WisdomTree, Inc.
Q1 2017 Earnings Call Transcript

Published: 28 Apr 2017

[Operator:]

Good day, ladies and gentlemen and welcome to the WisdomTree First Quarter Earnings Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would like to introduce your host for today conference WisdomTree. You may begin.

[Jason Weyeneth:]

Good morning. Before we begin, I would like to reference our legal disclaimer available on 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 and in the risk factors section of WisdomTree annual report on Form 10-K for the year December 31, 2016. WisdomTree assumes no duty and this not undertake to update any forward-looking statements. Now, it’s my pleasure to turn the call over to WisdomTree’s CFO, Amit Muni.

[Amit Muni:]

Thank you, Jason and good morning, everyone. Since most of our operating data is already known I’ll quickly go through the important items for the quarter. I’ll then turn the call all over to Jona to discuss how we see technology changing various parts of the asset management industry with several trends accelerating the adoption of ETFs and how we plan to deepen relationships with our clients helping grow their business with the end goal of accelerating and diversifying our asset growth. Beginning on slide three, this quarter we reported solid financial results despite the flow challenges. Our AUM grew to $41.9 billion at the end of the first quarter, primarily due to positive market movement. As the middle charts reflect, continued negative flow momentum to Europe offset positive flows in our other product categories. But as you can see in the chart on the right, the outflows are starting to slow. Turning to the next slide, we can dig a little dipper into our flows. Following the strong performance track record our midcap dividend fund DON continues to gather asset posting its best flow quarter ever with just under $300 million, which represented nearly 20% of the flows in the industry’s midcap value category. Our quality dividend growth fund DGRW also continues to have solid momentum with $138 million of inflows. Despite flattening of the yield curve our high yield zero ETFs HYZD gained strong market share in the category we believe has excellent growth outlook. And lastly in fact our recently launched liquid alts funds are slowly gaining traction as evidenced WisdomTree remains at the forefront of ETF product innovation. Despite the record level of industry inflows this quarter, based on our conversation to clients, we believe that it doesn’t appear to be much conviction to the money that has been recently allocated. The post-election rally has been very fast and many advisors were caught off guard and not well positioned. Much of the money that flows into the market was playing catch up and the easy allocation in that scenario is low fee beta. Of the time as markets normalize and conviction strengthen, we expect broader demand for alpha generating strategies to reemerge. Now turning to the financials on slide five. Net income was $6.9 million for the quarter, or $0.05 per share. This quarter we took a non-cash tax charge of $1 million as a result of adopting new accounting rules around stock-based compensation, which I discussed on our last call. We also had a onetime reimbursement for approximately 8,000 for prior period fund related costs. Turning to the next slide. Expenses were down slightly from the fourth quarter, after adjusting for the goodwill impairment charge. Declines in marketing and sales related spending is more timing driven and we expect them to increase in the second quarter in line with our previous guidance. Compensation as a percent of revenues for our U.S. business was approximately 29% for the quarter. Guidance for the full year is between 28% to 31%. Given our results so far this quarter, we would be at the low end of the range, however the number is slightly higher due to seasonal payroll taxes this quarter. Turning to slide seven, you can see margins has improved. Gross margins increased to 82% due to higher average AUM, lower transactional fees, as well as the onetime reimbursement. We expect gross margins to be in the 81% to 82% range, so up slightly from our previous guidance. Pre-tax margins improved to 27% on a consolidated basis and 34% for our U.S. business due to higher revenues. Turning to slide eight, we can review the highlights of our non-U.S. business. We experienced solid growth this quarter with AUM up 30% to $1.4 billion. The majority of the flows were balanced between our UCITS and Boost product sets, which had record inflows this quarter. Our distribution arrangements in Latin America and Israel both contributed to flows in our UCITS funds. We are also continuing to build out our team in Canada. As a reminder, we are targeting breakeven for our European business to be between $4 billion to $5 billion of AUM and $1 billion to $2 billion of AUM for Canada. Turning to the next slide, we can review our operating results so far this quarter. As of yesterday, our AUM was up slightly to $42.7 billion with outflows in DXJ offsetting flows in our other product categories. Thank you and now let me turn the call over to Jona.

