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Wisdomtree Investments Inc (WT -0.46%)
Q2Â 2020 Earnings Call
Jul 31, 2020, 9:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Jason Weyeneth -- Director of Investor Relations
Thank you, and good morning. Before we begin, I'd 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 CFO, Amit Muni.
Amit Muni -- Executive Vice President and Chief Financial Officer
Thank you, Jason, and good morning, everyone. Today, I'll walk through the important items for the second quarter; then turn the call over to our President, Jarrett Lilien, who will provide a deeper dive on distribution and operations; and then to Jono for closing remarks before we open the lines for Q&A. So beginning on slide three. We ended the quarter with assets under management of $57.6 billion, up 15% from the first quarter, driven by $7 billion of positive market move and net inflows of $126 million. Strong inflows into our European-listed products were largely offset by outflows from our U.S.-listed ETFs. Beginning in Europe, we generated $1.6 billion of net inflows, ranking us third in the industry, representing 30% annualized organic growth. The flows were well diversified across our commodities and leveraged in inverse product set.
In what has been a truly historic period for energy markets, we are the clear leader in European-listed energy ETF exposures. Our $600 million net inflows in the second quarter represented 75% market share. Our leverage in inverse product suite had $312 million of inflows, driven by a diverse range of commodity and equity exposures. We also remain a leader in precious metals with net inflows of $449 million. For our U.S.-listed products, we had $1.5 billion of outflows, of which approximately 50% were from HEDJ and DXJ, as our product set was not well aligned with investor sentiment. U.S. industry flows were extremely narrow this quarter with the vast majority going to fixed income, commodities and large cap growth, areas we have less or no exposure to. By contrast, 41% of our U.S. AUM were in the worst industry flowing categories.
However, there were several bright spots. Our cloud computing ETFs continue to rapidly scale post its launch last fall, generating $324 million of inflows, bringing its AUM at the end of the quarter to $419 million, one of our most successful launches ever. We have also seen continued strong asset growth success in XSOE, AGGY and DGRW, products we have highlighted in recent quarters, which we believe to be very well positioned. Given these pockets of success, it's important to examine our flows on a gross basis as outflows have masked these successes. Let's examine that on slide four. The chart on the left reflects our flows on a gross basis, and the dark blue represents gross inflows and the turquoise reflects gross outflows. As you can see, our gross sales have been strong, reflecting the positive impact from investments we have made around our distribution efforts over the past several years.
During the second quarter, gross sales were nearly $2 billion, up nearly 40% from the year ago quarter and up nearly 20% from the second quarter of 2018. However, as you can also see, redemptions were elevated. As I touched upon on the last slide and reflected in the middle chart, our product set was not aligned this quarter with investor sentiment. We saw a lack of demand for non-U.S. equities and value-oriented strategies, which makes up 67% of our U.S. AUM. Those broader industry categories saw an aggregate $18 billion of outflows in the second quarter. However, as the last chart reflects, we have seen a significant improvement in trends with a rebound in flows into our U.S. equity ETFs in June and July. We are hopeful these trends continue to accelerate and macro sentiment better aligns with our international and value-oriented U.S. product suite.
Now turning to the financial results on slide five. Revenues were $58 million for the quarter, down due to lower average AUM and a one basis point decline in our fee capture due to mix change. Note, our average AUM this quarter is up 6% from the second quarter. On a GAAP basis, we had a net loss of $13 million. Excluding nonoperating items, adjusted net income was $8.5 million or $0.05 a share. This quarter, we took a noncash after-tax charge of $23 million through our future gold commitment payments, reflecting the significant increase in gold prices during the quarter. We also had a charge of $1.9 million and a tax benefit of $2.8 million from the extinguishment of our debt earlier than the maturity term. Turning to the margins on the next slide. Our operating margin was 20% in the quarter, reflecting lower revenues from the decline in AUM, partially offset by cost controls.
Gross margins were 75.1% on the lower end of our 75% to 77% guidance range due to the decline in our revenues and higher costs for our oil-related products, given its volatility. On the next slide, you can see the change in our expenses. Our operating expenses remained well controlled, down 3% sequentially and 12% from last year. Compensation costs remained relatively flat. Due to our improved forward revenue outlook, we are trending toward the higher end of our compensation's guidance range of $65 million to $70 million. Discretionary spending declined by $2 million or 18% from the first quarter, primarily due to lower marketing and sales expense, given the environment. Certain of these expenses have either completely stopped, declined significantly or we have shifted the spend to more cost effective and efficient means through more virtual and digital outreach to our clients.
