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Wisdomtree Investments Inc (NASDAQ:WETF)
Q3 2020 Earnings Call
Oct 30, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing-by. Welcome to the WisdomTree Q3 Earnings Call. After the speakers' presentation there will be a question-and-answer session. [Operator Instructions].

I would now like to turn the conference call to Mr. Jason Weyeneth, Director of Investor Relations. You may begin.

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 and 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. Good morning, everyone. I'll walk through the highlights for the third quarter and turn the call over to our President, Jarrett Lilien, who will provide a deeper dive on our U.S. and European products, and then to Jono for closing remarks, before we open lines for Q&A. So beginning on slide three, we ended the quarter with assets under management of $60.7 billion, up 5% from the second quarter primarily from positive market movement. We have $468 million of net outflows. However, I'd note so far this quarter, we are off to a strong start with net inflows of over a $1 billion, and we have turned positive in net inflows on a year-to-date basis.Our U.S. products generated inflows each month in this quarter for a total of $575 million, representing 7% annualized organic growth. Building upon the momentum from last quarter, our dividend growth, ex state-owned emerging market, cloud computing and aggregate bond products generated approximately $1.7 billion of inflows in the quarter.

However, we continue to face headwinds as nearly 40% of our AUM were in the worst 15 flowing categories for the industry. In Europe, we had outflows of $1 billion primarily from our energy and gold products. However, we did generate inflows into our other precious metals including silver, platinum and palladium, and also our cloud computing usage product. Now turning to the financial results on slide four. Revenues were $65 million for the quarter, up 11% due to higher average AUM and a slight increase in our fee capture due to mix change. On a GAAP basis, we had a net loss of $300,000. Excluding non-operating items, adjusted net income was $11 million or $0.07 a share. This quarter, we took a non-cash after-tax charge of $9 million for our future gold commitment payments, reflecting the increase in gold prices during the quarter, as well as a non-cash write-off of $2 million for our remaining carrying value in thesis technologies. As a reminder, our investments in thesis had no cost basis to us, and was at holding from the prior legacy business of WisdomTree. During the quarter, we completed a $25 million add-on to our convertible offering and bought back approximately 1 million shares with part of the proceeds. The terms for the add-on were on the same terms as our previous transaction, bringing in debt outstanding to the same level as our previous term loan. Turning to margins on the next slide. Our operating margin expanded to 22.8% in the quarter, reflecting controlled expenses and higher revenues. Gross margins also expanded to 76.5% in the quarter, due to higher average AUM. We still expect gross margins in the 75% to 77% range, but on the higher end.

On the next slide, you can see the changes in our expenses. Our operating expenses remain well-controlled, up only 7% from the second quarter. Compensation expense increased, as we have seen a rebound in our earnings from the significant decline we experienced earlier this year. Due to this improved forward revenue outlook, we anticipate fourth quarter compensation expense to be roughly in line with the third quarter. Though, it may trend a bit higher, depending upon our results in the last two months of the quarter. Discretionary spending continue to remain well-controlled, despite the fact we strategically increased spending for marketing activities to support our brand and products. We are realizing efficiencies in this new operating environment, such as continued virtual client engagement, which greatly expands our reach. Because of these efficiencies and controlling costs, we now expect our full year discretionary spending to be $41 million. As a reminder, our guidance at the beginning of the year was $51.5 million for discretionary spending, which we reduced to $47 million after the first quarter, and $44 million after the second quarter. We don't believe these reductions will have any negative effect on our long-term growth outlook. Our adjusted tax rate was 16.7% in the quarter. Because of the change in mix between the earnings contribution of our U.S. and European businesses, we see our go forward tax rate at approximately 19%, which is lower than our previous guidance.

Thank you. And let me now turn the call over to our President, Jarrett Lilien.

R. Jarrett Lilien -- President and Chief Operating Officer of WisdomTree Investments

Thank you, Amit, and good morning. I want to now drill deeper into the positive trends we are seeing in both the U.S. and Europe. Beginning with the U.S., the pandemic interrupted momentum that had begun in September of last year. If you remember, February marked our sixth consecutive month of net inflows, which was the best streak the company had experienced in over five years. March and the pandemic interrupted this momentum and brought elevated redemptions. But these have been subsiding each month since. Nonetheless, these outflows have clouded an otherwise positive story, which is that we have also been experiencing strong gross inflows, with average monthly inflows up 27% this year versus last. We are now on pace for our strongest annual sales in over five years, and in the third quarter we generated $2.4 billion of gross inflows, up nearly 100% from a year ago and up 25% sequentially from Q2. Gross inflows for the first three quarters this year have outpaced the first three quarters of each of the past four years. Overall momentum is back and our U.S. listed ETFs have now generated four consecutive months of positive net flows through October. And this is no accident. We are highly engaged with advisors in areas that matter most to them. We are investing in key platforms and partnerships, and we continue to provide strong performing products, including both individual funds and model portfolios. A few highlights, we have maintained the elevated client engagement levels we discussed on both our Q1 and Q2 two earnings calls. Driving our sales success this year, the number of high-quality client interactions have more than doubled from Q3, 2019 levels. This is extremely encouraging and gives us confidence as we look out toward the end of 2020 and into 2021.

