WisdomTree, Inc.
Q1 2015 Earnings Call Transcript

Published: 1 May 2015

[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 now to like to introduce your host for today’s conference, Mr. Stuart Bell of Investor Relations. Sir, you may begin.

[Stuart Bell:]

Thank you. 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, which are generally identified by terms such as believe, expect, anticipate, and similar expressions suggesting future outcomes or events. Forward-looking statements reflect our current expectations regarding future events and operating performance and speak only as of the date when made. Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which may prove to be incorrect. Such statements should not be read as guarantees of future results and will not necessarily be accurate indications of whether or not, or the times at or by which, these results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in forward-looking statements, included but not limited to, the risks set forth in this presentation and in the Risk Factors section of the company’s Annual Report on Form 10-K for the year ended December 31, 2014. Now it’s my pleasure to turn the call over to WisdomTree’s CFO, Amit Muni.

[Amit Muni:]

Thank you, Stuart, and good morning everyone. I’d like to sum up the quarter in a few words, our record inflows, record revenues and record pretax earnings. WisdomTree is the sixth largest ETF sponsor in the world due to the strong results we demonstrated this quarter. We continue to execute on our strategic growth plans including expanding our distribution capabilities and launching innovative products to capitalize on market opportunities like our European small cap hedged equity ETF and Japan’s dividend, hedged dividend growth ETF and we continued to expand our product offerings in Europe. We focused our efforts on best positioning us for the long term growth of the EFT industry world-wide. Now let’s get into the results for the first quarter beginning by first reviewing the U.S. ETF industry statistics. Turning to Slide Three, industry flows were $56.7 billion in the first quarter which came off of a record fourth quarter of last year. On the right, we have the categories for the flows. I wanted to note one important flow dynamic, the hedged equity flows dominated. This is an important point that Jonathan will touch on in his closing remarks. On the next Slide, we can review our operating results. Our AUM increased 42% this quarter to 55.8 billion, led by record setting inflows of 13.5 billion as you see in the chart in the middle. As the chart on the right reflects our currency hedged equity suite led our flows with HEDJ and DXJ taking in the vast majority this quarter. We faced headwinds in the emerging market category where we had outflows across several asset classes. The next Slide focuses on the Europe and Japan. There are two important takeaways from Slide Five; fist, WisdomTree dominated flows in Europe and Japan. You can see in both charts we took in over 60% market share in the category. And this is important for the second takeaway. Europe, Japan in a developed world are huge asset allocation categories for investors. Having the leading products in these categories allows us to be in the best position to capitalize on this asset allocation opportunity. Our dominating position in these two markets were led by HEDJ and DXJ. One of the questions we get often is how are buying the ETFs, I’ll answer that on the next slide. The first bar on the graph reflects our overall assets by channel at the end of last year. The next two bars reflect the estimated flows by channel in these two ETFs. You can see the buyers of HEDJ and DXJ are similar to our overall product set with the exception of the international category which are non-U.S. investors buying these ETFs. This clearly demonstrates that HEDJ and DXJ are becoming globally accepted securities. Mutual funds makeup the majority of the institutional category. The next two slides reflect how we rank against the other asset managers. Turning to Slide Seven, on the left, WisdomTree was ranked third in inflows compared to the other U.S. ETF sponsors. This translated into nearly 24% market share for the quarter. What is even more impressive is the chart on the right. WisdomTree was also the third best asset gatherer compared to all ETF and mutual fund managers in the U.S. Another interesting fact when you look at chart on the right, the top three asset gatherers were those with strengths and ETFs are not fully focused on mutual funds. This fact is also where the talents on the next slide. As you see on Slide Eight, our organic growth rate significantly beat the other publically traded asset managers. The combination of the last chart and this chart further supports our view of the superior growth prospects that the ETF industry has over the traditional mutual funds. The chart on the right reflects organic growth rate compared to the top ten ETF sponsors in the U.S. and similarly we ranked number one. On Slide Nine, we show you how our ETFs outperformed according the Morningstar peer groups. Each comparison is taken into account fees and transaction cost and reflects how our equity fixed income and alternative ETFs performed against active and passive mutual funds and other ETFS. Since inception, 60% of our ETFs outperformed its peer group are 90% of the approximately 50 billion invested in our ETFs are funds that beat their peers. Now I’d like to update you on our European business on Slide 10. We have seen strong growth in our European AUM which increased to 335 million and stands at about 430 million