Given what we have learned so far, we believe certain of these efficiencies will carry forward in future periods, and we now expect our full year discretionary spending to be $44 million. As a reminder, our guidance at the beginning of the year was $51.5 million for discretionary spending, which we then reduced to $47 million last quarter. We don't believe these reductions will have any negative effect on our long-term growth outlook. Now I'd like to comment on our recent debt transaction on the next slide. In June, we refinanced our term loan through the issuance of a convertible note. It was an unusual structure in that it had a high conversion premium, which is not the norm in this current market environment. We were able to successfully execute the transaction, and it was well received on announcement. The note has no restrictive covenants, which provides us the most flexibility to manage our capital.
We raised $150 million and used those proceeds plus cash on hand to pay off our term loan of $174 million and used $25 million to repurchase 6.7 million shares. As we think about our capital management priorities going forward, they are to build cash for strategic opportunities and pay off the note; and second, return capital to our shareholders through dividends and buybacks. Thank you.
And let me now turn the call over to our President, Jarrett Lilien.
Jarrett Lilien -- President and Chief Operating Officer
Thank you, Amit, and good morning. Amit has covered year-to-date flows. I will drill deeper into the strength we saw this quarter in global sales, product and operations. We are seeing momentum accelerate, and this is due to our blocking and tackling approach and our focus on the things that we can control. At the top of this list is client engagement. If we can elevate quality engagement, flows will follow. We've established ourselves as thought leaders on topics most relevant to advisors. We've created technology tools to help advisors better manage and grow their businesses. We've established access to key platforms, and we continue to provide innovative, differentiated, strong performing products, including both individual funds and model portfolios.
In the second quarter, we put all of this to work and client engagement continued to grow. High-quality interactions with financial advisor clients and prospects climbed to new record levels with 45,000 distinct interactions during the quarter. We are interacting with financial advisors in a variety of ways, ranging from emails, phone calls, video conferences, webinars, research office hours, all the way to a virtual happy hour we held with professional golfer, John Daly. As we talked about in recent quarters, we have focused some of our U.S. engagement efforts on the IBD channel, where ETF penetration is lower, but accelerating as more advisors in the channel transition to fee-based relationships and gain a better appreciation of the merits of the ETF structure. We have entered distribution relationships with several IBDs and engagement with these platforms is growing.
These relationships are driving positive flows, both in Q2 and year-to-date, and we expect momentum to accelerate as we deepen penetration based on merit, commitment and focus. We continue to differentiate with our model portfolio offering and models will be a key organic growth driver going forward. During the quarter, we released proprietary research that indicates most advisors believe model portfolios will not only help them scale their businesses and improve efficiencies but will also help improve the service they provide to their clients. The results of this survey further validate our bullish outlook for models and help position us as a thought leader in the field. Last quarter, we talked about being added to Park Avenue Securities platform as a model provider as well as being added to Cetera's Featured Strategists list. Earlier this week, we announced model relationships with the Carson Group, Riskalyze, Kwanti, ETFLogic and Orion, and the pipeline remains strong.
On top of this is a strong stable of product with 25, four- and five-star funds representing 63% of our U.S.-listed AUM. A standout this quarter is WCLD, our cloud computing fund. The fund was launched last fall and has built an impressive performance track record outperforming the other cloud-focused ETFs in one of the hottest segments of the market. We've coupled this with a global all oars in the water approach, focusing product, sales, marketing, research, capital markets and PR to take advantage of the opportunity in front of us. As a result, WCLD has scaled globally from $14 million at the beginning of the year to roughly $800 million as of last Friday making it one of our most successful fund launches ever and illustrating again our strong global ability to execute. And the results are global. Looking more closely at our European listed products on slide 10.
Our Europe-listed AUM sits over $28 billion today, an all-time high. The $28 billion of AUM is up 45% since the 2018 acquisition of ETF Securities, driven by $3.4 billion of net inflows. By all measures, the deal has been a giant success for WisdomTree. We quickly integrated the two firms. We successfully diversified our AUM base, achieved immediate scale and profitability in Europe and strengthened our global team by bringing on and integrating additional talent. The $1.6 billion of well-diversified flows in Q2 represents the strongest quarter since the deal closed, but it doesn't fully tell the story of how impressive our performance has been. Second quarter saw the most volatility ever seen in the energy markets, where we have 70% market share, representing $2.4 billion of AUM across 15 products. As an example, on April 20 and 21, the Front month WTI contract traded down from $15 to a negative $38 and then back to a positive $9.
It was the first time an oil contract has ever gone negative. Not surprisingly, this caused serious disruption in several energy products. The team responded flawlessly under great pressure. Along the way due to this extreme volatility, we took action to close several of our leveraged and inverse products. In addition, we took initiative to temporarily halt creations in some of our energy products to protect investors, market participants and the firm, including in our WTI crude fund, CRUD, which is the largest oil product in the European market. Not only did we successfully managed through this challenging environment and reopened CRUD for creations, we used the wisdom gain to enhance the product, the WisdomTree hallmark, resulting in best-in-class product designed to help investors navigate the financial markets. This is why WisdomTree is the leading commodities platform in Europe today and well positioned to grow in the future. Overall, strong performance from the global team and a payoff on many investments we've made over the past few years.