Our focus on key partnerships continues to pay off. Net flows in our IBD channel are positive year-to-date. During Q3 one of our largest IBD partners put $42 million to work in XSOE, another partner, a private wealth division of a major bank put $250 million to work in DGRW, doubling their overall allocation. Along with strong flows in WCLD and AGGY, these are also examples of the diversity and broad appeal of our current product lineup. Separately, our models portfolios are resonating with investors and our efforts are gaining traction. In September, we won a third party model mandate from Merrill. This makes us one of 12 asset managers that have third-party models on Merrill's advisory platform. We've launched the WisdomTree Siegel multi-asset income models to help Merrill Advisors and their clients, sell for income in a low rate environment. This is a major endorsement for our model portfolio business. Earlier this month, we announced a collaboration with 55ip to help advisors more efficiently and easily transition clients into model portfolios, with ongoing rebalancing in Tax Management. The combination of our diversified model portfolios and 55ip's technology, which is integrated with the major RIA custodians, will help a broad range of advisors run their practices more efficiently, while delivering better client outcomes. In Q1, we will launch an industry-leading Models Adoption Center the Mac. The Mac helps advisors engage with their customers more effectively around models use. It provides technology tools to understand how models will impact investor outcomes. And coupled with our leading behavioral finance work, it provides workflows to allow advisors to execute model trades in a tax efficient manner.

The combination of elevated advisor engagement, traction within our models initiative, strong partnerships and momentum across a broad product lineup puts our U.S. business in a strong position to drive continued net inflows. Turning to Europe, there is a similar story. In February we had record AUM, the pandemic brought disruptions across our product suite, driving extreme volatility in our energy products and logistics challenges within our gold suite. In Q3, our focus was on growth, and we worked to make our existing platform more competitive and innovative. Some highlights, in August, WisdomTree WTI Crude Oil ETC, CRUD moved to a new index. This was the result of extensive work between WisdomTree and Bloomberg to create an index resilient to extreme conditions in the WTI crude oil market. In September, the total expense ratio for WisdomTree Physical Swiss Gold, SGBS was reduced from 19 to 15 basis points to match the lowest fee offering in the market. In October, we implemented enhancements to the SWOT parameters of our currency hedge, Physical Gold ETPs, and we believe they are now the most competitive products in the market.

Also, in October, we began applying ESG screens across WisdomTree's proprietary equity indices, available to European investors. By the end of 2020, 12 WisdomTree proprietary equity indices will incorporate ESG principles. All of these enhancements have already generated positive returns. During Q3, net flows in our energy exposure stabilized. There has historically been a strong negative correlation between energy prices and energy product flows. As you can see on the chart and slide eight, this trend played out again in 2020. March and April saw strong inflows as energy prices fell, and then flows partially reversed in May through July as oil rebounded. The past three months have seen more stable trends in both energy prices and flows. Separately, our gold platform is positioned to participate in continued strong demand. We have been a beneficiary of increased demand with our gold AUM up $4 billion or 28% year-to-date. While our flow in market share hasn't kept pace in 2020, we were hit unusually hard by the pandemic. Concerns surfaced around the ability to source gold and move it across borders, which negatively impacted the trading spreads of our low fee Swiss vaulted gold product, SGBS and drove heightened demand for blended vaulted products.

We have worked hard and alleviated the technical trading pressure on SGBS, and the fund is now well-positioned. Our initiatives with SGBS and our currency hedge gold products are already having an impact, and we have taken in $728 million in gold flows in the month of October. This represents over 90% share of flows against our European competition. Also important to note is that we are succeeding more broadly within our commodity suite, and now have six ETPs with over $1 billion in AUM, four gold ETPs, one energy and one silver, with silver gathering over $500 million in 2020. Finally, our UCITS platform at $1.2 billion of AUM has reached run rate profitability, following recent growth and some rationalization of the product set. This is an important milestone and will contribute earnings as the platform continues to scale. All told, our Europe business is driving flows from all product suites, and is once again approaching record AUM levels. Overall, we continue to execute against our strategic plans and momentum continues to build across both the U.S. and Europe platforms.

And 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. As Jarrett highlighted, we are seeing strong momentum in our business and the team is executing at a high level to drive results. For example, I'm proud the way we performed to win the third-party model mandate at Merrill. It was a long RFP process that involves team members from across nearly the entire organization. And we beat out roughly two dozen firms to be one of four providers of multi-asset income models. Merrill is the industry leader in home office directed model portfolios, and we're excited to be a part of the investment management model program, which provides their advisors access to third-party models for the first time. The momentum we are seeing in our business and the wins we are producing, like, at Merrill are further evidence that we are operating at the highest levels remotely. Client engagement has been at record levels. Technology has brought our teams in various locations closer and driven productivity gains, and our funds continue to operate flawlessly with coordination with our third-party service providers. After eight months experience of working 100% remotely, we have decided to take a remote first philosophy. While we will maintain a physical presence, we plan to significantly reduce our office footprint in New York and London, which we anticipate will drive $3 million to $4 million of annual cost savings, beginning in late 2021 or early 2022.

However, I want to emphasize that we are taking this action, because we believe it is the right decision for the business, not purely to realize cost savings. Simply put, we are working better as a firm remotely, with better transparency into the business and more which is driving better decisions. We have conviction that this is the right long-term operating structure from WisdomTree. Before turning to your questions, I'd like to spend a minute updating you on our Tokenisation initiative, where we are driving industry innovation. Recall on Q4 last year, we announced our pursuit to launch tokenized versions of core assets, such as gold and treasuries to improve the investor experience and unlock the power of blockchain technology. We approach the initiative recognizing that compliance and regulation at the highest standards would be required to gain the necessary approvals, and differentiate our offerings from current digital assets in the market. We have found the SEC happy to engage as we approach tokenisation, fully embracing their foundational principles of investor protection, and maintaining fair and efficient markets. Earlier this month, I participated on a panel at a conference focusing on the innovation and regulation of digital assets. SEC Chairman, Clayton also participated in the event, where he made clear the door is open for tokenized ETFs that add efficiency. And we believe we can unlock the power of blockchain to achieve that.

