WisdomTree, Inc.
Q1 2020 Earnings Call Transcript

Published: 1 May 2020

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the WisdomTree First Quarter Earnings Call. [Operator Instructions]I would now like to hand the conference over to your host today, Mr. Jason Weyeneth, Director of Investor Relations. Please go ahead, sir.

[Jason Weyeneth:]

Thank you and 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 Private Securities Litigation Reform Act of 1995. A number of 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 in the Risk Factors section of WisdomTree's Annual Report on Form 10-K for the year ended December 31, 2019. WisdomTree assumes no duty and does not undertake to update any forward-looking statements.Now it's my pleasure to turn the call over to WisdomTree's Founder and CEO, Jonathan Steinberg.

[Jonathan Steinberg:]

Thank you, Jason and good morning everyone.I'll open the call with some comments on our business outlook before turning it over to our Global Head of Research, Jeremy Schwartz to discuss product positioning and performance. Then Amit will discuss Q1 results and provide updated financial guidance. Then we will take your questions.First and foremost, I hope everyone and their families' is healthy and safe. These are unprecedented times. And as we manage through this crisis, our priority remains to protect our most important assets, our employees and their families.To that end, we quickly pivoted to working from home for our entire global workforce. The combination of our investments in technology over the past several years, and our business model allowed us to seamlessly switch to a remote environment. We utilized the most modern technology infrastructure and our outsource business model leverages the strength of the largest and best capitalized financial service firms in the world.While we hope for a near-term return to normalcy, we are very capable of operating remotely indefinitely with no compromise to our high standards of operational excellence and client service. We entered 2020 with significant momentum and believed we had reached an important inflection point in our growth trajectory.While the market volatility disrupted this momentum, the setback was only temporary and we are regaining our momentum as we speak. Our 2020 plan remains intact and as we discussed last quarter, we are focused on growth, performance and innovation. We expect the migration from mutual funds to ETFs to accelerate in 2020 as the superiority of the structure shines. This year should prove to be a difficult one for mutual funds, which are poised to deliver capital gains to fund holders as low cost basis securities were sold to meet redemption requests during the market pullback.Additionally, one of the obstacles to ETF adoption that we've encountered as the bull market aged was advisors who acknowledged the superiority of our performance, structure and pricing of our products versus active mutual funds, but were unable to transition their existing clients assets to our products due to the tax consequences of switching. The pullback has reduced or eliminated that friction for many advisors.The pullback has revealed the need to review asset allocation. Our market research indicates advisors remain wedded to a 60

[Jeremy Schwartz:]