[Jonathan Steinberg:]

Thank you, Amit. Good morning, everyone. The revolution maybe even revolution of the asset management and wealth management industries is accelerating. Several trends and market forces are converging. This shift to fee based accounts has been accelerated by likely regulatory changes. Advisor utilization of asset allocation models is rapidly expanding, is now viewed as a best practice for end clients and a more scalable business model for advisors. More broadly technology is changing the industry up and down the value chain. Historical business models and value propositions are collapsing. At WisdomTree we see all of the above. As huge positives, we love this trends. First of all these trends are accelerating ETF adoption across all liquid asset classes, because of the inherent superiority of the structure. As we look to the next 10 years we believe the acceleration of the ETFs will continue. The industry is on pace to exceed the best year ever for mutual funds, which was $393 billion in 2009. Based on the recent pace, ETF flows in 2017 should exceed $500 billion, which would be almost double last year’s performance, which was our best year ever. And if the new administration is successful with tax reform and other pro-growth policies flows in 2018 should be even stronger. If the policies fall into place I think we should start to expect our first $1 trillion flow year all within the next few years. This is the opportunity WisdomTree has invested against for years. Over the first 10 years, WisdomTree had products in the marketplace, the focus was on building the team, cementing the firm as a leader in product innovation and planting flags in the world's largest ETF markets. Our distribution focus on research in ETF education helped the firm garner our 2% of the nearly $2 trillion in U.S. listed ETF flows. At the same time, we’ve proved the power of our self-indexing and outsource business model. One of the keys to achieving greater market share over the next decade will be to deepen our wallet share with financial advisors. We believe technology enabled services will be a key differentiator for us. By building upon our low cost alpha generating ETFs, with portfolio construction services, asset allocation services with enhanced practice management resources and a leading technology solution in AdvisorEngine. We expect the combination of the above to grow our market share with advisors. This will translate into accelerated ETF asset growth for WisdomTree. AdvisorEngine will be an important component of our efforts to grow ETF market share and five months into the relationship we are increasing confident in the investments we have made, and the platform being built. The feedback we have been getting from those who demoed the product is that it is the best technology solution they have seen to address the end-consumer, the financial advisor in the home offers the three constituents that matter. The AdvisorEngine platform help advisors digitize and grow their business by marrying leading technology with value added services. Just yesterday, AdvisorEngine announced the acquisition of Credible, a company focused on helping advisors better position their business for growth by ensuring they have a strong online presence. We are specializing in advisor enabling technology, also as previously discussed, WisdomTree will be the core provider of asset allocation services through our model portfolios, although the platform is open architecture. While it is still very early days we expect AdvisorEngine to emerge as an important distribution channel for a broad range of WisdomTree ETFs. We believe WisdomTree is amongst the most lever to the industry changes with our product set, business model and strategy lining up incredibly well with the secular shifts taking place. But it is important to recognize and we have not lost site of the fact that our recent results have been challenged and it is our duty to create shareholder value. That said, we have built great foundation through our investments over the past decade in people, products and geographies and we have convection in the technology investments we are making. We can clearly see the path toward accelerated growth ahead. Thank you for your interest in WisdomTree and we'd be happy to take your questions now.

[Operator:]

Thank you. [Operator Instructions] And our first question comes from Craig Siegenthaler from Credit Suisse. Your line is open.

[Craig Siegenthaler:]

Thanks, good morning. So a much smaller competitive year in Europe which just sold for a nice multiple revenues despite not really having a margin near zero not really having the earnings power. So, this transaction seems to indicate that there is a wide discount between your current public market valuation and what a buyer would pay. So how do you remain public and addresses at the same time. And do you see any key differences between your business and the ETF manager that just required that would want large valuation discount?