to date. This increase was led by our Boost AUM leveraged products. We also expanded out Boost product set by launching seven new Boost ETPs in the quarter and cross listed four more in the UK. We also cross listed six WisdomTree UCITS in Germany and Switzerland to expand their client reach. In April, we acquired the ISEQ 20 ETF from [indiscernible]. This EFF is a basket of the top 20 companies listed on the Irish Exchange and the only ETF of its kinds in Europe. We paid nothing upfront but we’ll pay a revenue share, a small revenue share based on growth and assets. And lastly, we continue to build out our team with the addition of a head of sales. On Slide 12, we can start to go through our financials. On the back of record inflows in this quarter total revenues continues decline reaching 60 million, an increase of 40% from last year. Pretax income also reached a record 21 million, an increase of 28% from last year. As I’ll discuss a little later, our results this quarter were affected by timing differences between recording compensation type of inflows and recognizing the full impact of the revenue earned on those inflows. Earnings per share was $0.09 for the quarter, which included approximately $0.01 for a higher incentive compensation, due to our inflow levels in the quarter. Turning to Slide 13, you can see in the left chart there is a percent of our overall average AUM, the hedged equity category increased to 53% which generated nearly 60% increase in our revenues from this category as you see on the right. ETF revenues reached a record 59 million in this quarter and our average revenue capture remained at 52 basis points. Our average revenue capture today is 53 basis points. On the next Slide, we can review our key margin metrics. Gross margin for our U.S. listed ETF business increased to 83.2% due to the significant increase in our AUM. And the chart on the right, you can see in dark blue, our U.S. pretax operating margin was 38.3%. Now there are three important points I want to make about margins. First is on gross margins, because of the significant increase in our AUM, we are raising our guidance and anticipating gross margins will be between 84% to 86% in the near term assuming this current mix level that we have. Second point, we have a timing difference this quarter which compressed our margins. We improved higher incentive compensations due to our record inflows. However, we did not recognize the full impact of the revenues from these inflows. Let me give you some date points, our average AUM in the first quarter was 46 billion. Yesterday’s AUM and mix remained constant. Our average AUM in the second quarter would be 61 billion, that transit into to a 30% increase in revenues to approximately 80 million in the second quarter. So you can only a timing factor between recognizing the expense this quarter and the revenues the following quarter. The third point I want to make, we are targeting our U.S. business achieving a 50% pretax operating margin at 55 billion to 60 billion of average AUM. Based on current trends, we are on track to achieve this target in the second quarter. Next, the expenses on Slide 15; first quarter total expenses were 32.9 million. We recorded 5.3 million an additional compensation expense primarily due to our record inflow levels. We also incurred 1.4 million of additional fund related expenses due to higher AUM. Marketing and sales related spending increased by 0.5 million. Operating expenses for our European business declined by 229,000 due to cost associated with launching our WisdomTree branded UCITS in the first quarter. We also recorded 257,000 of expense related to our acquisition of Boost. This represents the expense accrual for the expected future payments due to the formal Boost shareholders was primarily driven by growth in AUM in Europe. We ended the quarter with 39 million in expenses. Compensation of the percent of revenue for our U.S. business was 31% for the quarter. Remember our guidance was 21% to 25% for the full year. This percentage is high this quarter because of our record inflows. We have a tapper performance model and we have probably recognized compensations while achieving record inflows. Based on our year-to-date results, we are still tracking our U.S. compensation to be between 21% to 25% of revenues for the full year. However, as we’ve seen over the last two quarters, timing and flow levels may impact that target in the short term. We will keep you updated as we have more visibility. On the next Slide, we can view our balance sheet and cash flows. Total assets grew to 218 million due to our strong cash flows. As you can on the right, we generated 16.9 million of cash from our operating activities due to our record inflow levels. We spent 14.1 million to buyback approximately 773,000 shares to offset stock we issued to in place as part of compensation. We returned 10.8 million to our shareholders through our quarterly dividend and ended the quarter with a 173 million of cash. And lastly as you can see on the bottom, the amount of pretax income we can shell there from the future cash tax payments increased to 142 million. A full analysis of our tax loss is included in the appendix. Before turning the call over to Jonathan, let me give you an update on where we are so far this quarter. The momentum has carried to the second quarter. Our AUM reached approximately 60 billion and we have taken a nearly 4 billion of inflows led by HEDJ and DXJ. You also note, we have started to see slight positive momentum in our emerging market equities, so that’s a good sign. Now let me turn the call over to Jonathan.