While there is no specific timeframe for regulatory approvals, or what product launches, we are confident we are at the forefront of the industry and have the right approach to gain regulatory approvals and deliver a best in class product to the market. We look forward to sharing our progress on these important initiatives in the coming quarters. We have restored the momentum built prior to the pandemic through steadfast focus on what we can control, and strong execution amid a highly volatile and unusual year. Year-to-date, net flows have turned positive with the strength of our U.S. and European-listed products in October. Important elements across our global franchise are starting to align, and I am excited about our growth outlooks for the remainder of the year and into 2021.

With that, we thank you for your interest in WisdomTree. And we will now take your questions.

Questions and Answers:

Operator

[Operator Instructions] The first question comes from Craig Siegenthaler with Credit Suisse.

Craig Siegenthaler -- Credit Suisse -- Analyst

Thanks. Good morning, everyone.

Amit Muni -- Executive Vice President and Chief Financial Officer

Good morning.

Craig Siegenthaler -- Credit Suisse -- Analyst

So following the Morgan Stanley- Eaton Vance merger announcement, we were looking for an update on your thoughts around asset manager M&A. And if you think a financial services firm with a large wealth manager could help accelerate WisdomTree's AUM growth.

Jonathan Steinberg -- Founder and Chief Executive Officer

Thanks, Craig. So first, as we discussed on the call, momentum is returning to the core business. We have higher earnings in 2020 versus 2021. And we have what we believe is an incredibly valuable franchise, and doing things to create more value to the franchise. But there's no question that the outlook for M&A seems to have improved with more firms participating, and obviously, encouragement from certain investors for transaction.So, it's clear that the environment has improved. So, we do recognize our fiduciary responsibility to our shareholders, and the need to maximize shareholder value. So as always -- and this is not a change. We would consider things if things emerged. That said, we believe that we're doing everything to grow faster and that we have the right strategic vision to grow as an independent company.

Craig Siegenthaler -- Credit Suisse -- Analyst

Thanks, Jono. And just a follow-up the macro one here. Given the robust efforts of global central banks stimulate economic activity, and then indirectly potentially higher inflation, can you comment on if you're seeing different investor groups raise their long-term allocations to gold, which could benefit your flagship European products like PHAU and GBS?

Jonathan Steinberg -- Founder and Chief Executive Officer

Well, for sure, we have a very strong internal outlook for gold. But Jeremy, why don't you take this question?

Jeremy Schwartz, CFA -- Executive Vice President and Global Head of Research

Yes. We started talking about this actually, maybe two quarters ago on the call that we do have a view, and our team has been talking about the increased importance of gold with all the fiscal spending. I mean, even more than the central banks is that you have big fiscal packages, and that's one thing. And I've worked with Professor Siegel for 20 years. He was just to showing the skeptics coming to gold, he had not been a big fan of gold. And he, in our model portfolios that we run with him, he added gold allocation is just an example of that. There are people who didn't allocate to gold before coming along, and we do believe there's going to be higher inflation. We've been talking about maybe 3% to 5% for the next few years, when we've been trying to get to 2% inflation. And so, we do believe gold has an increasing importance, and that franchise is a really important part of that.

Jonathan Steinberg -- Founder and Chief Executive Officer

I mean, let me just add before we move off of gold. We spoke in the prepared comments about our tokenisation efforts. So, we see a new technology to come out for an enhanced wrap up. A blockchain smart contract, regulatory approved wrapper. And that this new wrapper, not only will affect asset management, but we think it has the ability to transform financial services. And that's being anchored by a belief in and conviction that we will see a central bank digital dollar that's based on the blockchain. So we cannot see gold emerging. Right now, Gold's at the height of innovation for gold, or ETPs. But we can see gold emerging as a global currency using this new technology, and that the outlook with inflation and on all of the stimulus worldwide, the debasing of fiat currencies really adding value to gold as an exposure through the new technology. So, thanks Craig, for the question.

Craig Siegenthaler -- Credit Suisse -- Analyst

Thank you, Jono. Thanks, Jeremy.

Operator

Our next question comes from Brennan Hawken with UBS.

Brennan Hawken -- UBS -- Analyst

Hey, good morning. Thanks for taking my question. Jono, I just wanted to probe a little bit on the working the remote first plan. Could you maybe give a little context of how you came to the decision? I think you're actually the first company that I cover that has come out with this. And obviously, this disruption has shown us how much we can all achieve from our living rooms. But what were the major considerations that you weighed? How did you counterbalance the benefit of efficiency, smaller footprint, less cost with maybe some challenges in collaboration between teams? What processes are you going to put in place to ensure that that collaboration continues? I mean, WisdomTree is such an innovative firm, that I would think collaboration and the need to sustain that creative energy is an important part of your culture. So I'm curious about how you are going to try to ensure that that's maintained.

Jonathan Steinberg -- Founder and Chief Executive Officer

Thank you for that question. Jarrett, do you mind starting giving your thoughts and I'll add on at the end?

