Wisdomtree Investments Inc (WETF) Q4 2020 Earnings Call Transcript

Wisdomtree Investments Inc (WT -0.90%)
Q4 2020 Earnings Call
Jan 29, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the WisdomTree Q4 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Jessica Zaloom, WisdomTree's Head of Corporate Communications. Please go ahead.

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 the WisdomTree's annual report on Form 10-K for the year ended December 31, 2019 and quarterly report on Form-10-Q for the quarters ended March 31, 2020 and June 30, 2020. WisdomTree assumes no duty and does not undertake to update any forward-looking statements.

Now it is my pleasure to turn the call over to WisdomTree's CFO, Amit Muni.

Amit Muni -- Executive Vice President and Chief Financial Officer

Thank you, Jess and good morning, everyone. I'll quickly walk through the highlights for the fourth quarter and then turn the call over to our President, Jarrett Lilien, who will provide a recap of 2020 and strategic plans for 2021. I'll provide an update on the expense guidance and then turn it to Jono for his closing thoughts before we open the lines for Q&A.

So, beginning on Slide 2. We ended the quarter with assets under management of $67.4 billion, up 11% from the third quarter from a combination of positive market movement and $900 million of net inflows. During the quarter, we experienced a continuing trend of strong flows of $1.4 billion into our ex-state owned strategies. We took a $900 million into our currency hedge gold and Swiss vaulted gold products. Also continuing the trend all year were flows into our thematic funds. We generated $600 million across our cloud computing, battery technology and artificial intelligence funds. Given its strong rally, we also took in $50 million into our Bitcoin fund, bringing its AUM now to $165 million. The strong momentum we are experiencing exiting 2020 is continuing. Flows continue to remain strong, taking in over $600 million and bringing our AUM to almost $70 billion.

Now turning to the financial results on Slide 3. Revenues were $67 million for the quarter, up 4% due to higher average AUM and a slight decrease in our fee capture due to mix change. On a GAAP basis, we had a net loss of $13.5 million. Excluding non-operating items, adjusted net income was $9.2 million or $0.06 a share. This quarter, we took a non-cash after-tax charge of $22 million for our future gold commitment payments, primarily due to a change in the discount rate we used to record this liability.

Turning to margins on the next slide. Our operating margin was 19.2%, reflecting higher seasonal expenses. Gross margins were 75.6% in the quarter on the lower end of our guidance range as we incurred final costs related to passporting our funds into the EU due to Brexit and fund rebalancing fees in the US.

On the next slide, you can see the change in our expenses. Our operating expenses were $54 million in the quarter. Compensation cost increased, bringing our full year compensation to $74.7 million, below the low end of the range we gave at the beginning of the year. We also incurred higher marketing and sales-related spending, which generally picks up as compared to the summer months in the third quarter. For the full year, our discretionary spending was $41 million, also well below the guidance we gave at the beginning of the year.

Now I'd like to turn the call over to Jarrett Lilien.

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

Thanks, Amit. I'm very excited about our business. We ended 2020 with strong growth in momentum and that momentum is continuing in 2021 and we are well positioned and have a strong 2021 growth plan. In terms of growth in momentum, last March we hit a pandemic low of $46 billion in global AUM. From those lows global AUM rebound 46% to end 2020 at a record $67 billion. What shined through during this period was the balance of our global AUM mix with US equity at 27%, gold at 26%, international equity at 14%, emerging markets equity at 13%, commodities at 13% and a growing 7% share for fixed-income and alternatives. In 2020 this diversity dampened volatility. For 2021, it positions us for further growth.

What also shined through last year was our underlying organic growth. Turning to Slide 7. The US ended the year with six consecutive months of organic growth and an annualized pace to add $3 billion in new net flows in the US alone. We are now in our seventh consecutive month of organic growth, our best performance in over five years and US AUM is now back over $40 billion. Europe ended 2020 with its second consecutive year of record organic growth and momentum continues. We have five product suites that are all growing. We have six funds over $1 billion and 240 overall funds that are volatility tested and represent best structures in the market. In rounding out Europe, our UCITS suite is now over $2 billion, with thematics adding $400 million in January alone. To date, we have seen global organic growth of $630 million assisted by more than $1 billion market move and now have global AUM at a new record, just shy of $70 billion.