Thanks Jon.Starting on Slide 4, coming out of the crisis, we see increased demand for equities in an extended low interest rate environment. And further believe recent government measures to counter pandemic will drive inflation - increase demand for commodities.Our broad product offering with the strong performance, position us well to capitalize on these sizable opportunities. One simple way to summarize performance, utilizes Morningstar. We have over 60% of our U.S. listed AUM in 4-star and 5-star funds, they are top performers for the respective asset classes.Looking beyond the star ratings, 74% of our AUM is beating more than 70% of their peers and roughly half of AUM is in funds in the Top 2 deciles. Included in the 5-star bucket is two of our U.S. dividend strategies for U.S. large caps and small-caps stocks. The case for dividend family remains quite strong and we anticipate more flows for dividend family from our model portfolio collaboration with Professor Siegel as always broad usage of our income oriented models and funds.To highlight a couple of other areas, as you can see in the chart on the right, our quality driven growth suite with 4 billion of AUM has performed very well through the crisis and on a longer term basis. Standouts from current AUM, flows, performance and the size of the future opportunity is quality strategies for the U.S. large cap and international developed large cap growth, two of the most important equity allocations in global portfolios.On an asset weighted basis, the funds in this suite outperformed beta by 140 basis points and active funds by 280 basis points in the March downturn. On a three-year basis, they generated 40 basis points and 210 basis points of annual outperformance. This is modern alpha, an example of our product development strength.We also performed very well on a relative basis during the downturn across our ex state-owned enterprises suite. Our broad Emerging Markets Fund XSOE illustrates the importance of innovative product and the rapid scaling of a product our team can deliver in the right environment.XSOE was the first fund to screen for state-ownership, tilting exposures towards technology companies and away from state banks and energy. At the end of 2017, XSOE had just under $20 million, but today the fund sits over $1 billion in AUM with consistent inflows over the past several quarters, and is ranking in the Top 15% of AUM funds over the last five years.This enhanced core fund price competitively at 32 basis points can scale meaningfully higher from here with a track record of excellent performance, a unique proprietary strategy and AUM levels that open even greater future adoption. XSOE illustrates how innovative funds can quietly build track records before accelerating AUM. We continue to plant these seeds of future growth.On Slide 5, the second key theme we are positioned for is a return and inflation. A key market dynamic, we are preparing our clients for in 2021. In our weekly call series, Professors Siegel increasingly emphasizes how in our war against COVID no one is being called on to pay extra taxes or to buy corona war bonds to finance all of the additional government spending. We are rightfully cutting taxes and putting billions of dollars into the pockets of those most impacted.But who will ultimately pay for all this relief? Bondholders. The Fed is buying all the bonds and treasuries floating to finance the war against COVID. In the last four weeks, U.S. money supply increased at the same rate as the one year following the Lehman crisis. This huge increasing liquidity will likely not come freely. The direct ramifications of all this added liquidity to the system once the economy opens up, and we do believe we'll be back up and running in 2021 could spark inflation rates of 3%, 4%, 5% for a number of years.Diversified broad basket of exposure to commodities, precious metals like gold and silver, industrial metals that have a beta to economic growth and a global recovery and our Bitcoin ETP all could be priced asset class exposures as we reopened the global economy.Our European AUM and flows are starting to reflect positioning for this. Three points to highlight the strength of our European product set. Gold AUM is at all-time high, and we expect further gains if inflation returns as we expect. Volatility in the markets has increased trading volumes in the short and leveraged commodities category. We remain a market leader with focus resources to further capitalize on the opportunity.Recent elevated flows to our European oil platform maybe tactical and streaky, but the strength of our European business is evident with our 84% market share in the energy space, a leadership position that was clear in the last few months.Stepping back, our big picture preview is the environment for inflation hedges becoming much more important, and we are excited about the potential for European commodities platform and our strong performing equity focused U.S. product suite.I'll now turn the call over to Amit, to discuss our first quarter results and financial outlook.

[Amit Muni:]