R. Jarrett Lilien -- President and Chief Operating Officer of WisdomTree Investments

Sure. Well, starting out, necessity is the mother of all invention. This was sort of forced upon everybody, as we all know. So we went remote in March. Our transition was flawless. We adapted really quickly. One of the really important things we did right away was ramping up communication in all areas, and that was not only internally, but also externally with our clients. And that was also partially responsible for that elevated client engagement that we're seeing. But what we found through our experience is that we operate better remotely. We spend more quality time on a broader set of topics with more people. We feel actually closer to the business and closer to our employees and closer to our clients. So, it made us rethink what's an office good for. And as you pointed out, certainly there are things that being physically together is very important for collaboration, socializing, on-boarding new employees and some cultural parts that are very important to us.

But, when you identify those you solve for them, which is what we've been doing. So our overall conclusion is that we found a better way to operate, which gives more flexibility to our employees. It will still call for a physical footprint, but a much smaller one. So, again, this is probably something definitely something without a pandemic, we would never had the experience, and with the experience are so many benefits that we found that we will definitely carry forward into the future.

Jonathan Steinberg -- Founder and Chief Executive Officer

And I guess the way I would nuance it a little bit, so you asked about sort of the creativity in the collaboration. I feel great conviction that that actual meeting will not ever go back to physical, that it'll remain virtual. We're finding that it is -- we're not missing anything from a collaborative or creative standpoint, and where we want to really keep our eye on things. And I think it's really we're physically getting together will matter, will be just to maintain our culture over time. So, I think we answered your question, but if there's a follow on, let us know.

Brennan Hawken -- UBS -- Analyst

Yes. You did, certainly. I mean, to the extent that any of this stuff is known at this point, it's such an unknown. And I just was kind of curious about how you're dealing with it. Maybe and this might be something that you might not want to discuss or what have you. But I guess, have you all developed or created alternative brainstorming sessions or meeting places where -- because the thing about the office that at least, and maybe I'm just projecting a little of my own frustration sitting in my living room for six months. You don't have that frictional bump into people at the water cooler phenomenon that can sometimes lead to its opportunities getting explored. And so that sort of natural friction can sometimes create good things in an office environment. Is there a specific attempt to try to recreate that? Or have you found that if you can create a similar sort of proxy via online chatrooms or Zoom meetings or what have you? Just curious about how balancing that? Or maybe I'm just putting way too much emphasis on that and it's really not that important.

Jonathan Steinberg -- Founder and Chief Executive Officer

Well, first, I would say that, at WisdomTree, we've all embraced it. And so we're all getting together more frequently. We've certainly tried to break out opportunities for sort of water cooler life experiences, where we are posting one on ones with people who don't usually get together. We're bringing certain groups together to highlight like recently, new employees that have been on-boarded since we went virtual for the rest of the company to see. First of all, physically getting together feels like it's delayed, because of where COVID is. So it's not coming back very quickly, we think. And so we're not -- I don't think we're suffering in any way from just sort of communicating and spurned things on, at least I'm not finding it in any way.

And from the way we have been working on things like product development, not only or we find that we're creative, but we're also making it better in the globalizing our product development, because one of the great things for us has been how inclusive for sort of the U.S., New York leadership team can interact with non-New York employees. So the European team and the non-New York, U.S. team have never been more closely aligned. And again, we will create opportunities when we are allowed to get together to socialize and hopefully have creativity. But I really don't think it's hurting us in any way. Now, let me just say that one. And if we want to change our mind, space always is available, and we can always change our mind. But again, I have great conviction that the physical meeting will be replaced by the virtual meeting on a going forward basis.

R. Jarrett Lilien -- President and Chief Operating Officer of WisdomTree Investments

And just adding a couple things. On the internal side, again, as Jono said, we've recreated a lot of social situations, and again, those communications. But on the customer side, it's also been really fascinating, and I think, in a way helps to level the playing field a little bit. Previous to this, the size of your distribution team was an advantage, and so ours being relatively smaller was a greater disadvantage than it is today. And as our sales people, and as our clients have adapted to this and started using more video, and then where Jono was saying, will the physical meeting really ever come back to what it was. Previously it was expected that you visit people, now it's not. And now you can cover so many more people so much better with the video call, video content. And we're excelling in those areas. I think it's directly leading to improvement in the tone of our flows.

Jeremy Schwartz, CFA -- Executive Vice President and Global Head of Research

And Jarrett, if I could add, this is Jeremy. I'd say, I have a lot of client facing, the research team also really aids in a lot of the sales process. And I'd say my events and how many people I've been able to personally speak to over the course of the year has gone up, even though we're not traveling. And that's to Jarrett's point on the pandemic boosting things you might not have done otherwise, we're doing so many more what we call like office hours series or we invite a broad group to come listen.

I'm doing more client events for our clients' clients, where maybe we won't have hosted a dinner for a broad group. You can only do still many of those. I could host three Zoom calls in a day and get to peoples clients. So I think we are hitting more people in an efficient way, and I think it's been very productive in addition to the outward facing, the internal collaboration has gone seamlessly as well.

R. Jarrett Lilien -- President and Chief Operating Officer of WisdomTree Investments

And I want to add maybe one final comment is, what we found is we're operating better. We found all these benefits. But again, the driver was really safety first. I mean, we really wanted to make sure that our employees were safe as possible. We've been very, very conservative in making sure that people are not put in harm's way. And so, safety first and then we found that there are all these benefits.