Turning to Slide 8. For 2021, our products are extremely well positioned and we have a strong growth plan to keep the fire burning. Consensus points to a low interest rate environment, a shift to value and strong prospects for inflation. There also continues to be strong interest in thematics and ESG. We could not be better positioned with our dividend strategies, our leadership position in gold and commodities, our best-in-market crypto ETP offering, our cloud AI battery in recent global cyber security launch, as well as our leading ESG offering. This product diversity and positioning enhances both the quality of our flows as well as our prospects for continued growth.

Turning to Slide 9. In drilling deeper on ESG, our plan is to be the leader in this space and we are already ranked third in the US by ESG assets behind iShares and Invesco. Our multi-factor and ex-state owned suites, six funds and $5 billion in AUM in total, each represent differentiated performance oriented investment strategies. This month we further enhanced our ex-state owned suite by adding additional environmental and social screens, ensuring they will show up in more third-party ESG classifications and be more visibly oriented investors. In Europe, the same broad ESG screen has been applied to our core UCITS equity funds to meet increasing local market demand for such considerations in traditional exposures. Being a leader means more than just product, it's a holistic package of thought leadership, education, company level initiatives and products and performance and we have been advancing all of these for years.

Turning to Slide 10. We are looking to accelerate our momentum through targeted investments both in today's growth and tomorrows. In 2021, we are targeting 20 new global launches with a focus on core tactical thematic and ESG exposures. We will also invest in marketing and sales to further drive client engagement. In 2020, we were able to drive record client engagement in a remote working environment. Quality client engagement, which includes providing the best products advisor solutions and client service. This is what drives flows and this is where we are focused.

In addition, we continue to make progress with our model portfolio offering and expect a meaningful portion of our 2021 flows to come to us through models. As we've discussed before, model flows tend to be stickier and have a greater lifetime value to the firm, we see these flows adding to the overall diversity and quality of our asset mix. All the while, we're investing in efficiency. Remote working has worked for us. We've transformed our operating model and we are working as a global team better than ever before. With a fresh perspective, we have found new efficiencies, adding scalability to our model and giving us scope to make further investments in future growth. Our vision is to continue with a remote-first approach post-pandemic, ensuring that these efficiencies are permanent and carried into future years.

Looking further into the future, we are in the business of providing best-in-market exposures. We already have top ETP executions around the world. For the future, aside from the previously mentioned launches, we will maintain our leadership position in crypto ETPs, while also establishing ourselves as a leader in digital assets. This last initiative holds the promise for WisdomTree to tap additional revenue streams, further accelerating organic growth in what we see as the next chapter in financial services.

Let me now turn the call back to Amit to give color on how this all impacts our 2021 expense guidance.

Amit Muni -- Executive Vice President and Chief Financial Officer

So turning to Slide 11. With Jarrett's comments as a background, I'd like to give you some guidance on how we're thinking about expenses in '21. Compensation expense was $74.7 million for 2020, and we project it to be between $75 million and $85 million for 2021, depending upon our results. This range is consistent with our initial 2020 guidance. We anticipate gross margins to be between 77% and 78% on an annual basis, given our current AUM mix with some fluctuations intra-quarter. We anticipate third-party distribution fees to decline to $6 million as we look to consolidate the platforms we work with. We are leveraging efficiencies and savings we have learned during the pandemic, and reinvesting it back into the business to support innovation and future growth. We expect discretionary spending to be approximately $49 million in 2021. As a reminder, our gold payment expense is based on us paying 9,500 ounces of gold on an annual basis. You can project this expense by monitoring the average price of gold during the year. Assuming gold prices remain flat at current levels, this expense would be approximately $17 million for the year.

Based on our current AUM mix and current rates, we expect our effective tax rate to be between 19% and 20% for the year. Also as a reminder, we could save $3 million to $4 million annually, once our New York City office space is subleased, but we don't anticipate those savings in our current guidance. As we think about uses of our capital, it remains to accumulate cash to pay down our debt, return capital to shareholders through dividends and maintain adequate dry powder for strategic, organic and inorganic opportunities.

As always, we remain disciplined and focused on controlling expenses, balanced with investing into our business to help support and drive future growth. Thank you, and let me now turn the call over to Jono.

Jonathan Steinberg -- Founder and Chief Executive Officer

Thank you, Amit. Jarrett reviewed the solid progress in our European and US platforms and the focused investments we are making in product and distribution to further accelerate our growth. Our business has more than navigated the global pandemic. We have emerged stronger. Not only have we adapted to the remote working environment without missing a beat, but we also gleaned new operating efficiencies and competitive strengths. We are in fact operating as a truly integrated global business.