Thank you, Jeremy, and good morning everyone.Beginning on Slide 6, we started the quarter with strong momentum. Our AUM reached near an all-time high of $64.6 billion in mid-February. We generated over $1 billion of inflows by the end of February, and we had six months of positive flows in the U.S., including hedging DXJ.However, we ended the quarter with assets under management of $50.3 billion after experiencing nearly $12 billion from negative market movement and outflows of $536 million all due to the current market conditions.However, we have taken in approximately $1.6 billion of net inflows so far in April. Looking deeper at the flows, we generated $734 million of inflows from our European listed products representing 13% organic growth, driven largely by flows into our oil and gold products. We were the industry leader inflows in the energy ETFs and this strong demand continued in April.On the U.S. side, we had outflows of $1.3 billion of which hedging DXJ made up 55% of those outflows. Despite that headline, we did see bright spots in that 40% of our funds generated inflows for the quarter and in the volatile month of March, over 20% of our funds generated flows. Our ex-state-owned on Emerging Market Fundamentally, International Hedged Quality Dividend Growth, and our U.S. Dividend Growth Strategies generated almost $500 million of flows in the quarter.Now turning to the financial results on Slide 7, revenues were just under $64 million for the quarter down due to lower average AUM and a one basis point decline in our fee capture due to mix change.On a GAAP basis, we had a net loss of $8.6 million. Excluding non-operating items, adjusted net income was $11.2 million or $0.07 a share. As we disclosed last quarter, we are currently pursuing an exit from our investment in AdvisorEngine. While the process is still continuing, it is not yet finalized.This quarter, we took a non-cash impairment charge of $19.7 million writing down the remaining value of our investment to $8.5 million. Given the process is ongoing, we can't comment beyond our prepared remarks today but let me emphasize again that we do not anticipate the exit of our investment will drive any asset attrition or change in our organic growth outlook.We also had a $2.2 million after-tax, non-cash charge for our future gold commitment payments, reflecting the increase in gold prices during the quarter. And lastly, we had a $2.5 million net gain from the sale of our Canadian operations.Turning to margins on the next slide, you will note, this is the first quarter where we are now reporting as one business segment rather than two. Our adjusted operating margin increased to 25% for the quarter as we controlled our cost base to help partly offset lower average AUM. Gross margins were flat at 77.3% within our initial guidance range.On the next slide, you can see the changes in our expenses. Our operating expenses remain well-controlled declining 11% sequentially. We had a significant decline in our variable costs, particularly discretionary spending around sales and marketing, as well as compensation. Fund operating costs also declined due to lower average AUM. Given the current operating environment, we are making reductions to our initial guidance around full year costs.Turning to Slide 10, given the significant decline in AUM, we expect compensation to be between $65 to $70 million for the full year absent, any outsized move in our AUM. This is a result of lower incentive compensation levels as there will be no headcount reductions this year as a result of the coronavirus.Gross margins are now expected to be between 75% to 77%. The reduction in the range is primarily from the decline in our revenue, partly offset by savings from our recent announcement of fund closures.Third-party distribution fees are now expected to be lower approximately $6 million because of the decline in our AUM. We are reducing our discretionary spending by $4.5 million to $47 million for the full-year. Our gold commitment expense is based on us paying 9500 ounces of gold a year, times the average price of gold for the period. Based on the current spot price of gold and assuming prices stay flat this expense would be $16 million for the full year.And lastly, our consolidated tax rate is expected to now be approximately 23% due to lower non-deductible expenses. These expense reductions are prudent given the current market environment and in no way hampers our long-term growth potential. If we experience a recovery in the markets later this year, we may revisit the guidance accordingly.With regard to our capital, our priority remains to pay down our debt and support our dividend. In February, we began discussions with our advisors to refinance our debt. We do not have issues with our leverage at current AUM levels, and we have ample liquidity on our balance sheet. We continue to work with our advisers to optimize the execution and timing.Now, I would like to turn the call back over to Jono.

[Jonathan Steinberg:]

Thanks, Amit and Jeremy. We can now open the call to questions.

[Operator:]

[Operator Instructions] Our first question comes from Craig Siegenthaler with Credit Suisse. Your line is now open.

[Craig Siegenthaler:]

Just given the sharp decline in interest rates in the quarter, how are repositioning your overall fixed income suite for the current backdrop including some of the cash alternative products like FLOT.

[Jonathan Steinberg:]

Thanks, Craig. Jeremy, would you take the first crack at that answer please.

[Jeremy Schwartz:]

Yes, great question, Craig. And we've been pre-sizing and our team a lot about our Head of Fixed Income Strategy, Kevin Flanagan talking about a barbell, where we combine our floating rate treasury product USFR with our enhanced yield core AGGY, which is yield enhance ag to let people who cargo their duration and that is really worked well for people both products have scaled meaningfully, and USFR, if you think about the comments I made about the return to inflation next year are having a sort of floating rate vehicle at the short end of the curve to be really, really helpful looking forward.There has also been this little bit additional premium yield on the treasury space even in government treasuries no credit risk that has made that a preferred vehicle over traditional T-Bills. So we've continued to see interest in that through flagship on treasuries, compared to the bonds that you mentioned with more credit risk, which has come under more pressure.So the treasury and USFR is a good answer, as well as our core yield enhance - core position that people can go for additional income given the historically low rates.

[Craig Siegenthaler:]

Got it, thanks. And actually I misquoted a tick or actually meant USFR in my question. Now I got confused with a competing product, but can you talk about the sustainability of demand you're seeing from your commodity products in Europe, which go along with a lot of the themes, Jeremy, you're talking about earlier. And I was especially looking for color around CRUD, which has a lot of info momentum.

[Jonathan Steinberg:]

So, Jeremy, why don't you start and then Jarrett Lilien, our President and COO, maybe Jarrett you'll add on to Jeremy's comment if you have anything to add.

