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WisdomTree Investments (WETF)

Q2 2012 Earnings Call

July 27, 2012 9:00 am ET


Stuart Bell

Jonathan Laurence Steinberg - Founder, Chief Executive Officer and Director

Amit Muni - Chief Financial Officer and Principal Accounting Officer

Luciano Siracusano - Chief Investment Strategist, Executive Vice President and Director of Sales


Marc S. Irizarry - Goldman Sachs Group Inc., Research Division

Michael J. Grondahl - Piper Jaffray Companies, Research Division

Steve Fullerton

Jason Weyeneth - Sterne Agee & Leach Inc., Research Division

Macrae Sykes - Gabelli & Company, Inc.

Adam Q. Beatty - BofA Merrill Lynch, Research Division

Dan Weiskopf

Howard Rosencrans

Todd Wachsman



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Good day, ladies and gentlemen. Welcome to the WisdomTree's Second Quarter Earnings Call. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the conference over to WisdomTree.

Stuart Bell

Good morning. Before we begin, I would like to reference our legal disclaimer available in today's presentation.

This presentation may contain forward-looking statements within the meaning of the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by these forward-looking terminologies such as believe, expect, anticipate and similar expressions suggesting future outcomes or events. Such forward-looking statements may reflect our current expectations regarding future events and operating performance and speak only as of the date of this presentation. Such forward-looking statements are based on a number of assumptions which may prove to be incorrect. Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results and will not necessarily be accurate indications of whether or not, or the times at or by which, such performance or results will be achieved. A number of risks and other factors could cause actual results to differ materially from the results discussed in forward-looking statements including, but not limited to, the risks set forth in this presentation and the risk factor section of the company's annual report on Form 10-K for the fiscal year ended December 31, 2011.

Now, it is my pleasure to turn the call over to WisdomTree's CEO, Jonathan Steinberg.

Jonathan Laurence Steinberg

Thank you, Stu. Good morning, and welcome to WisdomTree's second quarter conference call. Fellow shareholders, the second quarter of 2012 was a challenging one from a macro perspective, but again, WisdomTree executed well across all functions. We ended the quarter with $15 billion in assets. We had $338 million of inflows. We did achieve record revenues of $20.4 million. Of real importance, we also achieved record pro forma net income of $3.1 million when you back out onetime proxy-related expenses. Our market share of inflows for the quarter was 1.6%. In light of the fact that domestic fixed income represented 90% of total industry inflows, we did very well where we have competing product. Lastly, our insurance carrier agreed to reimburse a significant majority of our litigation expense.

Later on this call, Amit Muni, WisdomTree's CFO, will walk you through that plus all of our financials.

On the next page, let's look at the factors driving our assets under management. We ended the first quarter with $15.7 billion in assets. We, as already mentioned, we took in $338 million in new money, but suffered $1 billion of negative market move and ended the second quarter with $15 billion in assets. On the right, you can see that world equity markets experienced market declines, especially outside of the United States. In the pie chart, below, you can see that 83% of WisdomTree's assets are in equities, and 55% of our assets are in equities outside of the U.S.

Now let's take a closer look at industry inflows on the next page. The industry had $20.7 billion of inflows for the second quarter, which is a decline of 61% from the first quarter and a decline of 29% from the year-ago quarter. On the right-hand side, you can see that in addition to the flows being down, what did come in was very narrowly focused. Again, as mentioned in the press release, domestic fixed income represented 90% of total industry inflows.

On the next few pages, let's analyze WisdomTree's inflows. As we reported, our inflows in the second quarter were $338 million and $2.6 billion for the first half of the year. This page is familiar to our investors and self-explanatory. Later in the presentation, we will discuss how these numbers compare to other leading asset managers. But now, let's take a closer look at inflows by category on the next page.

I want to draw your attention to the second quarter. Here, you can see how we got to $338 million of inflows. We experienced modest outflows in currencies and alternatives and U.S. equities. Emerging market equities continue to lead our inflows with $462 million. On the right-hand side of the page, you can see our first half inflows. These were dominated by equities, but nicely diversified between U.S., emerging markets and international.

Now let's look at our market share of inflows on the next page.

In the second quarter, we had 1.6% of the inflows, and for the first half, we achieved 3.6% market share of industry inflows. We continue to target 3% to 5% of the industry inflows. Now I want to take a look at one of the factors driving our equity inflows, the performance of our equity funds.

The top chart shows the percentage of our equity funds that are beating their respective cap-weighted indexes. As you can see, in the 1-, 3- and 5-year, as well as since their respective inception dates, at least 70% of our equity ETFs are beating their respective cap-weighted indexes or competitive benchmarks. These are awesome performance numbers. We know this is an important point of distinction for WisdomTree and is a significant or major factor in our value proposition to our customers.

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