The benefits of our European acquisition of ETF Securities did not end by simply digesting a large diversifying asset base in 2018 as valuable as that is. We have developed real synergies by leveraging complementary IP, investment capabilities and best practices in our product and distribution initiatives. However, I believe many of the existing and emerging strengths in our business are not fully appreciated, where they represent real value for WisdomTree shareholders today.

Let me double click on several of these strengths. We have a leading Bitcoin ETP approaching an inflection point. I often say, the essence of the ETF structure is about simplifying and democratizing access to previously hard to reach exposures. Bitcoin is just the latest example. Our European listed Bitcoin ETP has gathered almost $200 million in assets and remains in our view the most investor-friendly Bitcoin product in the world. This should be appreciated as a valuable achievement for WisdomTree shareholders. The product is now at a scale where it is becoming increasingly viable for institutional investors. This could not have come at a better time because of the dramatic rise in the price of Bitcoin and bullish investor sentiment has driven a significant increase in engagement for our European sales team.

Additionally, we believe, we have an opportunity to leverage our European experience to offer a best-in-class exchange traded Bitcoin exposures beyond Europe. We have built a profitable and complementary UCITS platform that is poised for further growth. A major part of investing in our European infrastructure was to build out our then fledgling UCITS business, so that WisdomTree could participate in the growth of the more globally recognized UCITS framework. Today, our UCITS ETF platform stands at $2 billion and growing. The success we are experiencing in UCITS is being driven by a suite of thematic funds like artificial intelligence and new battery solutions, meaning, we are diversifying our equity business in new growth and technology exposures.

But we are not satisfied with regional strengths. Our breakout success in thematics was led by our cloud computing funds, which we launched in both markets with over $2 billion in AUM combined, $600 million of that in UCITS. This week, we launched a new cyber security strategy in both markets and have further plans to cross-pollinate when appropriate. WisdomTree has become a truly diversified asset manager. Of course, the benefit of a large gold commodities and tactical trading range of ETPs was part of our strategic rationale for Europe.

We continue to see the benefits of asset diversification and dampening volatility in real-time. Most recently gold was once again a very constructive exposure amid the global sell off in March and April. A quarter of WisdomTree's assets are now in gold, making us the third largest gold manager globally. We have the broadest and most diverse suite of gold products with the most assets in Europe. We recently launched a low fee and sustainable gold ETP, WGLD to help defend and grow our leadership position. But we are not stopping there. We expect later this year to have a regulated gold token in the market. We are committed to competing for the future of gold, which we feel is digital and global.

Our aim is to turn digital gold into currency. As an asset class, gold has unique attributes, making it more than just an investment exposure. Gold has become an important part of the discussion around IoT and emerging digital currencies and payments. Our digital assets initiatives reinforces and expands upon our core business strengths. From day one, we have endeavored to offer smarter products and asset class exposures with an emphasis on transparency, cost efficiency, liquidity, regulated investor protections and other investor-friendly hallmarks of a better investment and financial experience. While these are still early days for digital assets, I am glad we made investments and kicked off our efforts in this space earlier than many.

In addition to the launch of the previously mentioned Bitcoin ETP and our minority investment in Securrency, WisdomTree is aggressively pursuing and is well-positioned for success in this exciting new area. In 2020, we set our strategy for these initiatives, and we have been designing workflows and engaging productively with regulators. As I said, I expect 2021 will be the year WisdomTree regulated more -- regulated tokens to market. For regulatory and competitive reasons, I won't be disclosing more at this time. But in the coming months, I am hopeful, we'll have additional filings and news to share at which point we will comment further.

As Jarrett indicated, we ended 2020 with momentum, which we are carrying into the New Year. I expect our digital asset initiatives to only accelerate our organic growth and diversify our revenue streams, better positioning WisdomTree for the future.

Now, I would like to open up the call for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Craig Siegenthaler with Credit Suisse. You may proceed with your question.

Craig Siegenthaler -- Credit Suisse -- Analyst

Thanks. Good morning, everyone. So we had a follow-up on your digital asset initiatives. First, are your initiatives solely through your interest in c-currency or are there other efforts that are coming from WisdomTree, excluding the crypto ETF in Europe? And I also want to see if you could share a little more detail on what type of products you may launch this year? And in terms of, is it more sort of compliance and back office, in terms of blockchain or are these kind of asset management type products?