Brennan Hawken -- UBS -- Analyst

Those are all really, really fair points. And look, you guys have always been innovative. So, I'm sure if there's a way to figure it out you guys will do it.

Jonathan Steinberg -- Founder and Chief Executive Officer

Yes. One last thing on this. One last thing on this. We have left legacy infrastructure sort of like when as we approached asset management we had left legacy infrastructure, so we could go where the world was going. Lots of asset managers and financial service companies have really a heavy investment to their physical presence, much more than we do. And that probably isn't so easy to give up. It's less easy. And my guess is that over the next decade, you will see others follow in our path.

Brennan Hawken -- UBS -- Analyst

Great. Thanks for that.

Operator

The next question comes from Robert Lee with KBW.

Jeff Drezner -- KBW -- Analyst

Hi. Good morning. This is Jeff Drezner on for Rob Lee. Hope everybody's doing well. So just had a quick question, and I apologize if you had mentioned this earlier. But in terms of pricing on the gold ETFs, it seems that Europe, the prices on some of the gold ETFs are a bit higher than peers. And I was just wondering, if there was some sort of issue to think of some sort of price change or how you think about that?

Jonathan Steinberg -- Founder and Chief Executive Officer

Jarrett, you want to start and then I'll jump in?

R. Jarrett Lilien -- President and Chief Operating Officer of WisdomTree Investments

Sure. It's an important question, and we look at the quality and positioning of our products every day. So when it comes to gold in Europe, we think we're in a good position. We have a suite of different gold products, serving different clients at different price points. Really, what we saw that happen to us this year that I think was the real cause for us not taking in as much share as we normally would have was the pandemic. And all of these concerns surfaced during the pandemic, around the ability to source gold and move it around across borders, and that had a negative impact on trading spreads, most specifically on our low fee Swiss vaulted product. We spent a lot of time working on these sort of technical issues. We got spread back to more than competitive rates. We also made enhancements to our other hedged physical gold products. And all that got put in place during the quarter, and then you've already seen the impact. And I think it's sort of the proof point is that, by getting the spreads back to a good place on Swiss gold and then making some other enhancements that made our other gold products, we think the most competitive in the market, it had an immediate impact. And we saw, we took in the majority of gold flows in October went to WisdomTree.

Jonathan Steinberg -- Founder and Chief Executive Officer

And I would just add, so we bought ETFs securities, they had the earliest and broadest gold platform in Europe. And what I always say about beta, the economics you lie with, first to market beta, which is what we bought. So, we have a number of early gold products that have sort of best in economics in Europe, not dissimilar from what State Street has in gold in the U.S. Similar to State Street in the U.S., we've also launched lower fee gold. And I'm quite pleased with the way the historical funds have maintained their AUM, so that we are trying to balance strong cash flows with that organic growth.

Last year, our Swiss gold, which we launched under WisdomTree's ownership, was very quickly growing. And again, with an unusual interruption COVID provided where there was a concern you couldn't move gold bars from London to Zurich, that had subsided. And so we feel very good with our low fee offerings as well. And our low fee funds $3.5 billion almost $4 billion fund also, so incredibly competitive. And then we have differentiated gold with the with the currency hedge gold, which is a hallmark of WisdomTree as well as ETFs securities historically. And net-net we have the most knowledgeable team in the marketplace. And I think we're really very well-positioned to participate now that the markets have normalized for gold going forward.

Jeff Drezner -- KBW -- Analyst

Great, thanks. And if I could just have a quick follow-up. Just to kind of a broad overview of maybe in terms of non-transparent ETFs and how you guys think about that and how that's shaping up?

Jonathan Steinberg -- Founder and Chief Executive Officer

Sure. I've been pretty clear that this was not what I believe to be an investor requested quote innovation. So, I think that there's a bit of that $650 million raised in non-transparent active. I think much of that comes from sponsor seed. And so I think it's still very early days. I don't particularly think it's a big category, I certainly don't think it's going to challenge ETFs for investor interest. I mean, I think what we're doing on digital assets and tokenisation is much more relevant as a going forward exposure. And so, we believe in active, whether it's index based or truly transparent active, but not particularly excited about what has been launched for the outlook for non-transparent active.

Jeff Drezner -- KBW -- Analyst

Great. Thanks for taking my question.

Jonathan Steinberg -- Founder and Chief Executive Officer

Thank you.

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 was just hoping if we could dig in a little bit more on the distribution. And if it is, certainly, congratulations on the Merrill platform win there. But I was just hoping maybe you could dig into some maybe more on the IBDs and RIAs. What that pipeline is looking like? And how you're thinking about that opportunity set here?

Jonathan Steinberg -- Founder and Chief Executive Officer

Jarrett, you want to start?

R. Jarrett Lilien -- President and Chief Operating Officer of WisdomTree Investments

Sure, that's a pretty broad question. I think when it comes to channels, yes, I still think there's quite a lot of opportunity in all other channels. But what I look at is still at this point, which is amazing to me is what's the mix between mutual funds and ETFs. And in the wires, you still have a lot of mutual fund holdings. And then in the RIAs though, it's skewed even a little more to mutual funds in the IPs, again, even more to mutual funds. So, that's our opportunity for ETFs. And that's one reason that, we focus and spend a lot of time on all the channels, but specifically on the RIA and IBD channel. As we said in some of the prepared remarks, the IBD channel has been net positive year-to-date. We actually saw in terms of channels turning positive, again we've now in the U.S. had four consecutive months of net inflows. The IBDs led that then followed by the RIAs, and then the wires. So we continue to focus on all.