[Jonathan Lawrence Steinberg:]

Thanks Amit. Good morning, everybody. It’s been a terrific start to the year. The first four months have simply been the best we’d even experienced. I would now like to address the most common question we received this quarter, which revolves around the direction of the U.S. dollar and what we’re doing to manage potential concentration risk in our currency hedged equities. Let me be very clear. I do not believe that that is the appropriate question. The question we are asking ourselves is WisdomTree doing everything it can to maximize the opportunities in front of us right now. Since 2006, WisdomTree has been a leading innovator in the ETF industry. Over the course of WisdomTree’s evolution, different product categories have led out growth some of our earliest success within dividend and small cap portfolios that was followed by our emerging market product suite which at one point represented over 50% of our assets. By the end of 2013, DJX was by far a largest fund, today it is not and European equities have led our growth. Throughout at all however, we have consistently increased assets under management and tolerate our individual ETF successes to build a broad based multi-asset class ETF manager. We have been able to successfully pivot when appropriate in the past. Our laser focus on creating differentiated investment solutions, which address real needs in the market has served us the well. The common threat is a focus on investment innovation in the investor friendly ETF structure. Now with respect to currency hedging, I believe WisdomTree is changing the way investors think about foreign stock ownership. The dollar’s rise in 2015 has led many to suggest currency hedged ETFs represent tactical short term bets. Of course thanks to its dynamic structure ETFs can use as trading tools or for a long term holdings. This statement is true for even the most traditional of exposures like the S&P 500. We know that hedged equity has both tactical and long term applications. We see the growing expectance of currency hedge strategies represent a very large and longer term trend in way investors manage international equity exposure. Vital a strong dollar brings the case for currency hedging into focus, it illustrates a larger point. Unhedged foreign equity exposure is not currency neutral. Let me repeat that, unhedges foreign equity exposure is not currency neutral rather investors are inherently expressing a long robust view on foreign currencies when they buy foreign assets unhedges. Through currency hedging, you isolate the equity exposure you want without taking the additional risk from the FX market. So how big can this opportunity be? We believe that you the investor/advisor has a strong opinion on the direction of currency, the normal allocation could be at least a 50-50 split between hedged and unhedged positions for your international developed equity exposure. If that is a new baseline, the market opportunity is simply massive. As you can see on the bar chart on the right, as of today that would imply the market opportunity is currently roughly $160 billion. At the industry level, in the first quarter, hedged equity as a category led all categories in inflows with 24 billion hedging out fixed income which had inflows of 21 billion. WisdomTree’s current market share of hedged equity is 69%. And it is simply incredible today that HEDJ is the largest European ETF and it’s currently over 40% larger than the next largest European equity ETF which comes from the Vanguard. So what does WisdomTree need to do for future growth? The answer is simply, we need to stay focused on our business and our customers. We are already executing on our previously announced growth investments. We are adding people and we are launching new funds. We are investing to support our growth but we are not changing our business model. We are simply becoming bigger, stronger and more efficient in the process. And lastly, our execution as a firm remained excellent. With that let’s open up the call for questions.

[Operator:]

Thank you. [Operator Instruction] Our first question comes from Doug Sipkin of Susquehanna. Your line is open.

[Doug Sipkin:]

Yeah, thank you and good morning, gentlemen. How are you?

[Amit Muni:]

Good morning.

[Jonathan Lawrence Steinberg:]

Good morning, Doug.

[Doug Sipkin:]

So first question, just on the buyback, how should we be reading that, I mean is that more a function of looking to neutralize stock awards, you know more of a seasonal first quarter thing or is that something that you guys are adding to the mix of capital returns as the stock prices fluctuates?