[Jarrett Lilien:]

We outlined this idea that all this government spending, we think can lead to more inflation pressure as once the economy open. So oil is one of those perhaps more tactical specific items, we think the longer-term view for inflation coming back is a much bigger story next year. And so whether its broad based commodities, gold, the whole platform really we think has a lot of longer-term interest in demand if our view that inflation coming back is correct.I mean, so we think if you get broader behind oil, but for sure, the interest in oil was very clear, our market leadership position was very clear, we highlighted the 80% of AUM that is our market share, but inflows basically was over 100%, and so we think the leadership position we have in oils has been well cemented there.

[Craig Siegenthaler:]

Thank you.

[Jeremy Schwartz:]

Yes. And I guess just adding to that a little bit. It really it's about being well positioned in all of the forecast and all the views for the future as Jarrett has mentioned are there, but then our position in not only gold, but energy, industrial metals, those are leadership positions across the board with an overwhelming market share, and I believe year-to-date, we are the number one leader in bringing in new revenue to these products amongst all our competition.So we've got the product, and we've got the performance. The other thing I'd mention is, how good our team is. We've got this incredibly robust platform, very strong process, strong operations, strong structure, the most experienced team, and we are managing through unprecedented disruption, you've had the pandemic.And if we look at specifically oil, the pandemic reducing obviously demand and then OPEC deciding to have a price war at the same time and not really cutting supply by enough. We have a double whammy that's bringing unprecedented disruption in volatility to the market, and I think our team is doing an unbelievable job of just showing why we're the leader in the market.

[Jonathan Steinberg:]

And I'll just add. We have seen this unprecedented demand in oil and you referenced CRUD, which has been the asset gathering leader. We have a number of other funds against the same benchmarks but CRUD is the one that has taken in CRUD the most.We have though temporarily halted creations in an abundance of prudence really recognizing the unusual dynamic that's taking place in the energy at the moment, but we think that will be a very short-lived halt but net-net, the franchise has just been terrific. Thank you, Craig for your questions.

[Jeremy Schwartz:]

Yes, and just adding to that, I mean that just shows again the expertise that we've got in our team and overall and energy 27 Energy Focus' products taking in over $2.5 billion of flows year-to-date.

[Operator:]

Our next question comes from Dan Fannon with Jefferies. Your line is now open.

[James Steele:]

This is actually James filling in for Dan. Thanks for taking our question. So I appreciate the commentary on some of the tailwinds for the ETF structure, but there were of course some negative headlines on the vehicle kind of throughout the first quarter. So I was just curious as to how WisdomTree's product held up mid kind of market liquidity concerns. And then how that fits in your view as going forward?

[Jonathan Steinberg:]

I think the negative headlines really only revolved around fixed income, but Jarrett, why don't you add - what have you answered the question, as you see fit.

[Jarrett Lilien:]

Yes, I mean to me that is one of the sort of frustrating things. People can persist and talk about the negatives of the structure, but where are they, actually it's been the opposite. Even in the fixed income market, which is where people really had traditionally pointed to, I think there is even article in the Financial Times this morning about how the structure has proven itself.So through this incredibly disruptive time not only has the structure held up, but it's been a price discovery vehicle, it's been a liquidity vehicle. So I'd say the opposite. I'd say those are people holding on to losing argument and it's a really similar thing on the active management side, again and again active management underperforms and every time there's disruption people say, okay, well maybe now active management will perform. Well it never has in these situations and it's not now.So again the structure and one of the things that we look at with disruptions like this is how it accelerates trends in the market and we see the trend of mutual fund to ETFs being accelerated right now, happened at the end of 2018, happened in the financial crisis in 2008 when there are disruptions in the marketplace ETFs take sizable market share and we look for that to happen again here.So the structure, direct answer to your question is holding up extremely well and more than that, I think it should be really getting rid of all of the critics at this point.

[Jeremy Schwartz:]

This is Jeremy. To add one performance point on the - I think most of the comments come on has been the high yield bond market and the people talk about the lack of liquidity. This is where we must use active managers to get access to these high-yield bonds and risk of defaulting. And that's sort of narrative. We launched two these modern alpha our own proprietary index strategies that screen for quality and fundamentals the ability to pay back the bonds.And I mentioned 60% of our AUM were in 4-star and 5-star funds are two fundamental based high yield funds are both 4-stars and 5-stars with really strong performance and so, being at the top of their high yield category. So I'd say that was, we look forward to the future asset gathering opportunity given the strong performance track records, those two high yield funds are generating.

