transparency to the underlying holdings and standardization right the experience of.
The largest institution in the world and the experience of a single day trader are very similar with this anyone with a brokerage account can access Etfs youre seeing these same qualities, but only enhanced with the potential for <unk> and digital assets.
And one thing I'll kind of maybe on the liquidity point, just add a little bit more on I think a lot of people. When declined first came out saw it as Oh look at this globe like asset Etsy.
Et cetera, I think a lot of people who are experienced in market structure look at this and remarket, how there's an asset that can be settled with near finality on a peer to peer basis on a 24, seven 365 basis for the securities markets broadly for asset markets broadly that is profound right like that.
Is a huge innovation in terms of how we exchange value.
It has lots of implications moving from the system today, which is highly intermediate it which has T plus two settlement times to one where settlement times can come down much further more and more people can participate in financial markets more financial inclusion and less cost. So that's what we're seeing with <unk>.
Digital assets and Thats why we've embarked on this so WTS why is just the first step on this journey in terms of unlocking a lot of these use cases and demonstrating the potential of this one very specific example that youll be able to do with WTS. Why today is peer to peer transfer ability right transferring securities from one account to another.
<unk> is a very cumbersome process that no one would ever do right and to be able to unlock that for something as simple as a short term Treasury fund, allowing peer to peer is innovation that we think is constructive.
Another one would be connecting it more closely to other elements in financial services right payments today and your brokerage account are two totally different tech stacks, if you will.
Wanted to move value from one to another you are talking about like a seven day timeline and it just isn't something you would do in.
In the future. This is all one tech stack like Rhode Island in the future today with what we're doing with <unk>, all one tech stack much quicker and faster exchange of value, which we think moves savings in payments much closer to investments, which we think is a constructive benefit will lower costs enhance user efficiency for users. So.
Those are just a few of the examples of what we're seeing.
I Blogged about it if you want to take a look at that and.
We'll be demonstrating this more too soon as we.
Go live increasingly a nationally later in Q1.
Jarrett did you have more to add work with that good.
Just a couple of things I mean, I think it's important that this is compelling for the end customer will cover it at all but you look at our first <unk>.
Digital Treasury fund.
That is zero expense ratio. So there is there's just immediate value.
To the consumer but also the utility the fact that you can spend save and invest in basically the same asset.
Is is new and it's a profound difference in the financial services experience, where the consumer directly benefits and then there's of course benefit on our side, we cut out a lot of middlemen, we cut out a lot of unnecessary expense, we diversify our revenue streams. So.
Enables us to succeed and thrive in a world where there is today fee pressure so compelling for the consumer compelling for wisdom tree.
Thanks, Jarrett, Jeremy you want to give us the next question.
Certainly one moment for our next question.
Jonathan.
And our next question comes from the line of Keith <unk> from Northcoast Research. Your question. Please.
Good morning, guys.
Hoping you guys could provide a bit more color on the beta version of prime so far in terms of any statistics in terms of number of data users you have number of transactions, but help us understand I guess, great. Some confidence that the beta prime is heading toward a national rollout in the first quarter.
Okay.
Okay, well you want to start.
Yes, sure. So we're not disclosing any kind of metrics at this point in time on data everything is on track for the Q1 launch.
<unk> regulatory approval was a great hurdle that we cleared so we're quite excited about that so no specific color on the beta testing beyond it's been successful so far and we're on track for our broader rollout in Q1.
Okay understood I appreciate it in terms of I guess, the European versus the U S ETF portfolios.
Two different trends here, we're seeing obviously, a great fund inflows the U S in part because of the USSR, but obviously Europe's not doing so well probably mark because of commodity exposure is there the opportunity to do more of a European treasury type of fixed income funds out there.
And then I have a success, but how do we think about the dichotomy between the two different segments.
Sure.
Will or Jeremy who wants to start.
This is Jeremy I'll start so.
When we acquired the ETF Securities' platform. They were we were excited because they were a leader in commodities and and actually for inflation environment or elevated inflation over the coming years, we still do like a lot of that.
<unk> in particular has had some challenges with the strong dollar. This year, that's been one of the headwinds rising real interest rates the fed hiking cycle.
I would get a more supportive backdrop for the sort of their largest exposure gold.
The fed pivot.
From a very aggressively hiking rates, so that'll be something we we look to potentially next year. Some time at least in the second half of next year.
But they are they have been diversifying from the commodity focus and they are seeing.
Good.
Lowe's to things like the quality dividend growth franchise that has been our U S largest ETF easier Debbie and yes. They have the same exposure its growing adoption over in Europe . The high dividend ETF that I mentioned earlier also in Europe is is resonating and they've been they've been focused on fanatics.
Focus on thematic.
In Europe and that we do think there is a long term opportunity as sectors have shifted to more very specific execution and we have a very robust somatic lineup globally.
Sure you can say leading out of Europe , and so it helps diversify the firm.
We're continuing to focus on all all of the above in terms of you've got equities fixed income commodities, they've got the crypto exposures, it's a very robust global lineup and as a firm we're very globally diversified for many different environments.
Great. Thank you just want to add.
I guess not.
Next question certainly.
As a reminder, ladies and gentlemen, if you have a question at this time. Please press star one one.
Our next question comes from the line of Michael Cyprus from Morgan Stanley . Your question. Please.
Oh, Hey, good morning, Thanks for taking the question on the blockchain enabled digital Treasury Fund I was hoping you could talk a little bit about the distribution strategy. How you plan to go about getting customers to invest in this digital wrapper pretty you envision as the customers here these and retail customers of these advisors how different is the customer set up from those.
That you have sold products to in the past.
Good question I think we'll end Jarrett why don't you guys feel this.
Yes, I'm happy to start again.