With that, let me now turn the call over to Jono for closing remarks.
Jonathan Steinberg -- Founder and Chief Executive Officer
Thank you, Jarrett, and good morning, everyone. I'll keep my comments brief before we turn to Q&A. We enjoyed a nice rebound in AUM during the second quarter, and we start the third quarter with a revenue tailwind from higher current AUM compared to second quarter average. However, market move and investment investor sentiment are out of our control. We are laser focused on what we can control. And in those areas, I am proud of how we are executing. Our sales and marketing teams are leveraging our expanded distribution reach and deep data analytics capabilities to drive record client engagement and strong gross sales results. The pipeline for new distribution relationships remains robust, driven by our business development and solution team members.
Our team in Europe managed nearly flawlessly through unprecedented volatility in energy markets, driving better outcomes for our clients and for WisdomTree. Our technology team continues to deliver tools that are value added for clients and enhance the productivity of our teammates. Our corporate finance and legal teams successfully refinanced our debt, removing a near-term overhang and affording us greater financial flexibility. We are now nearly five months into working 100% remotely as a firm. We hit our stride immediately. And as Amit discussed, the new operating environment is driving some expense efficiencies.
We have a talented, nimble and entrepreneurial team, and I am proud of the way we have adapted. We're well positioned for growth. We have the right team and the right strategy, and we're seeing momentum in important lead indicators.
I thank you for your interest in WisdomTree, and we will now take your questions.
Questions and Answers:
Operator
[Operator Instructions] Our first question comes from Craig Siegenthaler with Credit Suisse.
Craig Siegenthaler -- Credit Suisse -- Analyst
Thanks, good morning everyone. Just given the very low yields available in much of the fixed income markets, do you expect to see lower bond ETF flows in the second half? And also which higher-yielding products, like AGGY, are you marketing to investors, which could benefit from an extended period of low rates?
Jonathan Steinberg -- Founder and Chief Executive Officer
Thank you very much, Craig. Jeremy, do you mind replying?
Jeremy Schwartz -- Executive Vice President and Global Head of Research
Sure. So one of the we talked about how bond funds were one of the biggest categories for growth. And while we started recently in the last five years, we've been making a lot of investments. One of the exciting things for us is we're gaining share in some of these categories from a smaller base, of course. But we saw about $200 million of flows across our bond suite this year. And in particular, when you talk about the fears about those higher duration and ultra lows, say, the tenure, we have a five-star fund, SHAG, which is the short end of that yield enhanced agg, just cross $100 million and is very well positioned for the low rates with that five-star performance.
We're seeing also, in terms of the market environment with ultra-low rates, people are looking at higher yield bonds. We have, again, four-star funds in the IAU category. And from that WFHY, which is that high-yield bond fund, has ranked in the top two deciles this year. And you haven't really even had a major default cycle yet. So we think the positioning compared to traditional bond ETFs where they aren't making the qualitative assessments of what bonds can be back the debt. We think that's very strong. And then we have things like our floating rate, USFR, which is the shortest end of the maturity that if you do get a rate rising cycle in the future, it's sort of well positioned as a leader there. But if you think about the ultra-low rates, it's also why commodities, gold and silver are incredibly strong tied to the low real rate environment.
So we have a lot of different positions for that low rate environment.
Jonathan Steinberg -- Founder and Chief Executive Officer
Thank you, Jeremy.
Craig Siegenthaler -- Credit Suisse -- Analyst
And listen, it was nice to see all the creations in WCLD. Can you talk about some of the other thematic initiatives you may have in growth sectors like tech and healthcare, where the industry is actually seeing a lot of positive demand trends right now?
Jonathan Steinberg -- Founder and Chief Executive Officer
Jeremy, again, would you take that call? Jeremy, obviously, our Director of Research.
Jeremy Schwartz -- Executive Vice President and Global Head of Research
Thank you. So yes, we are very excited. Now it's about $800 million globally in cloud. And we've had some more funds in this pipeline. And one that I can speak to today is actually, we have a Modern Tech Platform Fund, PLAT, that we are rebranding. We're actually calling it the growth leaders fund. We think it better describes what's happening in those platform funds. You see on days like today, you see a Facebook and Amazon. These are big exposures to that Modern Tech Platform. And these companies are growing at rates double things into NASDAQ. The NASDAQ being one of the predominant the queues being the predominant large-cap growth fund.