[Jonathan Steinberg:]

I'll take this one thanks Craig. So yes we see lots of differences I think it's important to remember how source was created. 6 large investment banks came together to launch source and it was a very disjointed strategy from the very, very beginning that's one point. The second is Invesco, which I think made a very smart acquisition for themselves was buying from a distressed seller. Warberg on their own didn't have the scale and could not figure out strategy to get to profitability. When we look at the products, we were very uncomfortable with their product strategy and WisdomTree’s product strategies is much more narrow than Invesco’s. But from our standpoint we were very uncomfortable with sources IP strategy, very uncomfortable with their pricing strategy and the way they structured their ETFs with much of them being synthetic. So -- and I think there really are some great distinctions between us some other obvious distinctions one we are a predominantly U.S. focused platform versus their European platform. We do have scale and profitability and very strong margins they haven’t and also there’s now greater scarcity value. So I think net-net of it all I think it bodes very well for WisdomTree and there are I would think great distinctions between us and them.

[Craig Siegenthaler:]

And then since the U.S. election we initially saw a big increase in interest rates, I think some of us hopeful this would be good for your rising rate suite didn’t really take in sizable inflows why do you think that was do you think the track record wasn’t long enough, do you think the interest rates didn’t go high enough? Like why do you think the suite really didn’t garner significant amount of flows there?

[Jonathan Steinberg:]

Let me start here from a tactical trading standpoint the markets didn’t disjoint. So you had great expectations rate increases and then healthcare failed and rate expectations softened. So we saw a real break in some of the momentum that we were seeing in the interest rate hinge products. So I think from that standpoint we’re looking for a little bit more consistency in some of the tactical themes that we hoped will emerge.

[Craig Siegenthaler:]

Thanks for taking my questions.

[Jonathan Steinberg:]

Thank you.

[Operator:]

And our next question comes from Michael Cyprys from Morgan Stanley. Your line is open.

[Michael Cyprys:]

Hi, good morning. Thanks for taking the question. So Jona you talked about shifts up and down the value chain and seems that you’re evolving the firm here to provide a bit more service the facet allocation and focusing a bit more on the customer in that sense. So I guess just taking a step back and kind of thinking about all the changes happening over the next say five or ten years where do you think within the value chain will be most sustainable to extract the rent? Because you talked about the opportunity to kind of grow your ETF assets as well and that seems to be the case and that you could get more management fees certainly from those higher ETFs AUM levels. But where do you think it’s ultimately going to be more sustainable just given there is overall fee rates on fee pressure on the manufacturing side?

[Kurt MacAlpine:]

Hey it’s Kurt MacAlpine, Head of Global Distribution. So if you think about the value change today and where we think it’s going to evolve, I would say that the manufacturing piece of the overall value chain is the most attractive piece in the value chain today. And as you’ve mentioned we are pursuing initiatives to collaborate with firms into our partnership with AdvisorEngine participate in other areas of the value chain as well. Similar to how there is fee pressure around commoditized data and active strategies that don’t have performance we’re seeing fee pressure on the wealth management industry as well through the implementation of global advisors and disruptive model there as well. So I think the theme around fee consciousness across the value chain will be present, I personally believe that there will be less fee pressure on the manufacturing side than the distribution side going forward.

[Jonathan Steinberg:]

And just an observation of sort of what I’ve seen, what I’ve sort of learnt over the last 10 years, and one of the things I'm most proud of is we launched product with a real eye towards -- we had real a product strategy 10 years ago and you look at the results that we’ve created our after fee returns really create value. And the way we’ve structured the business as Kurt mentioned we do have much of the best economics within the total value chain. But when you look at some of the changes taking place we approach it primarily from the standpoint of the asset manager. But if you look at it from the standpoint of the distributor investments alone are not enough for them to extract their value proposition. So what I used to call sort of the golden age of advice is more broadly if I'm being really clear it’s a golden age of investing experience and a lot of that is built around the technology. And we see a clear wall for WisdomTree to partner with the financial institutions to be one of their go to partners on that journey toward this golden age of investment experience where -- yes investment experience. And we have an eye towards doing this is not as a charity, we do this really as an eye towards getting our models on to more platforms and taking a greater market share with advisors. And I think because of the results of the first 10 years from an individual product performance, we really do have an opportunity to take a significant increase in the next 10 years with some advisors in the equal system that we are building around WisdomTree and our technology that we’ll see with certainly advisors much larger market share of WisdomTree funds in their portfolios. So, the combination I think of all of the regulatory change, the change in product and the need for technology to fulfill your obligation as an advisor is all coming together and we see ourselves being into play a very central world in all of that.