So initially the customers for the digital funds will be will only be available through recent pre prime.
As infrastructure and Thats true Prime is DTC wallet application that we've been referring to.
Over time, and I think this could happen fairly quickly, we expect distribution opportunities to grow outside of wisdom for you Brian .
There is no current like immediate timeline on that happening, but over time, we see a lot of.
Asset migrating into the structure and we're going to be very well placed to serve them. So whether that's with financial advisers institutions and the like.
That's all on the roadmap and it's something that we think we're particularly well suited for given our existing distribution.
Jerry.
I would just add if you look back.
Just trying to size the opportunity a little bit and talk about a little bit about distribution, but we got we launched our first Etfs 16 years ago.
We were innovators were considered pioneers, but we were nonetheless 13 years late to the party and therefore, others got to claim the deepest exposures in the new rap or being Etfs.
Today, it's a much different story, we're actually a little early to the party.
We are claiming the deepest exposures in this new wrapper, but being early to the party some of the the world needs to catch up with us and so right now as securities.
Others need to be regulated to be able to sell our product and so as will said in the beginning it will be through our wallet.
I think marketing will have a big role in how we.
Cell.
But the compelling value.
Also.
I think we'll sell and if you think about it in today's world a lot of people and will touched on these comments earlier, but you sit in cash in a in a brokerage account, earning zero or you sit in a checking account at a bank, earning close to zero and when you actually want to move.
That money around you physically have to move it from one environment to another environment and one of the really exciting things about blockchain enabled finance is those worlds are merged or unified and so you look at something like our digital treasury.
Yielding three and a half 4% that can be a source of spending that can be a source of investing you don't you no longer have to sit there in a different account in a different environment. Ernie next to zero. So this is going to I hope sell itself because the value proposition is so.
Pallet, but as certainly as the rest of the world catches up as regulate as regulation catches up will broaden out how do we distribute.
Great and then could you.
Michael.
Michael It's also being early gives us a nice opportunity to do business development too.
Platforms and two.
Institutional investors as well I'm sorry.
Did I interrupt you Michael.
Yes. Thank you that's great can I just ask a follow up question just around how much in resources would you plan to put up against customer acquisition, how would you sort of quantify that.
Is that sort of embedded into the sort of current run rate with the spend that you have already on the discretionary side I think it's been about $10 million or so of investments how do we think about that growing into next year. As you look to grow customers and maybe you could talk a little bit of how you're planning to spend that or whether it's on marketing advertising and such.
So I'll take this.
We will give you more guidance next quarter.
But.
Roughly what we've said in the last two quarters. This in the earlier comments.
Well as last quarter is that we're rolling out wisdom tree Prime and we're not expecting a significant increase in wisdom trees overall expenses. So it is.
I think that should be comforting to many of the analysts rolling out nationally, but the cost base should not be significantly change it but we'll have to give you more next quarter.
Okay. Thank you.
Thank you and our final question for today.
One moment for our final question.
Comes from the line of.
Michael Brown from <unk> Your question. Please.
Hi, good morning, Thanks for taking my question.
So you clearly havent early mover advantage on the digital and blockchain front here and I just wanted to hear how you anticipate the competitive landscape to evolve I guess I can't help but think about some of the bigger players here with it.
Large investment budget.
They seem determined to catch up.
Likely throw some money at that.
Digital initiatives to try and.
Catch up to what you've already been building out and intend to continue to roll out. So what are you seeing from competitors at this time and how do you expect that.
Competitive landscape to evolve.
So I'll take this I certainly expect over time that there will be more competitors. This is.
Because it is so compelling.
I'm expecting really financial services broadly to move onto the blockchain.
So far we've seen more.
From from broad competitors Theyre more in an exploratory mode I think that.
They are investigating that could come up with your own use cases and business models and household exploit the new technology.
And so it's not quite so easy because theres, a blurring of definition and so.
It does take a little bit of creativity, but we're.
We're not expecting to be alone, but we are pleased with.
That we seem to be early if not amongst the very earliest and we're also excited that many who are discussing this now seem to be coming to conclusions that we came to maybe three years ago.
We then very quickly with our conclusions started creating or use cases in putting those ideas into motion, let's see if.
These other firms can.
Navigate their legacy issues there.
A significant amount of disruption coming to existing business models and so it takes.
A lot of conviction to really tackle this with energy.
Erik did you have anything you'd want to add.
Yeah, just really quickly and mostly reiterating what you said, but.
This isn't as simple as developing an app wisdom tree Prime is our app and that does take time, but as you've heard there there was over three years of efforts with with regulators.
As you've seen with press releases recently, we've been building and operational ecosystem of partners with people like stride Bank.
And Galileo so there is work on product <unk> seen us launch a product we've got nine more filed there.
<unk> functionality there is client experience. So this is this is a real effort that we've undertaken we have been working on it for <unk>.
We're really three plus years.
Leveraging very well our existing infrastructure and people, but this isn't something that can be repeated quickly.
And just to double click on that last point of Jarrett.
We have 25 roughly people in digital assets and 250 people in the ETF business.
But what the 250 people do is of great relevance to the digital asset efforts and without them you wouldn't be able to accomplish nearly as well where as quickly as cost effectively as we are doing in digital assets. So really we keep saying that this is holistic, but we mean it.
We're really well positioned to be the company to try to exploit this opportunity.
Any more questions.
I'll leave it there thank you.
Thank you thank you Jonathan.
This does conclude the question and answer session of today's program I'd like to hand, the program back to Jonathan Steinberg CEO for any further remarks.
No further remarks, we just want to thank you for your support and attention and we will talk to you next quarter have a great day everybody.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
The conference will begin shortly to raise Johan during Q&A, you can dial star one one.
[music].
Okay.