We think we're going to better position it from being equally weighted strategy toward more market cap and equal weighting. And so we're excited about this repositioning of PLAT. And we talked a lot about the model business. We're going to also incorporate W cloud and PLAT into a more next-generation economy model that we think will have ways in help position both those funds in an open architecture setting for the future. So we're very excited about all that. And I think we'll continue to invest around this category thank you.
Craig Siegenthaler -- Credit Suisse -- Analyst
Thank you, Jeremy.
Operator
Our next question comes from Michael Cyprys with Morgan Stanley.
Michael Cyprys -- Morgan Stanley -- Analyst
Hey, good morning. Thanks for taking the question. I just wanted to come back to some of the new distribution relationships that you alluded to. Just hoping you could share a little bit more color around the new relationships that you added in the quarter with Orion, among others. What those relationships consist of? What are your expectations and aspirations there? And if you could also just comment on the pipeline. You mentioned that's very strong. I guess, how would that compare versus a year ago? Any color you could share about the types of firms, the size of firms that are embedded in the pipeline.
Jonathan Steinberg -- Founder and Chief Executive Officer
Jarrett, would you please answer this?
Jarrett Lilien -- President and Chief Operating Officer
Sure. The platform relationships are really important. They give us access really broad access to a variety of advisors. They are all sizes from smaller from the tech side all the way to the larger and the more sort of hands-on side. The pipeline currently versus a year ago is stronger, and we expect to have some other announcements over the coming months that we think are very exciting. But a very strong pipeline and very important are these relationships.
Michael Cyprys -- Morgan Stanley -- Analyst
Okay. Just maybe a follow-up question just on some of the gold products that you have. Gold is up, I guess, nearly 30% this year. So far, you've gathered maybe around $400 million in flows or so. That's about 5% organic growth into your gold ETFs. I guess, how does that compare versus your expectations for what you would have thought you would get given such a strong rally in gold? And maybe you could talk about some of the competitive dynamics there. How that's evolving in the marketplace and some of the initiatives that you have in place to further accelerate and capture the momentum in gold ETFs right now?
Jonathan Steinberg -- Founder and Chief Executive Officer
Jarrett, why don't you start with that one as well?
Jarrett Lilien -- President and Chief Operating Officer
Sure. In our prepared remarks, we talked about disruption that we've seen in the energy markets in the second quarter. There was also some disruption in the gold markets. And specifically, some that we experienced due to the pandemic, there were some logistical challenges around physical transportation of gold that impacted perceived liquidity, especially in our lowest fee Swiss gold product, which did impact spreads and flows. That was short lived. It has been resolved, but it makes it harder to read too much into the quarter.
And it means really, it's important to step back and take a look at our overall gold positioning, where we remain a leader, I mean, very well positioned for the future. We have a whole range of physical gold ETPs with various features, various fees that really appeal to the whole spectrum of market participants. We also have the best gold economics in the market. And so we're very confident with our gold positioning and expect to be a major beneficiary going forward.
Jonathan Steinberg -- Founder and Chief Executive Officer
Mike, we obviously didn't expect the pandemic and the inability to move gold bar. So from an expectation standpoint, unusual and something we didn't expect. So but again, Jarrett spoke about how it has normalized. But I'd also say, just to reiterate what Jeremy spoke about, we are the leader in all precious metals in Europe. And so our market share and strength in silver, palladium, platinum, they all benefit from the same dynamic of zero interest rates, global printing of money, social unrest, political instability. The whole suite is incredibly well positioned for the moment in time, particularly with the Fed Seg rates will stay at zero maybe till 2024. So anyway, we're very pleased with the outlook for the whole suite.
Michael Cyprys -- Morgan Stanley -- Analyst
Great, thanks.
Operator
Our next question comes from Robert Lee with KBW.
Jeff Drezner -- KBW -- Analyst
Hi, this is Jeff Drezner on for Rob Lee. Just a similar question on fixed income flows. Broadly for the industry, you're seeing pretty massive inflows, ETFs and kind of comparative to essentially flat flows year-to-date for your fixed income products. Is there any plan to perhaps ramp up for some more fixed income products? Or how do you see the outlook for that?
Jonathan Steinberg -- Founder and Chief Executive Officer
Jeremy, why don't you start?
Jeremy Schwartz -- Executive Vice President and Global Head of Research
Well, I'd say you're building track records on some funds that have been in the market in the biggest and most important category. So there was a question on AGGY. They mentioned the yield enhanced aggregate, which is like the core fixed income reweighting the agg from market cap toward yield with constraints. That is the biggest category there is in terms of the core bond. And then we have that at this I mentioned SHAG, which is the short end version of that. We have factor strategies for the investment-grade market and for the high-yield market. And so we think we have really the biggest categories. And of course, we look at what are the other big categories we're not in, always, and we have things that we're working on for some further segments.