[Michael Cyprys:]

Great, thanks for the color. I think just to ask a follow-up question just on the retirement channel if you could maybe be talk to how you see the opportunity set their the retirement channel, particularly for 1-K [ph] and some of the initiatives that you are contemplating and rolling out.

[Kurt MacAlpine:]

Absolutely, it’s Kurt here again. So, just as a reminder, our historical institutional efforts have been focused on identifying institutional buyers of ETFs, traditional institutional buyers and retirement platforms, which had only enabled us to compete for a small percentage of the overall assets that exist in the institutional marketplace which are dominated by collective trust and retirement and separate accounts as well. So over the past several months we had pursued effort to put our intellectual property in the structure that's more friendly for the institutional marketplace for their strategic allocations. And as of the first quarter, we had a collective trust platform that's now built and the strategies are capable for funding. In regards to the sales process around the collective trust, as you know it’s a very different process from selling ETFs. The team is made great progress in uploading our strategy information to all the relevant databases, and interacting with and having our strategies reviewed by asset consultants and have been interacting directly with plant sponsors and platform. So, the institutional sales cycle itself is longer than the sales cycle in retail, but I believe through the foundation that we built around the collective trust platform, the institutional team we have in place and the process the following that we are very well positioned to compete given our differentiated products and approach.

[Michael Cyprys:]

Great, thanks for taking my questions.

[Operator:]

And our next question comes from Bill Katz from Citi. Your line is open.

[Ryan Bailey:]

Good morning. This is actually Ryan bailey filling in for Bill this morning. Just had a quick question on the outlook for product launches this year and whether you will be targeting any specific geographies?

[Amit Muni:]

Ryan it’s Amit. So, we said at the beginning of the year there will be a handful of products that we’ll launch and somewhere from three to four products here in U.S. I think we are on pace for that this year. As we look overseas in Canada obviously since we recently launched the business over there last year we’ll look to continue to build out the product set there. You will see more probably on the Boost side in Europe. But I will just overall it’s overseas, it’s more of a controlled build out, you won’t see broad blanketing of various categories. So, that will give you just a sense of overall product launches.

[Ryan Bailey:]

Got it. And then if you could just give us maybe bit of an update on distribution in Japan and Canada maybe a little bit more detail that would be great.

[Kurt MacAlpine:]

Sure. So, it’s Kurt here again. So distribution I’ll start with Canada. So we launched the business at the end of July last year which was bringing the initial suite products to the market place. We’ve been spending the last several months building out our distribution and research and capital market teams focused on the Canadian market. So we have a team emplace now with dedicated coverage in all the major cities in Canada. We also after allocation expertise and capital market expertise laying in on the Canadian market for us as well. So, it’s still very early days for us in the market, but we have products in the market that are well placed for growth and we have a team in place to go after that market. Japan secondly, so, as you know we launched the Japan effort about a year and half ago primarily focused the institutional marketplace in Japan that team has been in place now for a year. We've been actively selling with the license in the market for about a year as well. And we're starting to see -- we're having great client conversations across the board in the institutional market. We're starting to see some traction of our strategies from buyers in Japan. And you might have noticed earlier this quarter, we pioneered or brought commission free trading to Japan via collaboration with Monex which is the one of the leading online platforms in Japan. So this is an opportunity for us to collaborate with the leading firm where their end clients can deliver -- can purchase our products in commission free format and it gives us a great form to share our research and education and things like that. So that's very early stages as well, but the initial results that we've seen in the first few weeks have been very strong.

[Ryan Bailey:]

Great, thank you very much.

[Operator:]

And our next question comes from Chris Shutler from William Blair. Your line is open.

[Christopher Shutler:]

Hey guys good morning. Can you maybe give us the latest AUM breakdown by channel? And within institutional, how have those assets growing over the last year?