[Amit Muni:]

Hey Doug, it’s Amit. So there two components to our buyback program. The fist is to eliminate the share could creep when we issued stock to employees and second is to be opportunistic. I would say our current focus right now is to eliminate the share count creep portion of that. That’s what we have done in the - so far in the first quarter. We’ll be opportunistic if the time comes, but I would say right now the focus is on the share count creep portion of it.

[Doug Sipkin:]

Great, that’s very helpful. Second question, so obviously good news on the margin, for the second quarter obviously with the AUM levels and your guidance, now is that - what type of comp is that incorporating. I mean is that assuming a reasonable comp ratio because you have, I think you indicated already 4 billion of flows in April?

[Jonathan Lawrence Steinberg:]

So based on the current - the current average AUM that we’re seeing, we should hit that 50% margin in the second quarter. We have a very significant comp as a percentage of revenue in the first quarter. But as I said earlier on, we are still targeting for the full year to be at 21% to 25%. And so it’s kind of what you saw last year, you should see sort of a natural decline in that ratio as we get to the full year now assuming that the flow levels - assuming the flow levels that we see on a year-to-date basis. As we have seen over the last several quarter, the level of flows that we have, the timing of when the flows come in, you may - if it come very lumpy, you may have a little bit of noise there, but we’re still targeting to that 21% to 25% for the full year.

[Doug Sipkin:]

Okay, great, that’s helpful. And then Jono, very interesting analysis at the end, I mean can you share a little bit more light on it. I guess effectively you know your 50-50 I guess on an you guys call a forecast but your view, I mean where does that sort of 50-50 in terms of hedge versus unhedge on that 322 billion come from, did you guys survey or is that just from dialogs you’ve had with institutions in the like?

[Jonathan Lawrence Steinberg:]

So it’s out opinion that now that we the ETF industry have created the tools that allow you to very easily take out the currency exposure, now that you have a choice. You don’t have to just default Q unhedged equity exposures that have the currency risks to it. So we think that for - again unless you have very strong buyers on a currency one way the other, your natural default could easily become 50-50 or better. In fact we could see how just by taking out the currency, you are certainly reducing volatility often with your exposures. Now what I would also say is we do understand that currency hedged has both tactical and strategic applications. So from the tactical standpoint, we have a tremendous amount of momentum right now. You know we took it as a firm 13.7 billion in the first quarter, about 3.6 billion in the second quarter. The industry itself was led in terms of inflows by currency hedging, so again incredible strength and a lot of people believe that the dollar rally will resume. But what I think is extremely positive is that over the last six weeks, you have seen the dollar consolidate. And through that whole period, we’ve continued to see positive inflows across the suite of currency hedged funds. And then from the strategic standpoint as I said, we think a lot of investors now that these tools exist, we want to isolate their equity exposure and if they want to add currency on top of it that will be able to do with other tools. So the net-net of it all seems very, very positive to us. And as you look at that chart how fast the growth, the percentage of hedged equity has gone for less than 1% in 2012 to over 15% today, it’s easy to imagine in light of the first quarter results particularly if you get a strong dollar environment that in the next three to five years, you can easily have a $150 billion to $200 billion of assets within the category industry-wide. And at currently, we’re running at about almost 70% of the category. So that’s really how we’re thinking has evolved.

[Doug Sipkin:]

Great, that’s very helpful and very interesting analysis. And then just a final question from me, obviously tremendous flows and I appreciated the slide showing the mix by sort of investor category. How much of a factor has some of investments you’ve made within distribution. You know I know you guys ramped up recently. How much of that has played into sort of the elevated flows obviously the category has been great, but you guys definitely took some effort to spend more and get deeper in channel. So I am curious what the results have been so far.

[Luciano Siracusano:]

Hi Doug, this is Luciano. You know I would say it’s a combination of the investments we’ve made on the sales side as well as investments we’ve made on the research side and then marketing side. We’ve been able to add people, capacity, personal, dollars, we had a very focused effort. I mean job one at the beginning of this year was very clear. We told the sale guys, we had the right strategy. And then if we executed at a very high level, we had a very large opportunity in front of us. So they’ve been focused square on the HEDJ and hedged. And what we can see from that slide is that it resonates across the channels. We have a product in a large asset class that although the sales guys can sell in your channels, you have a real opportunity and we were able to as Jono mentioned, take in roughly 57% of the inflows that went into currency hedged in that first quarter. And so we obviously executed at a very high level.