But I think we are in the biggest categories, and then it's just working to positioning the strength and people seeing the track record. The Fed buying is just another example. You had things like the Bank of Japan buying equities via ETFs. And now you have the U.S. Fed buying bonds via ETF. So I think a lot of people have thought. You need an active manager. You need to be able to use funds and different structures for ETFs, but the Fed is giving the structure a big endorsement. And I think in general, I mentioned, we're gaining share, even though it's from a smaller base. We were gaining share in three of those most important categories, and we think our performance track records in investment grade, high-yield and core bonds is going to speak for itself and keep gaining share over time.
Jeff Drezner -- KBW -- Analyst
Great. And if I could just follow-up quickly with one more. In terms of model portfolios and the inclusion of some more passive cheaper products, do you feel that you need to include or even develop similar products for your model portfolios? And how do you see that?
Jonathan Steinberg -- Founder and Chief Executive Officer
Jarrett, do you want to start with this?
Jarrett Lilien -- President and Chief Operating Officer
Yes. And Jer can chime in as well. I mean, really important part of our model portfolios is that they are open architecture. And I think directly to your question, the lowest fee beta, where you're really not differentiating or adding additional value by coming up with a me-too product, we don't have to do that. We can go outside for those generic commodity, low fee beta products. So those are in our models because of the open architecture nature. And so I don't think we have to add anything there. But Jer, do you want to talk to that a little more as well?
Jeremy Schwartz -- Executive Vice President and Global Head of Research
No, I would just echo what you said. I mean, you can now get certain beta products for free. And there are certainly low they're very low fee. And so I that's not been our model. We've had to we believe in modern alpha and trying to add value on top of what's in the market. So I just I'd echo what you said.
Jeff Drezner -- KBW -- Analyst
Great, thanks for taking my question.
Operator
Our next question comes from Brennan Hawken with UBS.
Brennan Hawken -- UBS -- Analyst
Hey, good morning. Thanks for taking my question. Just one left for me. One, you guys seems like you've got some good momentum in third-party distribution, in particular, on the IBD channel, which is encouraging. How should we think about the third-party expense line? Is it best to think about it just as a percentage of revenue from wide? I think that, that kicked up 1Q into 2Q, 2.1% to 2.3% based on quick math. Will that continue to trend higher from here given your momentum and, ultimately, what should lead to good flows? Or is this the right level for some stability? How should we calibrate for that line?
Jonathan Steinberg -- Founder and Chief Executive Officer
Amit, do you mind taking this?
Amit Muni -- Executive Vice President and Chief Financial Officer
Sure, Brennan. So that line item, remember, we gave guidance last quarter that we thought it would be around $6 million a year, and we're kind of running at that run rate if you annualize the first half. If you think about the components of it, for the platforms, some of them have fixed minimum fees. Some of them have a percentage of our expense ratio that we share. So I think right now, that $6 million is still good.
As we are optimistic that we will see a ramp-up in the third party, some of that it will take from time to ramp, and we've incorporated that in the guidance of $6 million. But if we do see that ramping up faster, which is a good thing, we'll update that number. But I think the $6 million for this year is a good number right now.
Brennan Hawken -- UBS -- Analyst
And I guess some of those dynamics, Amit, the fact that it's a blend of asset and fixed fee make it a little bit harder to try to use percentage of revenue type metrics the way we have in the past. And so it's just easier to think about it?
Amit Muni -- Executive Vice President and Chief Financial Officer
That's right. Yes. Exactly. That's why we decided to switch to more of a fixed dollar at the beginning of this year because it was very hard for you guys to sort of track it given the mix of how it was changing.
Brennan Hawken -- UBS -- Analyst
That makes a lot of sense. Thanks.
Operator
Our next question comes from Mike Carrier with Bank of America.
Shaun -- Bank of America -- Analyst
Hi guys, this is actually Shaun [Phonetic] on for Mike. So you mentioned that some of the cost savings in the current environment are sustainable longer term. We're just wondering if you could size the amount of savings that are permanent versus temporary? And just let us know where they're coming from?
Jonathan Steinberg -- Founder and Chief Executive Officer
Amit?
Amit Muni -- Executive Vice President and Chief Financial Officer
Sure. So a lot of it of the savings going forward and how much of it we'll realize will really depend upon how the economy and the market conditions open up going forward. If you look at this quarter, we found our major savings around our marketing and advertising, our sales-related activities, T&E and conference spending and then some general overhead expenses. I'd say, as we're thinking about it, we do believe some of it will carry forward. The things that we're doing of shifting more to digital marketing, shifting more toward streaming services for our advertising, our virtual client events, like the things that Jarrett spoke about in his remarks.
These are much more cost efficient and scalable for us. And I'd say we're also reimagining our physical footprint. We've operated since the pandemic started flawlessly remotely, and I think some of that will carry forward. It's hard to put a number on it right now. We're working through all that, and we'll give more guidance around it when we announce our 2021 guidance.