[Operator:]

Our next question comes from Brennan Hawken with UBS. Your line is now open.

[Brennan Hawken:]

Just curious I saw there was some debt paydown here this quarter. Could you maybe talk about how you're thinking about your plans for capital whether or not paying down some debt is going to be a priority here or whether or not you're thinking about buybacks. How do you balance that given the attractive valuation to stock versus the need for some conservatism given the level of uncertainty in the marketplace? Thank you.

[Jonathan Steinberg:]

Amit, why don't you take that question please first.

[Amit Muni:]

As I mentioned in our remarks, our priorities of capital remains to continue to paydown our debt and continue to support the dividend. As far as buyback as I mentioned last quarter, because of some of the covenants that we have on our term loan, we're unable to buyback stock right now. We are in the process of refinancing our debt. We had to put that on hold, given what was going on in the market, but we're going to start that process back up again as soon as it's practical and market sort of stabilized that we can get good terms and good pricing.But we feel comfortable when we're thinking about putting that capital paydown the debt and supporting the dividend and those are the two priorities of our capital right now.

[Brennan Hawken:]

Great, thanks. And Amit, apologies if you referenced this, but is there a way to think about where you guys would like to land as far as the ultimate leverage levels and how you calibrate for that?

[Amit Muni:]

Sure, I mean a lot of it will depend upon our earnings power and the outlook that we see on our AUM. Our leverage today we feel, very comfortable with, the levers that we took on when we first took on the term loan, we felt very comfortable with. So a lot of it will just depend on market outlook. But you can be sure we're not going to take on a term loan that has a leverage covenant that we feel uncomfortable with.

[Operator:]

Our next question comes from Robert Lee with KBW. Your line is now open.

[Jeff Drezner:]

This is Jeff Drezner on for Rob Lee. Thanks for taking my question. And I hope everybody staying safe and healthy. Just a quick question on expense guidance, I was just curious the updated guidance includes the market rebound in April or is that as of quarter end? Thank you.

[Jonathan Steinberg:]

Amit, why don't you take the question please.

[Amit Muni:]

Yes, so that as of, if that includes any rebound that we did see in April. So this is our most updated guidance.

[Jeff Drezner:]

Got it, okay. And then just a follow-up on that, in terms of flexibility around that if the market continues to rebound or if we see another downturn, how are you thinking about that?

[Jonathan Steinberg:]

Sure. So there is obviously flexibility that we have in our expenses. We do have variable expenses that are tied to AUM predominantly our compensation and fund-related costs. So if we do see some sort of continued downturn, some of our expenses will naturally come down. If we do - and conversely, if we do see an uptick, we might see an increase in some of those expenses as well. So it really will just depend upon what's going on in the market at the time.

[Operator:]

Our next question comes from Mike Carrier with Bank of America. Your line is now open.

[Shaun Calnan:]

This is actually Shaun Calnan on for Mike. Just going back to the movement from mutual funds into ETFs with the realization of capital gain, so we saw large sell off in mutual funds in 1Q and we're just wondering if you've already begun to see those flows into ETFs due to that or if that's something you would expect later in the year?

[Jonathan Steinberg:]

Jarrett, why don't you start it and then maybe I’ll follow on after you.

[Jarrett Lilien:]

Sure, yes big picture we're seeing it. We also big picture for a while, this is going to be a lousy period for mutual funds, I mean this is one of those situations where they could have negative performance, but also be distributing taxable gains, which is about the worst customer experience that you could have and really points out one of the flaws in that structure. So we're seeing it. We expect to see it continue.As per our flows immediately in March and April, we saw very tactical short-term type moves into a lot of categories where we're not represented or underrepresented and out of some categories where we are represented. So that was the short-term sort of impact, but we are already starting to see that normalize. As Jerry said we have 26, 4-star and 5-star funds over 60% of our AUM in those funds. We're extremely well positioned and now beginning to see that more normalized reaction and distribution and beginning to see those flows widen out and include us in the products.