[Jonathan Lawrence Steinberg:]

Let me just add to it Doug, that you know one of the other investments that we have made is our European operation. And obviously you know Amit touched on how significance the growth has been. You know first $500 million to $1 billion is the hardest, but - you know I am extremely happy with the way we structured the deal, because for us as were getting into another jurisdiction, another geography, we were very conscious of not taking our eye off the U.S. ball. And the way we structured this, even though the U.S. team which has worked very hard to support the European team, it is the European team that is shouldering all of the - really shouldering the effort. And so it’s just another when you talk about investments been made, don’t miss what we’re doing in Europe.

[Doug Sipkin:]

Great, thanks for taking all my questions guys, I appreciate it.

[Jonathan Lawrence Steinberg:]

Thank you, Doug.

[Operator:]

Thank you. Our next question comes from Chris Shutler of William Blair. Your line is open.

[Christopher Shutler:]

Hey guys, good morning. On the international clients that are buying the HEDJ and DXJ, certainly I appreciated the color on the flows thereby channel. Amit, just wondering can we get the breakout of institutional - the institutional, your international breakout by retail versus institutional?

[Amit Muni:]

We don’t have that level of granularity or that portion of channel, so unfortunately we can’t give that you Chris.

[Christopher Shutler:]

Okay.

[Amit Muni:]

That’s what we have some general sense from…

[Jonathan Lawrence Steinberg:]

Yeah, I mean we do have visibility where the countries are in terms of where the assets within custody there. It actually say how of that institution buying versus a part of bankers buy on behalf of high network individual. That’s harder to tell, but we do have visibility into where the assets are falling back to by country and that a higher level you know it’s UK, it’s Europe, it’s Canada, Latin America and we’re also seeing close into Asia. But again these are aggregated data point with various data provider. So at this point, we don’t include it in the presentation but that number as you can see has continued to grow as a percentage of our overall assets.

[Christopher Shutler:]

And Luciano, could you add a little commentary with respect to institutional channel in the United States?

[Luciano Siracusano:]

Yeah, so the institutional channel in the United States today, we’ve added personal there, so we have a notional head on institutional, Chris but then we have three individual RDs who cover the country and then two internal who support them. So we invested in our institutional capacity over the last to three years, that’s led to growth in our institutional reach, we’re starting to see a lot of interest from mutual fund managers, institutional asset managers how are buying into these funds. And we also have the ability through broker, dealer exemptions to take to institutions in Canada. And so we have an institutional outreach effort today in the United States that’s strong as it’s ever been.

[Jonathan Lawrence Steinberg:]

And the only point that really wanted him to address was that within the institutional channel, we think our biggest strength, biggest bucket would be the mutual fund investor.

[Christopher Shutler:]

Yeah, okay, thanks. And just one other one, recently a large asset manager a couple of weeks ago made some comments about currency hedge products focused on exporters and particular like DXJ and HEDJ without naming names, and whether you really need to hedge the currency given, the companies generate the majority of that revenue from outside of domestic economies already. Can argue certainly with the interest that we’ve seen in those products but just wanted to get your thoughts on that comment that they made? Thanks.

[Amit Muni:]

Yeah, we’ve issued a whitepaper that expresses all of our views on currency hedge changing generally. I would just say specifically, obviously there are companies that can hedge their foreign currency exposure, some do it better than others. And at the end of day if they do it well and their stock price benefits from it, that benefit will be reflected in the aggregate return of that equity market. But the key thing for U.S. investors, are you going to still take on the currency risk from that exposure. I think the simplest way to think about it is the same companies that generated the roughly 5% return in Europe from managing all of those moving pieces in the first quarter. If you were unhedged, the returns in the neighborhood of 5% or 6%. If you were able to hedge out the currency and actually capture the local returns, the returns for the first quarter were 18%, 19%, 20%. I think that’s the simplest way to think about that. But right now there is a very little cost to hedge out to Euro, so cost is not an issue. And at the end of the day for U.S. investor the currency impact can have an overwhelming impact of their returns in any given period.