Jarrett Lilien -- President and Chief Operating Officer
And putting maybe a little more color to that, too. This is Jarrett. Also in the prepared remarks, you think about our client engagement. We are remote, but we are more in touch with our clients than ever before. And that's not a number that peaked in March and then fell off. Actually, it continues to increase as we've learned new things. And you wish a pandemic had never happened, of course, but we never would have had this experiment of how does it look when you operate remotely.
And what we're finding is that we're operating extremely well, and there are a lot of new tricks that we're learning, a lot of new things that won't disappear, no matter what the future holds when we get back to normal, again. There are things we've learned that we will put to use going forward. And those will include a more efficient way and spending less money and getting more for the money we do spend.
Shaun -- Bank of America -- Analyst
Okay. And then just one on capital. Given the restructured debt and the current cash position, can you guys discuss the pace of share repurchases versus debt paydown? And then any potential smaller M&A?
Jonathan Steinberg -- Founder and Chief Executive Officer
Amit?
Amit Muni -- Executive Vice President and Chief Financial Officer
Yes. So when we're thinking about managing our capital and particularly the buybacks, we are definitely open to buybacks. We just bought back $25 million worth of stock back in June. But I'd say, over the short term, our priorities are to build cash and to support our dividend. As the earnings power improves, we will definitely look at buybacks more. But right now, the priority is to build up cash because the note is due three years from now. So that's how I would sort of think about it for the short-term.
Shaun -- Bank of America -- Analyst
Thank you.
Operator
Our next question comes from Ryan Bailey with Goldman Sachs.
Ryan Bailey -- Goldman Sachs -- Analyst
Good morning and thank you for taking our questions. So you indicated that you'd be at the high end of the comp guide range, but lowered your discretionary expense guide, and some of this was COVID related. But I was wondering if you can speak to balancing paying and retaining talent, both some of the non-comp expenses that might be needed to drive organic growth?
Jonathan Steinberg -- Founder and Chief Executive Officer
Amit, maybe you'll start and, Jarrett, you might have some additional color you might want to add.
Amit Muni -- Executive Vice President and Chief Financial Officer
Sure. So because of the revenue outlook increasing, we did say we first, at the beginning of the last quarter, we lowered the guidance for comp, just given the environment. The revenue outlook has looked better. So we're still trending toward the higher end of that lower comp range that we gave.
In the new environment, as you've seen, we are still able to engage with our clients very effectively and much more efficiently. Maybe Jarrett can comment some more about that, but we are seeing our ability to be much more efficient and still increase client engagement and to continue to drive flows.
Jarrett Lilien -- President and Chief Operating Officer
And I think talking about sort of developing, retaining talent, I think, some of that, of course, is comp and but we're a performance-based organization. And so when last quarter we talked about it, it was a different environment. Today is a better environment. Who knows what the future holds, but we all know that that's the environment we live in. As for morale and retaining talent, again, another ironic thing that I think everybody is find or at least most firms are finding, and certainly, we are finding that our connectivity, our keenness is tighter than it's been at other times.
We are more together. Morale is very good. And a lot of it is down to the execution that we talked about, which is very satisfying. And one of the you look at Europe at record highs, managing through incredible volatility, that is something we feel really good about. In the U.S. same thing. As we all know, these are difficult times. We've managed very well. If you look at something that I know the team is very proud about, you look at our top 10 names. Not only are they really all inflowing for a very long period of time. These are the bright spots that Amit talked about in prepared remarks, but the net inflows of our top 10 products are more at the half year point than they were for all of last year.
So this is momentum that you can kind of count on. It's multiyear momentum that's building. And again, that source of optimism really is good for morale. But it gets back to, I guess, the heart of your question. We're a performance-based organization. We know it and we live and die by those rules.
Jonathan Steinberg -- Founder and Chief Executive Officer
And let me just add that the whole industry suffered in March and April from this extreme negative market move. So we're not in any way disadvantaged from the ability to retain or to recruit new people. So I'll end on that.
Jarrett Lilien -- President and Chief Operating Officer
And sorry, maybe to jump on it, too. I mean, yes, if you look at the outside versus the inside, we started the year globally. So it's remarkable where we are today versus where we were a quarter ago. And that is a pretty stark contrast to the rest of the industry.
Ryan Bailey -- Goldman Sachs -- Analyst
Got it. That's very interesting. I'm just wondering, maybe I could ask about DXJ and HEDJ sa well. On a combined AUM basis, they look like they represent probably the lowest AUM we've seen since they became "flagship products". So I was just wondering how you think about ring fencing the potential organically from those products we do?