In terms of models, which I think is a big part of the question too, and it ties in though this distribution. A key part of model success is a number of things, you've got to have good models, good IP, which we have. But you need good partners. And so, partnering with again, the IBDs, RIAs, the Merrill win was a great example and is super helpful, but so are things like other partners. 55ip, it's something that makes it easier and more efficient for advisors to transition the models in a tax efficient way. We're also adding things and this is content that is available for all of our partners. We do a bunch of proprietary research. We've done some really good proprietary research on ESG, helping clients understand both -- advisors understand what their own clients are thinking and kind of addressing any disconnect. But when it comes to models, we did some proprietary research, interviewing thousands of advisors in there and clients, and again, helping to dispel myths and misunderstandings and help really bring advisors, their end clients and models together. So, it's a real holistic approach. Hopefully, it was a long answer addressing a lot of things. But, we're applying all of these things to all of the channels. And again, I guess to your question seeing a lot of success with the IBDs as well.

Michael Cyprys -- Morgan Stanley -- Analyst

Great. And maybe just want to follow-up -- go ahead.

Jonathan Steinberg -- Founder and Chief Executive Officer

Before you Jarrett, let me just add one thing about metal. So first, that RFP process was handled completely remotely. And so our interactions which included multiple team members, including Professor Siegel was done flawlessly.

And I think many of you, I think you might go understand how much frustration I've had with what we call modern alpha penetrating the wires. Well, obviously our WisdomTree models are open architecture, but there's a significant amount of WisdomTree proprietary what people call smart beta, what we call modern alpha exposures in our models. And so really, it's mainstreaming WisdomTree's approach to ETFs in the wires. And because now that we are a preferred partner in a very important initiative for metal, we expect this cascading effect within metals beyond models, because of all of the greater activity that we have on their platform. I'm sorry to interrupt you. You had a second question.

Michael Cyprys -- Morgan Stanley -- Analyst

Yes. Thanks for the added color. I just wanted to dig in a little bit more on the ESG enhancements that you were referencing to the European product set. And I was hoping you could elaborate on that. Maybe just talk a little bit about the opportunity set there. And what's the appetite, if any, for launching a full suite of U.S.-based ESG, ETFs here in the U.S.?

Jonathan Steinberg -- Founder and Chief Executive Officer

Jeremy, our Director of Research, do you mind answering this to start?

Jeremy Schwartz, CFA -- Executive Vice President and Global Head of Research

Yes. I think from the ESG investor standpoint, you've seen a lot more leadership out of Europe and looking for this, and really even requirement to be really competitive. And so really, across our equity family there we've now embraced ESG screening as part of basically over the next set of rebounds to some of the funds have just rebalanced within the last few weeks. And they are now incorporating ESG screens in addition to our traditional modern alpha index methodology. That's going to continue to make sure as we go throughout the rest of the year, the whole family will be that way. Really, in the U.S. we also did transition three funds to be ESG forward ESG fully integrated. They actually transitioned basically the day everything shut down in the U.S. So this is one that hasn't been a number one sort of focus at the moment. But we do have three from U.S. international emerging markets that run actively. It incorporates our newest thinking on multifactor strategy that also incorporates this ESG factor in selection and weighting. So we are making more of an emphasis on this both in Europe and in the U.S.

Jonathan Steinberg -- Founder and Chief Executive Officer

Jarrett, do you have anything you want to add or was Jeremy completed?

R. Jarrett Lilien -- President and Chief Operating Officer of WisdomTree Investments

Yes. I would add just a couple of things to it. It's sort of like a lot of the initiatives. Models is another one where you can't just put together a few models and sort of hope for the best. You've got to come at it with your partners, with content, with education and research and so on. And it's the same thing for ESG. I don't think you can just launch product, you've actually sort of got to mean it. And so a few things that we've been working on this for well over a year. Back in early 2019, we became a PRI signatory. Earlier this year, we released our first Corporate Social Responsibility report. We've done a lot of things internally. We've got what we call women's initiative network at WisdomTree. We've got ESG friendly proxy voting that Melon helps us with. It's across all the equity funds. We've got a number of community service activities. We've got Board policies focused on diversity, equity and inclusion.

We're currently internally doing a more broad diversity, equity and inclusion review for the whole firm. And basically, all of these are important. I think we've always been a good corporate citizen, but we're always striving to be better. And that's really the backdrop. And then against that you have what Jarrett mentioned, we do have a suite of three ESG products in the U.S. I'd like to see us even have more, sort of that proprietary. Research, I mentioned more content that's helpful to advisors in embracing this. And then the things that we're doing to enhance our screens in Europe. So it's a holistic approach that we've been working on for quite some time.

Michael Cyprys -- Morgan Stanley -- Analyst

And just I think another one -- I'm sorry, go ahead.

Jonathan Steinberg -- Founder and Chief Executive Officer

I was going to say, Jeremy, you might want to just our original sort of ESG, the one that focused on the G on the governance or ex-state owned, maybe you want to just touch on that as part of the broader suite as well.