[Jonathan Lawrence Steinberg:]

And Chris, let me just add, I wish to entry. We are very, very comfortable having an opinion that difference from others. We are often early and we are very comfortable with that. And what we see, we are very comfortable there eventually others will come to appreciate.

[Christopher Shutler:]

Alright, thank you.

[Operator:]

Thanks. Your next question comes from Bill Katz of Citi. Your line is open.

[William Katz:]

Okay, thanks and good morning, everyone. I appreciate the thought there, it was very helpful. First question, just coming to margins for a moment, you’ve seen a structural increase in your gross margin including the update today and you have certainly if you get to that 50% next quarter as you anticipate really best in class margins. But is there any reason to think that the 50% margin is the limit given the structural increase you see in the gross margin. So I guess the real question is, can they transmit from the gross margin down to the operating margin as the assets continue to scale?

[Amit Muni:]

So we gave out that 50% margin target and like as you said, as we saw, we are on track to hit that in the second quarter. Is that the limit? No, that’s not the limit. And we have seen improvement in our gross margins as our AUM continues to scale. We put some of that flow down to the bottom line and improve our margins, absolutely that we consider that in our 50% margin target, absolutely. But we need to balance that as we always do with between investing that back into the business to help support our growth and then having a flow down to the bottom line. So just as a general framework, I think the important thing to remember is what we have said is that because of the operating efficiency of our business model, our goal is to operate our business on an annual basis to have highest margins of any of the publically traded asset managers. And that’s really what we’re focused on.

[Luciano Siracusano:]

And Bill, to your question really is a about our ability to continue to sale. And when - obviously we’re scaling very quickly right now, but that’s really what we drive that higher margin.

[William Katz:]

Yeah, just filling those lines, obviously you’re doing very well in terms of flows. Some of your peers when they tend to get products they start to sell themselves. So to speak tend to tinker around with the conversation structures there, but the wholesale is to try and balance out that growth. How you are thinking about that is in line with the fact that you had a very high comp ratio in Q1, I appreciate your full year guidance. But as you look ahead anyway so that to maybe broaden out the sales of the platform?

[Jonathan Lawrence Steinberg:]

This isJonathan. You know we had a very - we saw a positive flows in U.S. equities, even though U.S. equities were not strong in the quarter. When you say funds that sell themselves, so European exporters dividend weighted with the currency hedge doesn’t sound to me that it just sells itself, this is not licensing a third party index that people have know for 30 years and then putting it out. We really do have to go and educated the market. And because of that, that’s why we have the majority of the assets in this new category. So I am not sure, eventually yes, the funds really do take on their life with their own, but we really have to work very, very hard to establish our funds and maintain our leadership position.

[William Katz:]

And just one last one from me [indiscernible] for a moment, you mentioned that you have a response that they buyback is really at this is offset the drift, you known stocks pulled at a fair amount, you gave some pretty good guidance in terms of where the second quarter is going to be. Why not a little more buyback given those stock is, is there any kind of other investment or balance sheet constraints - considerations you are considering at this point?

[Amit Muni:]

Sure, I mean we have no balance sheet constraints that we have, we balance return in capital when if your dividends or buyback against all that are growth opportunities that we look at. And like I said, our goal, our focus right now, we think we have a share count creek but don’t take it how the fact, don’t discount the fact that we could opportunistic if we think the time is right.

[William Katz:]

Okay, I’ll follow-up later, thanks so much guys.

[Amit Muni:]

Thank you.

[Operator:]

Thank you. Our next question comes from Adam Beatty of Bank of America Merrill Lynch. Your line is open.

[Adam Beatty:]

Thank you and good morning. Just a question, I appreciate implodes or channel breakout. And to my mind I guess we have a bit of a case study, large inflows and taking market share with some of the prior year performance of DXJ, so I’d like you to comment around one of the notable things about that - about DXJ and so 2012 and ’13, is that the assets kind of flowed in and they didn’t necessarily flow back out, they kind of stayed with the firm. Will that settle, was it with retail, was it with institutional, what’s your sense of how DXJ settled out and whether the experience might be same with HEDJ? Thanks.