[Amit Muni:]

Chris it's Amit. So it hasn't changed that much overall -- let's take it offline where I can give you a further breakdown, but it really hasn't changed overall from what you’ve seen historically.

[Christopher Shutler:]

Okay, got you. And then Amit on the gross margin I know that came up just a little bit the guidance. What drove that?

[Amit Muni:]

Two things, so obviously our higher average AUM and it helps with the increase in the gross margins, which is why we pick up the guidance. But second as you know we closed seven funds at the end of March. So the cost savings of that rolls in and that’s another reason for the slight increase in the guidance.

[Christopher Shutler:]

Okay, makes sense. And then lastly, I guess just sitting back looking at the $200 million of inflows in U.S. equity ETFs, $55 million for the industry definitely agree the assessment on kind of advisors planned catch up in allocating the sheet beta. But do you guys feel any need to take a closer look at pricing particularly on some of the larger cap U.S. equity funds?

[Jonathan Steinberg:]

So really we don't think pricing need was a stumbling block in our flows. Really the after peak performance of our funds is very, very strong, and so I don't think so. And within respect to large cap, there is I mean there is really nobody want -- we are not willing compete on price in the large cap category, which is where you’re close to zero pricing that's certainly not the strategy that we're going to see. So we're comfortable playing in different spaces, but pricing definitely doesn't feel like it's an issue for us at the moment.

[Christopher Shutler:]

Okay, thank you.

[Operator:]

And our next question comes from Macrae Sykes from Gabelli. Your line is open.

[Macrae Sykes:]

Good morning, gentlemen. Not to get back on pricing, but maybe going forward can you talk a little bit about the selection for model portfolios. And how important will ETF price indeed for the advisor so you think in terms of selection? Do you think that there will ultimately be an upper threshold for management these to be included in these portfolios?

[Luciano Siracusano:]

Max this is Luciano Siracusano I am the Chief Investment Strategist and I am head of WisdomTree’s asset allocation team and model portfolio effort. It's interesting because in the model portfolio world, you can get management fees all in on a globally diversified portfolio. You can get down to as low as about 10 basis points. And that would include WisdomTree ETFs inside of it. So I would say we'll have offerings out there that will range in pricing all in from probably 10 basis points all the way up to 30 or 35. But at the end of day people will evaluate the performance of those portfolios principally on their returns overtime after fees. They'll also evaluate them on the risk adjusted return. And then finally on their how much tracking are they taking on relative to the benchmarks. Wisdom Tree compares very well on all three of those metrics. And so I think we're going to have a lots of offer clients going forward particularly clients were interested in how do you marry smart beta with data in portfolios. WisdomTree is uniquely positioned in the industry to be the leader in both the alpha. Lean effect could create core smart beta portfolios for advisors that they can use all around the world. And we can do it with funds that have a 10 year track record and a history of generating alpha above and beyond beta even though their price is higher fee points. So this is a huge opportunity for WisdomTree going forward we’re going to make the most of it with the people, the investments we’ve made in technology and I actually think it positions us really to open up a whole new distribution channel for the fund.

[Jonathan Steinberg:]

And just -- this is Jona. This effort and what Luciano said it’s one of the reasons why we continue to reaffirm our market share goals and sort of initial feedback as we’ve been commercializing these models has really been very positive. So we’re feeling very optimistic.

[Macrae Sykes:]

Great. Just one quick follow-up are there any industry numbers in terms of AUM just adoption of model portfolios at this point and where you might think that number might get to. Is there anything to point to at this point?

[Jonathan Steinberg:]

We don’t think there is a number for it, but there is a lot of market forces that are driving towards models growth we don’t know what the number is today or we don’t have a benchmark number for instance from some third party. But it definitely we can lead to a better investing experience for the end-client, there’s definitely good economics for the advisor and making for a better scale business models for the advisor. It definitely plays to the strength and goals of the home office that want to put some controls over the individual advisor. So in every way the market is pushing in that direction. So we definitely feel that on merit though model portfolio growth will grow very dramatically.