Jeremy Schwartz, CFA -- Executive Vice President and Global Head of Research

Sure. And this has been one of the award winners in the ESG category in the U.S. We have three ex state-owned strategies. One, XSOEs are broad emerging markets. China ex state-owned, CXSE, and then more recently in India. And that has been a flow leader for us this year. Ex state-owned in the broad sense, when the broad emerging market categories has been tough and seeing a lot of outflows from the biggest funds, it's raised over around a $1 billion, and now our second largest fund in the U.S. And so this is a fund that has really strong performance. And that's why people like -- when people are going toward ESG, there's this question, are you forced to sacrifice performance. And we don't think you are. This one exemplifies that having a live six year track record, it does get there in the E also but you can see underweight [Phonetic] energy in the broad emerging market sense. And so, we're excited about that family as part of this ESG effort.

Michael Cyprys -- Morgan Stanley -- Analyst

Do these ESG funds have ESG in the fund name? Or is that something you consider adding to enhance the appeal and to ensure folks are aware that these are ESG funds?

Jonathan Steinberg -- Founder and Chief Executive Officer

Jeremy?

Jeremy Schwartz, CFA -- Executive Vice President and Global Head of Research

The three I referenced earlier do have ESG there, the ex-state-owned. We are emphasizing the governance element being the ex-state-owned, and then an additional support we talk about it there as well.

Michael Cyprys -- Morgan Stanley -- Analyst

Okay. 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. I was wondering if I could start or if you could start with a little bit more detail around how Mac will work. Ultimately, how we think about economics indices on ETFs or other revenues? And if there would be any sort of incremental expenses.

Jonathan Steinberg -- Founder and Chief Executive Officer

Jarrett, I think, could you start with the Mac?

R. Jarrett Lilien -- President and Chief Operating Officer of WisdomTree Investments

Sure. So, the Mac, it's something again, we're going to launch in the first quarter. That stands for just in case everyone didn't get it, the Models Adoption Center. And that really sums up what it's about right now. And our research shows this, there's still a little bit of a disconnect. A lot of advisors believe that they need to show their clients their value by being portfolio managers. And actually, our research shows that clients don't necessarily agree with that. If position that you're getting access to the best in portfolio management and asset allocation and the best in models, clients actually think that's a better choice for their advisors to be participating in.

So that kind of disconnect is really important to solve for and getting advisors and clients to adapt models. So the Mac has a lot of content there, but it also brings together all the other elements. As I was saying before, being successful in models is about that kind of research and education. It's also about the models themselves. But it's also about things like workflows, and not so much for the wires that have those kind of workflows. But again, for some of the RIAs and IBDs where those workflows are really important access to the custodians, access to rebalancing, and access to doing that all in a tax efficient way. So, really the Mac, we don't see anything like it out there. We believe ours will be the first and therefore the best. But it brings together everything that an advisor needs to be successful with models.

Ryan Bailey -- Goldman Sachs -- Analyst

Got it. I guess maybe kind of following on from that. The Merrill win was definitely very encouraging. I suppose when you think about the competitive dynamics in the model portfolio space, are competitors competing with you mostly on price? Or are they also competitive on sort of quality track record and other services? And I guess, we sort of know where you stand out on the education and the quality and track records. Are they trying to compete as an offset on price, I guess is the question?

Jonathan Steinberg -- Founder and Chief Executive Officer

Let me start. This is all in packaging. So you're competing on net expense ratios for the portfolio, for sure. Open architecture is a big importance to most advisors. The ease of use is crucial to win. This is supposed to be a capacity enhancer for the intermediary, the financial intermediary. And so ease of use, whether it's the Mac or 55ip, it's incredibly important. And then obviously, performance of the funds themselves of the portfolios are one element that also goes into it. It's an all in competitive package that we don't sacrifice on any of those elements. Jarrett, if you want to add on that?

Jeremy Schwartz, CFA -- Executive Vice President and Global Head of Research

Jono, if I could add.

Jonathan Steinberg -- Founder and Chief Executive Officer

Jeremy, go ahead.

Jeremy Schwartz, CFA -- Executive Vice President and Global Head of Research

I was going to say a lot of the times some of the model providers are charging fees. And we are really offering many of our models really with no fee on the strategy side. And so we are open architecture, and really just collecting fees from the underlying economics on the funds. To that point -- just -- I think we are in the Merrill income models that we're running. I think we are the most competitive on a fee standpoint, with the lowest type fees on that platform, both not charging the fee on the model, but also just the selection that we put in there is the most competitive. So I think we're excited about that.

R. Jarrett Lilien -- President and Chief Operating Officer of WisdomTree Investments

Yes, and I guess, I'd just add, one of the advantages I think we have is that this is a top priority for us. We're really focused on this from the top throughout the firm. We've got our sales team focused on it. We've done extensive training on the product with our team. So we're really well versed in it. And then simple things like what Jeremy just mentioned, we don't charge generally any kind of strategist fee on top. Funny enough, that can be a differentiator. And the thing Jono mentioned open architecture where WisdomTree funds make up a big part of the allocations within the fund, but there are competitors' funds in our models. And to me, that sounds like that should be standard with us. That is standard, but that's not necessarily standard for the industry. So, just a real all-encompassing solution that we have here that we're all very excited about.

Ryan Bailey -- Goldman Sachs -- Analyst

Thank you. That's really interesting. And thank you for taking my questions.

Operator

Our next question comes from Keith Housum with Northcoast Research.