[Luciano Siracusano:]

Adam, this is Luciano. So the assets for DXJ like HEDJ have flown into the three major categories. We did see a reduction in DXJ earlier in the first quarter of last year. I believe it was on the order maybe 25% pullback, but you are right. So that’s majority of the assets will retain. And recently DXJ made new hires both in terms assets and I also believe in term of share out. So I understand where the question goes, but you got to realize there is 100s if not 1000s of individual actors making these decisions to buy these funds. And how they hold out and the duration, all that remains to be same, there is many different factors that could impact that. But right now what we’re coming up in the first quarter were the equity market in Europe is very strong, the euro was very week and a lot of money moved out of unhedged European funds. There was a change in investor behavior and that’s a fairly new phenomenon. So we’ll monitor it quarterly and we’ll update you in term of where we are in terms of the shares outstanding of the funds.

[Amit Muni:]

And you know just to reiterate what Luciano just said, so DJX and you can see this when you go to our website and check out the flows on a weekly basis and a daily basis when we click through. DXJ top kicked in 2013 at about 12.5 billion pull back to about 10 billion and it’s 70% higher today, 70%, it’s now over a $17 billion fund. So there was a lot of deal at the year ago with respect to our Japan exposure. And I saying at the whole period to investors particularly on these calls that there really seem to low of conviction in these allocations. And I would take the last six weeks as another indication of lot of conviction in these allocations the dollar has been point back and consolidating recently and we’ve seen creations throughout the whole period.

[Adam Beatty:]

It makes sense, thank you guys. The other question around strategy and the allocation of effort between product development and distribution, I mean some of your comments today have kind of been around, you are taking advantage of the great opportunities that are in front of you right now. Has launching new production kind of taken a back seat for the time being and do you have to make that choice or how are you thinking about that? Thanks.

[Luciano Siracusano:]

It’s really a great question. We are doing all that we can do and everything that we can do. And some of these on a product launch basis, we actually had - European small cap currency hedge which we launched I think at the beginning of March more successful fund launch we’ve ever had, nothing is ever gone to 200 million. Germany currency hedge, I think it’s over 300 million, again a lot of success. International developed, dividend growth another 300 million, a very quick uptake. So we’ve been very successful there. Now we have - we said at the beginning of the year, we’re looking to do eight to ten funds, we’ve done two this year, so we’re already filed things like weak dollar U.S. equity fund and the recent embark this U.S. had high enhanced yield fund. We had a lot of diversifying funds that will be coming out later in the year, but we are also going to be supporting the category that we are competing in very aggressively with our - with the other ETF sponsors in currency hedge. It’s not really one or the other, we are trying to do it all.

[Adam Beatty:]

Great, thanks very much for the reiteration of the guidance on product launches. I appreciate it.

[Operator:]

Your next question comes from Robert Lee of KBW. Your line is open.

[Robert Lee:]

Good morning, guys.

[Amit Muni:]

Good morning, Rob.

[Robert Lee:]

Quick question, you touched on institutional penetration of the currency hedge. One of you could you kind of build into that a little bit more on, what you think is kind of why maybe mutual funds have taken it up faster than other menders and what do you think it’s kind of the hurdles you have get over to get you know pension and other assets owners to adopt this and more of them thinking about in their asset allocation work. I mean what do you think the key things you need to there are?

[Jonathan Lawrence Steinberg:]

Do you mind if I am going to start and then I am going to let Luciano add to it. We’re really seeing adoption in all of the channels. The point that I would make is the mutual fund industry is $13 trillion and so it’s such a big category that of course it’s going to be a leader.

[Luciano Siracusano:]

Yeah, this is Luciano. Just to say that the fact that we put the forward contract inside the 40X fund and then hedge out the currencies impact, that’s a very efficient way of taking the currency risk of the table and for individual advisor from there were certain institutional asset managers or mutual funds, that might be a very efficient way for them to solve the currency price problem in one tray. So they may be looking to hedge out a portion other job as a European exposure and that raise them through they are able to do that with getting exposure to the market in a hedged vehicle. So I would just say that as Jono said the warehouse the RA channel has had great adoption of HEDJ and DXJ. There has been tremendous support with your research teams, within asset allocation has been made by Chief Investment Officers in private banks. I mean this is the number one ETF in America that inflow this year and over the last year because it’s being used in a very broad wide layer across the industry.