[Amit Muni:]

And just one other point to add to Jona, if you think about so we certainly agree with your comment that that model usage is large and will continue to increase as Luciano had mentioned to you we have our own models that we’re delivering from a distribution perspective, through the AdvisorEngine platform, but also through third party platforms. And we do have distribution infrastructure in place where our teams competing for allocations and other firms models as well. So if you think about the different ways that models are applied, we have efforts lined up against each of them.

[Macrae Sykes:]

Thank you.

[Operator:]

And our next question comes from Keith Housum from NorthCoast Research. Your line is open.

[Keith Housum:]

Great guys thanks for taking my questions. Question for you on the AdvisorEngine platform, you’re seeing probably more contracts in terms of like the size of the company and how many customers has the pricing model. I guess it’s kind of tough to get our hands around what you currently have here versus what the potential is?

[Jonathan Steinberg:]

Yes absolutely it’s a great question I think the way to think about -- when people think about AdvisorEngine people often think about web [ph] advisor, which tends to be platforms that a lot of competing firms have built in the marketplace. In reality AdvisorEngine is actually a digital end-to-end wealth management solution that enables and empowers an advisor to digitize every step of their business from initial prospecting all the way through the billing. Secondly which is a key differentiator it was built for the advisor, so the experience for the end clients, the financial advisor and the intermediary is exactly the same, which is also very unique in the market place. So when people bucket AdvisorEngine into the robo [ph] term it absolutely has a robo advisor, but the platform itself is much more than that. In terms of the business itself so when we made the investments last November fast forward to today the total number of clients using the AdvisorEngine platform has increased by 50% to 42 clients overall. That is a mix of RIAs which is the primary client base today, but it also includes IBDs and RBDs and we have a very full pipeline of that we’re working to across all of those different channels.

[Keith Housum:]

Great, I appreciate. And maybe going back to the last question that was asked, but your efforts in terms of the technology enabled services is it all happening to the investment AdvisorEngine or is it happening separately within WisdomTree as well?

[Jonathan Steinberg:]

It’s happening throughout the firm. So in terms of the theme around technology at least as it relates to distribution, I have Amit touch on another parts of it. There’s really two ways we’re leveraging technology one is through our data and analytics efforts, if you think about how we’re using data and technology as the way to identify and prioritize, which client to focus on in ways to help us with insights and intelligence to better understand that in the service how we’re using those clients. So we have a large distribution effort around technology as it relates to data. We are using it in the AdvisorEngine platform as well as you had mentioned. But we’re also using it in practice management more broadly. So over the past several months we’ve been making really consorted efforts as you’ve heard from Jona and Amit to deepen relationships with our clients and partner with them in ways that helps them grow their business. So you might have noticed yesterday AdvisorEngine had made an acquisition of our firm called Credible. Credible is essentially a practical tool that’s backed by research that helps advisors improve their online presence. So it’s going to better position them to win new business and compete for new client assets. When you talk to your advisors one of the single biggest challenges they are facing in their business is reigniting growth. So, we made this technology investments to our AdvisorEngine that we’ll be using in our distribution efforts as well.

[Amit Muni:]

And then I guess the last piece, just add to that is we have been investing over the last couple of years in building our technology team and the last phase of technology investments has been able to really automate and digitize portfolio construction, asset allocation. So we could help advisors understand the risk profile and how to use WisdomTree in their book of business.

[Jonathan Steinberg:]

Let me just add one thing about the technology. So if you think about WisdomTree and those who have been early investors in the firm, we used to talk about how technology like the business was, because of the sub-advised business model and the structure of ETFs that actually owning the client data or even custom the asset of WisdomTree, it really was a technology light. And so the point I want to make is when we started to bring technology to bear and maybe three years ago, we are starting with the completely clean slate. And so we are like in asset management on the technology front, we are not dealing with any legacy issues. Again, it allows us to have a very clear and precise and efficient vision around technology and it -- I think it’s really going to help us distinguish ourselves in the very near future.