Keith Housum -- Northcoast Research -- Analyst

Good morning, guys. Just a follow-up question on the Merrill Lynch deal. In terms you guys will be joining several other players in that space. Can you give provide a little bit color in terms of how long you think will act? And how long it will last? In terms of what do you hope to see some impact from the models you have out there? Then of course, because you have another difficult comparison same place, it was Merrill Lynch. How do you differentiate your models in there versus everybody else's?

Jonathan Steinberg -- Founder and Chief Executive Officer

Jeremy, do you want to start on this?

Jeremy Schwartz, CFA -- Executive Vice President and Global Head of Research

Yes. I think just add on, I think, it relates to the last question as well. One of the data points we find there is a study of 4,000 model portfolios, and that the average expense ratio was 64 basis points in those models. And our models are really half of that. And so I think we are -- just to keep emphasizing this open architecture in nature. We are building across passive active. We're using our modern alpha approach as many of the exposures. But I think we're trying to compete on selection, waiting, how we're putting these efficient strategies together.

Jonathan Steinberg -- Founder and Chief Executive Officer

And what I would add is, metal themselves had a very strong proprietary home office model business, meaning no models. They actually do not have a multi asset income model. So we're not actually competing with metal themselves, but with the other three asset managers who will also be included in this third-party mandate. And we're under the impression that this was, if not the most requested hold in the Merrill model opportunity, multi-asset income was, if it's not the most, it's one of the most requested. So we're very bullish on it. And it's nice to only be competing with third-party model managers and not Merrill Lynch themselves.

R. Jarrett Lilien -- President and Chief Operating Officer of WisdomTree Investments

And you know, another thing too, we could probably go on and on about models, but we work with our partners to customize. And so there's some level of customization with the Merrill models. But we also have some partners in the RIA and IBD space, where they're leaning on what we've developed, which is real models IP, and utilizing our models IP, we've developed custom models. We're having great success with those as well.

Keith Housum -- Northcoast Research -- Analyst

I know this was announced in September, but as they're already on their website and ready to run? Or it's just going to be put up there throughout the rest of the year?

Jonathan Steinberg -- Founder and Chief Executive Officer

They launched it September 1st, it's up and running. It's early days, but it's up and running.

Keith Housum -- Northcoast Research -- Analyst

Got you. And then just a follow-up question. I mean, I know you guys have talked before about the preferences to save the cash for you need to pay off the debt when a few years from now. But with the share price where it's at now, and perhaps the opportunity for rates to be above for a while here. Is there any consideration of buyback more shares now and perhaps try to refinance the debt when it comes due?

Jeremy Schwartz, CFA -- Executive Vice President and Global Head of Research

So, we've already bought back about $30 million worth of stock. So I'd say right now, when we think about capital priorities, it's to support the dividend, invest in the business and we've to build that cash to eventually refinance the debt. The debt is not callable early. It's got a three year term. So, we do have to wait for that. So that's why we did the buyback earlier this year.

Keith Housum -- Northcoast Research -- Analyst

All right. Thanks.

Operator

Our next question comes from Mike Carrier with Bank of America.

Shaun Calnan -- Bank of America Merrill Lynch -- Analyst

Hi guys, this is actually Shaun Calnan, on for Mike. So just a quick one from us. Earlier in the year, you mentioned that capital gains in mutual funds this year would create an opportunity for a shift from mutual fund assets into ETFs toward the end of the year. So we just want to see if you still expect that here in the fourth quarter.

Jonathan Steinberg -- Founder and Chief Executive Officer

Jarrett or Jeremy, would you like to start with that?

R. Jarrett Lilien -- President and Chief Operating Officer of WisdomTree Investments

Jeremy, why don't you start and then I'll add-on.

Jeremy Schwartz, CFA -- Executive Vice President and Global Head of Research

Yes, I mentioned we were doing these office hours series that was actually the topic of one of our office hours just this week. And we do have a tool on our website to help advisors find capital gains that are expected to be paid across the industry. There was outflows across traditional funds. And you can see funds that potentially have capital gains exposure built in and we're starting to see some of those come out. So yes, we would expect this feat to be a season where there was turnover and outflows that could then put more pressure on capital gains. So I think that is something we'll see. The question, will investors then react to that, but we do think it highlights the benefit of ETFs and it continues to be a great talking and an education point for us.

Shaun Calnan -- Bank of America Merrill Lynch -- Analyst

Okay, thank you.

Operator

I'm not showing any further questions at this time. I would like to turn the call back to Jonathan Steinberg for closing remarks.

Jonathan Steinberg -- Founder and Chief Executive Officer

Thank you all for your interest and participation on today's call. And we'll speak to you next quarter. Thank you, everybody. Have a good and safe day.

Operator

[Operator Closing Remarks]

Duration: 63 minutes

Call participants:

Jason Weyeneth -- Director of Investor Relations

Amit Muni -- Executive Vice President and Chief Financial Officer

R. Jarrett Lilien -- President and Chief Operating Officer of WisdomTree Investments

Jonathan Steinberg -- Founder and Chief Executive Officer

Jeremy Schwartz, CFA -- Executive Vice President and Global Head of Research

Craig Siegenthaler -- Credit Suisse -- Analyst

Brennan Hawken -- UBS -- Analyst

Jeff Drezner -- KBW -- Analyst

Michael Cyprys -- Morgan Stanley -- Analyst

Ryan Bailey -- Goldman Sachs -- Analyst

Keith Housum -- Northcoast Research -- Analyst

Shaun Calnan -- Bank of America Merrill Lynch -- Analyst

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