[Jonathan Steinberg:]

And I'll just add. I would say that I would expect the attrition with the outflows in mutual funds to accelerate as you get closer to year end. So that you, if you're a talented advisor it’s your duty to get your customers out before they are hit with these capital gains, particularly when those funds are probably down. For WisdomTree, it's a huge opportunity around education for ETFs really helping with our solutions and quite frankly our outsourced CIO model business where we're seeing a lot of interest.And though as Jarrett said - March and April, it was all very, very tactical, we're starting to see people behave more strategically on a going forward basis, so very encouraged by the trend but more to come.

[Jarrett Lilien:]

And let me add one more thing, Jon - important to remember I mean February seems like five years ago, but at the end of February in the U.S. we had just finished six consecutive months of inflows including hedge in DXJ and that was the first time that that it happened in over five year - and a great streak going. March and April very disruptive for everybody, but that momentum has just been - has been interrupted and is now continuing.

[Operator:]

Our next question comes from Michael Cyprys with Morgan Stanley. Your line is now open.

[Michael Cyprys:]

I was just hoping you could dive into the model portfolio a little bit more. Albeit give us a little bit more color on what the flows were that you saw amongst your products. And two, or out of models in the quarter where the AUM stands today that you guys see sitting in models. And maybe you could talk about some of the initiatives that you guys have in place to get your products into various model portfolios in the coming months ahead?

[Jonathan Steinberg:]

Mike thank you for the question. Jarrett, why don't you start and then Jeremy I think you'll probably have stuff to add.

[Jarrett Lilien:]

Sure, well first of all, it's again another one of those trends that we see accelerating. We look at this disruption has accelerated mutual funds to ETFs. Reviews of asset allocation, which actually favor quality income-generating equities, which is one of our sweet spots, but another trend is also models and outsourced CIO.So, we're seeing an acceleration of that. From time-to-time, we will update on numbers, but we're not giving out specific numbers today. But what I can say on the models which to me is really encouraging is we had net inflows into models in the first quarter. So even in this time of disruption net inflows into models. Obviously, there was market move, but we are now back up to the new highs in our overall AUM in models, and why obviously this is exciting is this is sticky long-term money.As Jono mentioned in his prepared remarks, we have had a lot of great success in signing up some great partners such as LPL, Park Avenue, Cetera all excited by that, but the number of RFPs that we have in the pipeline right now has accelerated, and so we expect to be bringing on a number of new partners. So overall, again, it's back to the theme of being well positioned of having continued momentum and major macro trends accelerating in our favor.

[Jeremy Schwartz:]

Yes. And this is Jeremy. Just a few quick comments. This is going to be - this month is the 19th year I've been working with Professor Siegel and the 15th year full time for WisdomTree, and the model initiative that we've got with Professor Siegel, the weekly call series that we're doing with him, the channel emphasized on the engagement from advisors if some of the most exciting things since I've been here.And when I think about how we're trying to package our solutions with the model platform it's really some of our best execution of Professor Siegel leading thoughts, our leading thoughts, how do we get broader scale and adoption with advisors, not focusing on single pickers, going to a model oriented solution set is a really big trend for us, and we're excited about that future run rate adoption. I mean, we're obviously going to continue focusing on the single pickers. And we still have a lot of great solutions, but that model opportunity is really big and exciting.

[Jonathan Steinberg:]

Thanks, Jeremy.

[Michael Cyprys:]

And any other thoughts maybe that you would - can you hear me okay?

[Jonathan Steinberg:]

Yes we can.

[Michael Cyprys:]

Yes. Okay, great. Any additional thoughts you could share maybe on third party model so maybe not, I understand and hear you on your specific models. So what about the models and say other wire house, IBD, RIA type platforms and getting your single pickers into other people's models. Just any color you could share and thoughts around traction and initiatives there?