Jonathan Steinberg -- Founder and Chief Executive Officer

Thank you, Craig. So the breadth is, we are fully committed to crypto currencies, we've spoken about the Bitcoin. We are, through WisdomTree, launching our gold token which we referenced in the first part of the conversation. Prior we disclose that we are pursuing treasuries and the dollar. I think those are -- the will follow. So that's the products that we'll be launching. In terms of blockchain, we participate through our investment in Securrency, where we currently hold a 20% stake. I think that answers your question, Craig. Did I miss anything else?

Craig Siegenthaler -- Credit Suisse -- Analyst

Yes. No, that's good.

Jonathan Steinberg -- Founder and Chief Executive Officer

Okay. Good.

Craig Siegenthaler -- Credit Suisse -- Analyst

Yes, I actually had one more follow-up. So it's nice to see the early successes from your crypto ETP offer in Europe. Can you just remind us about the prospects, and also the constraints for launching a US ETF version?

Jonathan Steinberg -- Founder and Chief Executive Officer

Sure. So for the US, we obviously are in discussions with regulators to bring it here. Recently, you've seen the FTC open up that market a little bit, I think there is growing pressure on SEC to allow investors to participate in really better investor-friendly structures. Right now, they're being forced into really substandard products, but because that's all that’s available that's where the money is flowing. There is no timeframe that I can give. But we certainly have constructive dialogs with regulators around the world, including the US.

Craig Siegenthaler -- Credit Suisse -- Analyst

Thank you, Jono.

Jonathan Steinberg -- Founder and Chief Executive Officer

Thanks, Craig.

Operator

Your next question comes from Dan Fannon with Jefferies. You may proceed with your question.

James Steele -- Jefferies -- Analyst

Hey, good morning. This is actually James Steele filling in for Dan. Thanks for taking our question. So just firstly, and I'm looking at Slide 10 here of the presentation. Your comment on an expectation for model portfolios to provide meaningful flows in 2021. I'm just curious if you'd characterize the contribution from model portfolios in 2020 is meaningful. And then if you could just kind of give some color as to why the set up is a lot better going into this year.

Jonathan Steinberg -- Founder and Chief Executive Officer

Jarrett, would you mind answering that question.

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

Yes, sure. Yes, good question. And I'd say for 2021, we expect the contribution to be more meaningful. But it was also meaningful in 2020 and really this is a bit of a journey. This is something we've been building and positioning for some time. And having a good model offering is many things, you've got to have the models, but you have to have some key partnerships too. Like what we announced last quarter with our partnership with Merrill and being on their platform or with other providers as well as we also disclosed last quarter with 55ip, which makes it easier for advisors to transition in a tax efficient way into models.

You also need good proprietary research. It's great to have some high visibility people working with you like Professor Siegel and then you've got to bring it all together as we've done on our website. So really it's a holistic approach, it takes a lot of work, a lot of building and we've done that. But at the same time, we've been building our pipeline and our pipeline is strong and that's why we expect model flows to be even a more meaningful driver of flows in 2021.

James Steele -- Jefferies -- Analyst

Great. Thank you. And then maybe just one for Amit. On the expense guidance and I appreciate that it's obviously a moving target. But just any help -- any color on the assumption that they used to arrive at these -- this guidance would help us just in terms of markets and a normalization of...

Amit Muni -- Executive Vice President and Chief Financial Officer

Sure. So I would say, the investments that we're making, particularly around the discretionary spending, they’re really to make investments to help support areas where we're seeing momentum in client demand. So I'd say there's probably three main areas. First is around products, particularly around the ETFs and our digital asset is. Second is around the client engagement parts. So I would say in digital marketing, our digital sales-related efforts, things around our advisor solutions program to help drive sales. And then the last, I would say is around our platform relationships, where we can help drive, again more momentum and more growth. So those are probably the main areas, I would say that -- that we're making that investment.

James Steele -- Jefferies -- Analyst

Great. Thank you.

Operator

Thank you. Our next question comes from Robert Lee with KBW. You may proceed with your question.

Jeff Drezner -- KBW -- Analyst

Hi, good morning, this is Jeff Drezner on for Rob Lee. Thanks for taking my questions. I had a question regarding ESG. Just if you can just point us to some specific ESG products that you have. And also in the slides, you mentioned that you're ranked number three after BlackRock and Invesco. I'm just curious which ranking that is by? Is that following a specific accountability board or something like that or is that internal?

Jonathan Steinberg -- Founder and Chief Executive Officer

Jeremy, do you mind taking that first question.