[Keith Housum:]

Got it. And if I can just squeeze one more in here. Kind of looking into press release yesterday you guys put more money into AdvisorEngine and I am assuming to help facilitate the acquisition of Credible. Is the anticipation is that you guys are continuing fund AdvisorEngine until it kind hit a breakeven at some point down the road or is there enough cash there to breakeven?

[Jonathan Steinberg:]

The company is well capitalized and it potentially could get to breakeven on the capital that they have raised. But we are strong and significant investor so we will be -- no matter what we will be constructive with AdvisorEngine.

[Keith Housum:]

Great, thank you.

[Operator:]

And our next question comes from Michael Carrier from Bank of America. Your line is open.

[Unidentified Analyst:]

Hey guys thanks. This is Jeff Ambrose [ph] filling in for Mike. Just given the current run rate of earnings, cash flow and the investments you are making to grow the business. Just trying to get a sense of how comfortable you are with the dividend payout?

[Amit Muni:]

So we are comfortable with the dividend levels that we have in place today. On a cash earnings basis we are covering our dividend. So as the earnings power improves we will be able to cover it more and more. But we are comfortable with the levels that we have.

[Jonathan Steinberg:]

And we are seeing again second quarter we’re running average assets are above last quarter’s and we are anxiously hoping for tax reform.

[Unidentified Analyst:]

Got it. Okay, thanks a lot.

[Operator:]

And our next question comes from Brennan Hawken from UBS. Your line is open.

[Brennan Hawken:]

Good morning, guys. Thanks for taking the question. Jon I just wanted to circle back to your comments before on the distributors. So it seems like we are seeing increased focused on fee rates for sure and you highlighted that but I am curious as philosophically I don’t quite understand why you think that the distributors are the ones that they are going to eat the fee rate pressure rather than have that be at least shared if not or do we pass it on to the manufacturer. And whether or not this manifest itself indirect fee rate cut or just rotation into cheaper options sort of forcing it happen competitively. Can you walk me through why that’s wrong and why as you think that it should sustain?

[Jonathan Steinberg:]

No that’s not wrong, that’s exactly right, but ETFs are generally running at much lower fee rates than the traditional structures right now and WisdomTree’s approach to -- is very much competitive and superior from a fee standpoint with active mutual funds. So the low fee alpha generating strategies really partner credibly well with the fee compression on the most beta targeted funds. But we as asset management as an industry is absolutely having to participate at lower fee rates than decades past. And I think that is absolutely right, and we built this business specifically with that information in mind, and I think we’re really comfortable with the value proposition that WisdomTree plays in this incredibly quickly changing asset management landscape. It’s very hard to live solely on only a Russell, S&P, MSCI index family which WisdomTree really plays an incredible differentiating experience for the advisor and the end client.

[Brennan Hawken:]

Okay. Got it. Thanks for clarifying that that makes a ton of sense. Then I guess my follow-up would be we’ve seen and one of the phenomenal sort of destructive creation components of the ETF business has been the idea that there are competitors who will launch products and continue to put downward pressure on fees. So, I think that’s what -- from my perspective makes me a little bit nervous about your guys fee rate which is a lot higher than a lot of other ETFs, given those competitive dynamics how is it that you’re sustain a premium price point given those pressures.

[Jonathan Steinberg:]

So first let me say that on a category-by-category standpoint we really are incredibly well incredibly competitive with the other ETF sponsors. What we have is an unusual asset mix so that we have much more in sort of the liquid all currency hedged international equity. So in more sort of exotic areas of the market would generate a higher fee rate. So, I think that’s what confuses a lot of investors that the 50 basis points is that we’re getting in fee capture is really based on where the assets have been raised. We’re -- in Japan we’re in line with the fee rates that others are charging, but we have an incredibly positive performance story within that market. And so anyway I fill we’re very comfortable with where it’s going.

[Brennan Hawken:]

Thanks for all that color Jon.

[Operator:]

And at this time I’m showing no further questions, so I would like to turn the call back to WisdomTree for any closing remarks.

[Jonathan Steinberg:]

Thank you all for your time and your interest. And we’ll speak to you in 90 days

[Operator:]

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program. You may now disconnect. Everyone have a great day.