[Jonathan Steinberg:]

Part of the LPL was - some of our exposure being added to their models. So we are seeing that win I have expressed in the past, with sort of frustration, with sort of Modern Alpha war strategic data being used more broadly within sort of the wires and third party models. It seems like it's getting better, and I would say that our model business is like a Trojan Horse really penetrating in major ways getting Modern Alpha really to advisors in large quantity of pickers and significant percentages in those portfolios.So again, I think it's, and I've been - again going back to the theme that Jarrett was talking about, we are seeing an acceleration. The cost of the crisis and I think that it will prove to be an accelerant for adoption of Modern Alpha in third-party models as well as all model being adopted by advisers.

[Operator:]

Our next question comes from Keith Housum with Northcoast Research. Your line is now open.

[Keith Housum:]

Just a housekeeping here. In terms of - you guys have been closing a few funds here. Is there a rule of thumb in terms of how much you guys are saving from close in each fund?

[Jonathan Steinberg:]

Amit, would you take that question please?

[Amit Muni:]

Sure. Hey Keith, it’s Amit. Both approximately a rule of thumb is about $150,000. It costs us - that's the minimum fees to launch of fund, so that's a good rule of thumb to keep in mind.

[Keith Housum:]

Got you. And then in terms of the - regarding some discretionary costs that you're talking to, as - I was looking out for the revised guidance here. I'm trying to reconcile that with your efforts to grow the assets under management. And I understand that it calls Professor Siegel seems to be a relatively new engagement. But is there other things you're doing to I guess maximize your dollars, as you guys try to drive AUM?

[Jonathan Steinberg:]

Sure. Jarrett, would you like to start on that?

[Jarrett Lilien:]

Yes, that's one of the exciting things about the moment that we're in. We are in an environment where a lot of things are turned upside down where we are remote. Our customers are remote and being in touch and having them be engaged is more important than ever.And so far, I think we're punching way above our weight and succeeding there. And Jono mentioned again in prepared remarks that we'd had quality interactions with 48,000 global customers. On average, that was five interactions with each of those customers. So about 240,000 interactions, and that was things, yes, like the Siegel calls or calls with others thought leaders, but video calls, webinars we do something that we just instituted, which are smaller interactions on very specific subjects with members of our research team do a number of those a day.So again on a Siegel call, you'll have something between you'll have 800 to 1,000 listeners on one of those calls. We have this other program research hours, where you might have 20 to 40 people on one of those calls. So more personal and more focus.We've been increasing the number of blogs that we put out. We've made our web tools more accessible. Jono mentioned the market volatility center and we're exploring a whole bunch of other things. I think honestly this is an area where we're going to out compete, and right now, I think we are punching above our weight, but it's sort of all hands on deck, how can we creatively our clients in a value-added way, and right now it's working in spades and I think client engagement leads directly to flows. So this is a top initiative for us today and going forward.

[Keith Housum:]

Great. I appreciate it.

[Jonathan Steinberg:]

And I'll just add that some of the savings obviously travel and T&E that's just taken out of our hands that savings just happened. Pulling back on television, I think is not costing us anything in this environment. I'm not sure that that's a constructive medium in light of all of the news around the virus and the shutdown of the country. So net-net, this was easy decisions to make, and, but we're not expecting it in any way to reduce our ability to grow period.

[Jarrett Lilien:]

And I kind of say the opposite. I mean I'm personally proud of our team's discipline. We're making good decisions. But sometimes they're hard closing of fund is never an easy decision. But if it sub-scale, we can spend that money better somewhere else. We'd like to be on TV. It's been another area where we innovated the whole ticker ad was really something we innovate and that we can spend that money better in these virtual engagements, and they're paying dividends, so it’s disciplined, you saw our margins actually go up, but we are spending the money better and I think getting better results for it.

[Operator:]

We have a follow-up question from Michael Cyprys with Morgan Stanley. Your line is now open.

[Michael Cyprys:]

I just wanted to circle back to some of the points around volatility in the marketplace, and maybe specifically on some of commodity ETFs and oil ETFs specifically. I think Jono you had mentioned you had halt some of the creation redemptions. I hope you could give us a little bit of an update there on how you are thinking about the product vehicle there, and how - if in any way that's altered you views around leveraged ETF products, and ETFs that invest in the future contracts?

[Jonathan Steinberg:]

It’s a great question. Jarrett, do you want to start?