Jonathan Steinberg -- Founder and Chief Executive Officer
Jarrett, can you start with that?
Jarrett Lilien -- President and Chief Operating Officer
Well, we still I think from the concept, generally, I mean, one of the things encouraging, we have one of the products that in a broader sense, so Europe and Japan, in the scheme of broad international are much smaller than the $2 trillion plus international developed generally. And we have one strategy, ISDG, that raised over $100 million in still currency hedging generally and one of, I think, the highest of any currency hedge ETF this year.
So that was very encouraging that our broad-based exposure, which is equally a bigger, long run opportunity is continues to gain assets. But we continue to innovate and develop international and emerging markets and have done things like international multifactor that we think is a well-positioned long-term strategy, is less history, but it's off to a good start, and we think we'll also continue. That's part of it's innovation, and part of it's continuing to push some of the fund with longer track records.
Jonathan Steinberg -- Founder and Chief Executive Officer
And Jeremy, is there a market sentiment shift that could be constructive, though, specifically for HEDJ or DXJ?
Jeremy Schwartz -- Executive Vice President and Global Head of Research
I mean coming into just the last few months, you had a fairly strong dollar. It started weakening just recently, say, last three months. And so the dollar moves bounce around. And I think part of that volatility helps us make the case generally that people don't know which way currencies go and makes the sort of stronger strategic rationale for not betting on currencies by hedging. And I'd say so partly they just be developed tied to those currency movements in the short run.
Amit Muni -- Executive Vice President and Chief Financial Officer
And I was not going to add a different take on it, too. Those strategies are good strategies, and they're performing in line with how they were built. And when we see outflows, we're still maintaining our share of the various categories. So the way I look at it is that, OK, if the categories remain out of favor from these lower asset levels, it's not really like they can hurt us as much as they could have two, three, four years ago.
But also as Jono is sort of alluding to there, they could go back in favor. And the biggest point is from these levels, there's real diversification in our flows. I mean, those two are have moved down. They're still good funds with good asset levels, but they're not as meaningful as they were to the results. And the diversification of our holdings is much better, much more balanced than it's been at any time really in the last five years.
Jonathan Steinberg -- Founder and Chief Executive Officer
And I might add that as the global economy sort of opens up again toward further in the year, you'll start looking to 2021. And Japan is expecting to open have their Olympics which should have been in 2020, in 2021. That might actually prove to be a significant catalyst, specifically for DXJ toward the end of the year.
Ryan Bailey -- Goldman Sachs -- Analyst
Got it. Thank you. Thank you for answering my questions.
Operator
Our next question comes from Keith Housum with Northcoast Research.
Keith Housum -- Northcoast Research -- Analyst
I understand a little bit more of the model platforms and the success you guys are having. Is it possible to kind of conceptualize the growth that you guys have had, I guess, compared to last quarter? And on top of that, is there any thought that this business might be stickier than your traditional business in terms of keeping the AUM there?
Jonathan Steinberg -- Founder and Chief Executive Officer
Jarrett?
Jarrett Lilien -- President and Chief Operating Officer
Yes. Obviously, one of our top initiatives, and it's not something that we dreamed up like this quarter. It's something that we've been working on for over three years. And to be successful here is much more than just a model. It's a whole package. So we start with a great stable of those strong funds that we talked about, 24 4- and five-star funds. The open architecture that I mentioned in an earlier answer is very important and actually differentiating in the marketplace. We have a real team with a rigorous and institutional investment process. We brought Scott Welch over from who was the CIO of Dynasty. Obviously, we've got Jeremy Schwartz here on the call, Jeremy Siegel.
We've got a top team, the research study that we did, bringing proprietary insight to the markets we're building and have built the tech tools for advisors and advisor education and advisor casket. So there's real commitment and focus, and this is all the way throughout the firm. So to your point, this is something that is very important and the assets are very sticky. As evidenced by our experience this year, where in a very choppy year, we've been either flat or been positive on inflows every month of the year, and that's one of the really attractive parts of this. But all in all, this is something where I think we've established a leadership position because it does take commitment. It is about a bigger package. And we've made that investment, and we're starting to see the payoff now.
Jonathan Steinberg -- Founder and Chief Executive Officer
And just to reiterate one thing. So I mean, you really we, as a firm, have shown a tremendous amount of asset volatility more than most firms. And you exactly hit one of our motivations is that the stickiness of the model business. So I mean that's it is unintentional. It's really a premeditated push because of that element.
Jarrett Lilien -- President and Chief Operating Officer
And also premeditated because model portfolios are the fastest-growing area of the intermediary sold product landscape. They are the fastest growing, representing trillions and trillions of dollars of AUM. So it's a big market, growing fast, and it's growing with advisors from all channels or increasing their use of third-party models. So this is a hot area. We identified it years ago, and again, starting to see the payoff now.