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

Sure. We have -- we alluded to six funds that we consider ESG funds and we started in March last year, we have three, what we call multi-factor ESG funds from US, international and emerging. But even before we had launched those, we had been investing in a family called ex-state owned starting over six years ago and we have three funds in that grouping as well led by XSOE, which is our broad EM fund, CXSE, the China version and then India IXSE, so another three funds, so six funds in total. And that ex-state owned family started 2020 with about $900 million in assets. Today it sits around $4.9 billion in assets, just under $5 billion led by the broad EM, which is over $4 billion and then China just under $900 million.

So we've seen a lot of flow interest, it’s core EM with performance. So the ex-state owned family was amend and it's won awards for being the best-in-class ESG funds for focusing on performance, focusing on the governance that companies are running, these are just shareholders, not just the government. It also had environmental tilt because many state-owned companies are in the energy and commodity sectors. So it also achieved very high ratings on traditional e-metrics, environment metrics. And we have enhanced, as Jarrett talked about, we've enhanced the ESG credentials with some further screens, just to solidify and make sure all investors -- ESG investors are finding these funds appropriately. But we do think that family at those three ex-state owned funds at $5 billion are the leaders in the market and they've done it with performance.

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

And can I add a couple of things on there too. This is very much like models where there is a lot that goes into it and there is many really years of planning. So it's not just product, it starts with great product and it starts with importantly great performance. But there is also this holistic package where again there has to be thought leadership, education and then on top of that, you've got to also walk to walk. So there are also corporate initiatives that are part of it. And you have to be a good corporate citizen as we are. We became a UN PRI signatory in 2019. We've done a bunch of diversity equity inclusion work inside the firm.

So really it's a firm wide commitment, which we've been advancing for many years and it's culminating now in really a leading offering. I'd just say one more thing, we plan to also in our sort of investing growth strategy for 2021, as Amit said, part of that is product and in our product launch vision are additional ESG funds as well.

Jeff Drezner -- KBW -- Analyst

Great. Thank you for taking my question.

Operator

Thank you. Our next question comes from Brennan Hawken with UBS. You may proceed with your question.

Brennan Hawken -- UBS -- Analyst

Good morning. Thank you for taking my questions. I had a few on the outlook for expenses in 2021 here. What is your embedded assumption for travel and entertainment normalization that's embedded within the discretionary expense outlook? And is there any kind of occupancy cost savings that's embedded in there by going fully remote, which even though you're seeing some expense growth, clearly from investing, maybe the magnitude of that investment is even greater than it appears on the surface. So just wanted to try to get an understanding of some of that -- some of those dynamics. Thank you.

Amit Muni -- Executive Vice President and Chief Financial Officer

Sure, Brennan. So for the last one on the occupancy. No, we have not assumed any sort of occupancy cost reductions. The big one is our space in New York City, which is up for sublease, we conservatively think maybe by the end of the year, we'll be able to sublease that. So none of those savings are embedded in the guidance yet. On your first part around sales T&E, I'd say that compared to 2019, 2021 is a lot less. We currently expect right now this is kind of current environment where there is very limited travel various levels of lockdown. So how we are reaching out to our clients is going to be as we're doing now, which is more virtual. So we're really spending more of that around the marketing side, around digital marketing, digital sales. So sort of taking those savings and reinvesting it back into those areas where we see more efficiency and a greater reach to go out to clients.

Brennan Hawken -- UBS -- Analyst

Great. Okay, thanks for that clarity, Amit. And then the third-party distribution expense ramping in 2021, do you guys expect that that's driven by adding some new platforms or is there something else that's behind some of that growth expectation?

Amit Muni -- Executive Vice President and Chief Financial Officer

So it's a combo of two things, I'd say yes. It's definitely adding some more platforms, offsetting some of that is some renegotiations that we've had with some fees as we've consolidated some of the platforms that we work with. But definitely a component of it is new platforms that we're developing relationships, particularly around the European side of the business.

Brennan Hawken -- UBS -- Analyst

Got it. Thank you.

Operator

Thank you. Our next question comes from Michael Cyprys with Morgan Stanley. You may proceed with your question.

Michael Cyprys -- Morgan Stanley -- Analyst

Hey, good morning. Thanks for taking the question. Just wanted to circle back, Jono, to your comments on the gold token that you alluded to. Just hoping you could kind of explain to us what exactly that means having like a regulated gold token in the market? And how one might be able to access that as a customer? And maybe you could, if you're able to, to maybe talk about what hurdles your face bringing something like that to market? And how you are overcoming that?