[Jarrett Lilien:]

Again, I think this gets back to illustrating the strength of the platform, our process, our operations and our structure, again unprecedented times of disruption. To your question we've had some of the highly leveraged products actually terminate. We've had three of those oil products all two that were 3x long and one that was a 3x short.But that's actually how they were made to work. If the market moves 33% against you and you've got 3x leverage the fund is over. And so that is operating as it was drawn up and we will look at the appropriate time to re-launch some of those products. We've also suspended creations in now three products. And as Jono said, we expect those suspensions to be somewhat short-lived, but that's just about prudence in managing through a volatile market.You want to do what good for your customer, but what’s also good for your partners in the market. And so I think the platform is operating extremely well and the lessons that we're learning - there are obviously things that we will learn and we can enhance the platform going forward. But when I look at one of the things we're learning is just how good our platform, how good our structure and how good our team is.

[Jonathan Steinberg:]

And let me add so, Jeremy, go ahead Jeremy, and I'll end. Go ahead.

[Jeremy Schwartz:]

I think there's one also interesting point on oil in particular that also highlights the strength of the platform beyond that where the disruption was the heaviest. So the negative oil prices was very specific to West Texas Intermediate which is called WTI oil that goes through Cushing, Oklahoma, like one spot for delivery. And the issue was all these storage tanks were full and yet the paid fee was the oil.There is also Brent oil, which we have a very robust platform around it never went negative considerably higher prices, given the much more flexible delivery of Brent oil. And we actually have a meaningful amount of AUM, 30% of the $2.2 billion over $650 million of our assets are in Brent oil and if Brent becomes a longer-term winner from just the disruption in WTI, we have a robust platform for people to participate in that Brent oil contract as well.

[Jonathan Steinberg:]

And let me just conclude, we're very committed to the long-short business, particularly in - for certain investors that are tactical this kind of market volatility is created significant opportunity to make a lot of money. So, we are committed to it. In terms of futures as opposed to physically backed product will you own gold or own bonds or equities, certain exposures can only be accessed through futures or swaps.We do that when it is necessary and we choose, we have world-class partners, but that does add a level of stress, when you see this macro decline around the world. There is stress to the system I don't want anyone on the phone to think that we're not working hard to manage through this kind of stress. I think we're doing a good job at it, but the future is for oil is the only way to access it. So again we are completely committed to it going forward.

[Operator:]

Our next question comes from Ryan Bailey with Goldman Sachs. Your line is now open.

[Ryan Bailey:]

Perhaps just one question Jono, we tend to agree with you on the passive opportunity to share on the other side of volatility from mutual funds. I was just wondering what your views are on retail or advisors sensitivity to pricing once we get that potential search back in ETF flows?

[Jonathan Steinberg:]

We're very comfortable with our pricing. Again we - if we do beta, we want to be first to market with beta because it is, we're really how you get best economics. The beta can be difficult to defend other than pricing, other than establishing on screen liquidity and ticker awareness. So we have done a very good job of doing that and I think we have tremendous economics relative to others as an example, on let's say gold in Europe.In terms of the rest of our business, which is proprietary Modern Alpha trying to beat the market. The most important number is after fee returns. We feel very strongly positioned and very comfortable with where we have positioned it. Also when you think about decompression, it has mostly been or where it is most dramatic is in beta. Now prior to this sell-off from the crisis, it's been almost a straight up markets.So beta regardless of pricing has been a very smart asset allocation decision. As the markets have turned over beta has led the market's down. Again, it gives you a great opportunity to sell differentiated value add strategies. I feel very good particularly because Alpha is mostly away from WisdomTree.In the mutual fund structure, we feel incredibly well positioned to help transition advisors who are trying to avoid capital gains at the end of the year to transition their book of business into WisdomTree Modern Alpha strategies. So again, we feel good about the pricing, if that was the question. I hope I answered it.

[Operator:]

And that will conclude today's question-and-answer session. I'd like to turn the call back to Mr. Steinberg for closing remarks.

[Jonathan Steinberg:]

I just want to thank all of you, I want to wish you all. I hope you are healthy and safe again, and managing through the crisis with this little disruption as possible. Thank you for your interest in WisdomTree and we'll speak to you again next quarter. Bye everybody.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.