Keith Housum -- Northcoast Research -- Analyst
Is it possible to.
Jonathan Steinberg -- Founder and Chief Executive Officer
Go ahead, sorry.
Keith Housum -- Northcoast Research -- Analyst
Is it possible to find how much of your inflows have been driven by the model platform?
Jonathan Steinberg -- Founder and Chief Executive Officer
Jarrett?
Jarrett Lilien -- President and Chief Operating Officer
Yes. Today, we're not disclosing those numbers. We're not breaking them out yet. What we're spending a lot of time on, obviously, being so key initiative is next year, what kind of metrics that we will provide and we'll want to provide metrics to just show the kind of growth and traction that we're seeing, but we're not breaking that out at the moment.
Keith Housum -- Northcoast Research -- Analyst
Okay, thank you.
Operator
Our next question comes from Michael Cyprys with Morgan Stanley.
Michael Cyprys -- Morgan Stanley -- Analyst
Hi, thanks for taking the follow-up question, I just wanted to circle back on the cloud computing fund. Nice to see the success early on at the fund's life. Can you just remind us if there's any sort of limitation or capacity constraint on how big this fund can get? And then I was hoping you could just give us a little bit of a sense of how this fund strategy came to be? What was the product development process, the genesis behind this fund? And given the early success that you're having with this product, how is that impacting your approach and strategy to product development and marketing from here?
Jonathan Steinberg -- Founder and Chief Executive Officer
Jeremy, please start.
Jeremy Schwartz -- Executive Vice President and Global Head of Research
So we are always looking at how do we innovate in the market and provide value added. And we often do develop indexes, primarily ourselves. We start as a self-indexing firm, but we have relationships all across the street. This was a very unique opportunity to work with a premier venture capital firm, best of our venture partners, who worked with the NASDAQ to create this basket for the cloud. And as we heard about it, and we talked with customer and the team, we do have, we think, the leading not only sort of leading thought leader on what they're investing in early stage. They have a private cloud business that there's 100 private cloud companies that are going to be coming public over the coming years, all 100 of them look to have a $1 billion market cap today in the private markets.
It was we think we have a real edge in identifying the companies, and then you see that playing out. I mean year-to-date, W cloud is one of the top few performing ETFs in the entire industry. So it was one where there were a few legacy products but we weren't going to be the legacy product. We thought this was a better execution. And so it was a nice relationship, and it's scaling. We've got other examples. I didn't bring this up earlier. But in Europe, we have an artificial intelligence product that's also scaled to over $100 million at the leading edge of where we think the next 20 to 30 years. There's going to be a huge advancement in artificial intelligence and we have that was another one where we did work with a group who's providing some signals. They had some expertise that we hadn't developed. And we're going to always look at what can an outside provider provide versus what can we do ourselves.
The bar is high to use an outside provider because we have a great team that can do a lot of these things. But if there is a unique edge where the product is fairly different, well, we've done that in the bond space with things like our yield enhanced We've done it in other places, too. But I think you'll see us continue to invest around we're showing success, as we said, in Europe with AI, and they also do that battery solutions product in Europe. And we're showing with cloud, I think you're going to see more from us here.
Jonathan Steinberg -- Founder and Chief Executive Officer
And Jerry, how about capacity constraints?
Jeremy Schwartz -- Executive Vice President and Global Head of Research
Sorry. It's I was alluding to that. I should just mention it. When talking about the 100 private companies that are going to becoming public over the course of the few years. It's a big basket today. I mean these are already growing big companies, but we expect a lot more to come public. And it's just going to increase the capacity dramatically over the coming years. So I have no concern about capacity.
Michael Cyprys -- Morgan Stanley -- Analyst
Great, thank you.
Operator
And I'm not showing any further questions at this time. I'd like to turn the call back over to our host for any closing remarks.
Jonathan Steinberg -- Founder and Chief Executive Officer
Thank you all for your time and interest today, and we will speak to you soon. Have a great day. Bye-bye.
Operator
[Operator Closing Remarks].
Duration: 51 minutes
Call participants:
Jason Weyeneth -- Director of Investor Relations
Amit Muni -- Executive Vice President and Chief Financial Officer
Jarrett Lilien -- President and Chief Operating Officer
Jonathan Steinberg -- Founder and Chief Executive Officer
Jeremy Schwartz -- Executive Vice President and Global Head of Research
Craig Siegenthaler -- Credit Suisse -- Analyst
Michael Cyprys -- Morgan Stanley -- Analyst
Jeff Drezner -- KBW -- Analyst
Brennan Hawken -- UBS -- Analyst
Shaun -- Bank of America -- Analyst
Ryan Bailey -- Goldman Sachs -- Analyst
Keith Housum -- Northcoast Research -- Analyst