[Robert Lee:]

Thanks. Maybe just one real simple modeling question, just on the tax rate, I mean as it - as the U.S. continues to grow at such a - almost expediential rate, and should we be seeing the all impacts assuming kind of migrate down a bit over the coming quarters just as a mix changes.

[Amit Muni:]

So there are two factors about, Bob in expecting the tax rate. One is non-deductibility that we have in our European business right now because it’s in a loss position. And the future will be able to take benefits of that loss ones that turn profitable, so that’s a little bit of a drag on overall affected tax rate. But on the U.S. side, what really is driving that is the states that we are earning revenue in. Right now based on sort of the mix allocation, our U.S. rate is about 38.5-ish, we have a little bit of an uptick this quarter. When we filed our returns, we had a little bit more income tax to the states. So that’s going to be the big driver of where our revenues coming in on state by state level.

[Robert Lee:]

And I mean how often do you review the state by the state announces?

[Amit Muni:]

Ones a year, we will do that.

[Robert Lee:]

Great, thanks for taking my questions.

[Robert Lee:]

Thanks Bob

[Operator:]

Our next question comes from Dain Haukos of Piper Jaffray. Your line is open.

[Dain Haukos:]

Good morning. This is Dain on for Mike Grondahl. Thanks for taking my questions. I was just curious, could you give us a little bit more background on how the ISEQ deal came to be, what you think the potential opportunities are and if there are any other then what are type deals in the pipeline?

[Amit Muni:]

Sure. So the ISEQ deal came to us, our management team identified there is an opportunity, it’s a unique ETF, it’s one of its kind in Europe. They really didn’t have a home where it was sitting at the time. And so we start the deal to bring to it, we are happy that is part of the WisdomTree family now and hopefully see a grow in Europe.

[Dain Haukos:]

Can you talk about kind of the revenue, how much the revenue sharing, it sounded like it was no fee upfront and there was a revenue share that type of a deal going forward?

[Amit Muni:]

Yes, a very small, we have a small little trail that we’re going to pay based on growth in AUM, but nothing really material to note.

[Dain Haukos:]

And then you talked a little bit about the buyback and the way you think about that, can you talk it all about dividend and what your thoughts are on potential raises for that going forward?

[Jonathan Lawrence Steinberg:]

Yes, this is Jono. So we initiated our dividend in the third quarter. We came out with a healthy $0.08 a share dividend. The cost we had such a strong cash position and in NOL and strong cash flows, we could come out with what was perceived I think to be a high number. We gave an indication at the time that the dividend would not grow until we saw significant growth in assets and though assets have grown significantly. We review this with our board every quarter and we are - we anticipate, we are just like with the buyback that there will be more at the moment the dividend, this share at $0.08. And we overviewed every quarter with the board and obviously that you know appropriately when it will grow.

[Dain Haukos:]

Okay, that’s helpful. And then just last for me. Was the amount of potential assets that are out there right now, I am curious what are your kind of plans for hiring and sales and market as we go forward, do you feel like you’ve got the right amount of people right now or what’s the kind of the in-depth sales process, it sounds like is training investors on your asset allocations and that type of thing, do you feel like you need to add more sales people.

[Amit Muni:]

Sure, so earlier this year we announced that we’re going to spend $12 million to $16 million on strategic growth investments. A big components of that was a significant expansion of our sales force. We want to increase it by about 50% from what it is today. So that’s already built into our plan. One other things that we are waiting for is to hire a U.S. Head of Sales and now that process is done. We’ll be continuing to execute on that plan. We’ve already hired few sales people so far in the first quarter, but the big push will come later on this year.

[Dain Haukos:]

Very helpful. Thanks very much.

[Operator:]

Thank you. At this time, I’m showing no further questions. I’d like to turn the call back over to Mr. Steinberg for any closing remarks.

[Jonathan Lawrence Steinberg:]

So I just want to thank you all again for your interest and support and we looking forward to speaking with you next quarter. Have a good day.

[Operator:]

Ladies and gentlemen, thanks for your participation in today’s conference. This concludes your program. You may now disconnect.