Jonathan Steinberg -- Founder and Chief Executive Officer

Well, thank you. As we said, later this year, in the second half of the year, we expect regulated gold token to be our first regulated token to come to market. It will be accessed through the blockchain ecosystem that is developing. There are certain exchanges that exist currently for digital assets. I think we'll be well received when we do launch. There are some regulatory hurdles that we have to pass through, but we're well along our way and see no stumbling blocks that we can’t surmount. And so we're very excited about what will be coming out. And I think the most exciting thing about what we're doing in the digital rapport which more broadly feels to me like it can be the rapport of the future is the enhanced functionality and user experience that we expect to come from this new technology.

Michael Cyprys -- Morgan Stanley -- Analyst

Great, thanks for that, Jono. Maybe just as a follow-up on the double and triple-levered ETF products that you have in Europe. I was just hoping you could talk a little bit about how you think about the growth of that category broadly, levered ETFs that is? And what sort of growth rate would you think it should grow out over the next three, five years as you kind of look forward? And what in your view are the key drivers of the growth of that category?

Jonathan Steinberg -- Founder and Chief Executive Officer

Jarrett, do you want to start on that?

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

Sure. We're -- one of the things we're doing with the short and leveraged suite is repositioning them a little bit. I mean, internally, we're now referring to them as more as tactical funds, which is really what they are. And what we've done is, really through 2020 with all the volatility, those products were battle tested and we now really feel we've got the strongest vol proofed best in market structures. We see the future as growth as more people used tactical funds as part of their strategies. But again, for us, it was really first about cleaning up, strengthening and having the best in market volatility proofed products. And from here, we do think there is a growth opportunity as tactical funds get used more in 2021 and beyond.

Jonathan Steinberg -- Founder and Chief Executive Officer

This is Jono. I'll add a little bit. So we have a huge delta 1 business around our commodities and that's also in our tactical trading. So we have a lot of interest. We pulled it all together and really a lot of this is through education, so that people use these products well. It has been growing over the last few years by almost $300 million, $400 million, $500 million a year. It's hard to predict future growth. It is the kind of exposures that could catch lightning in a bottle as certain trends, you can get real returns on certain of these exposures, if you get the trends right. And so through education and better marketing, as Jarrett said, we really pulled it together. So I think it'll be faster growth on a going forward basis.

Michael Cyprys -- Morgan Stanley -- Analyst

And if I could sneak in just another one here just on this topic. Just curious what portion of client portfolios do you see these exposures representing? And what's the sort of appetite of bringing these products in Europe to the US in terms of tactical trading strategies? What sort of hurdles would you face? And how would you sort of compare the opportunity set in the US versus Europe?

Jonathan Steinberg -- Founder and Chief Executive Officer

So I'll take that. First, there is no opportunity I see to bring them into the US. The SEC hasn't allowed anyone else to do it. And I'm not expecting them to change their stance. Europe is a smaller market than the United States, but we are one of the true leaders second or third and in some of the cases, on exposure -- by exposure, we're number one. I think that it's a small --- overall a small allocation for investors. Though certain investors tactical traders, it could be a large, but that is not the norm. So for tactical aggressive active traders, they are very, very popular and it can play a larger role in your portfolio. Again education for us is the way we differentiate ourselves. And we are really bullish on it. And sort of averaging 95 to 100 basis points on it, it's really a attractive economics for the firm.

Michael Cyprys -- Morgan Stanley -- Analyst

Great, thanks so much.

Operator

Thank you. Our next question comes from Ryan Bailey with Goldman Sachs. You may proceed with your question.

Ryan Bailey -- Goldman Sachs -- Analyst

Good morning. I just wanted to come back to ESG for a second. It sounds like the vast majority of your AUM is the sort of emerging markets focused within ESG. I was just wondering how you're thinking about developed market strategies and whether that would contribute a larger portion to EGS AUM view over time.

Jonathan Steinberg -- Founder and Chief Executive Officer

Jeremy, will you start?

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

Yes. And I focused on the ex-state owned just to start, but that also is in a way not the full package. I mean, Jono and Jarrett referred to the European how we added some of the screens that we recently added to ex-state owned to the entire European product set. And those funds cover sort of global markets from US, European products, really sort of baseline all Europe products and UCITS form more or less have that type of factor into it.

So it's really the whole family. They also have, we talked about some of the, what I call, mega trend or thematic type exposures. In Europe, we have a fund called battery solutions that has been really one of our most successful launches, up to $400 million or so, in sort of that less than one year it's been in the market. And sort of representing broader sort of mega trend funds. And that also is going after sort of the environment in sort of a unique way of being another ESG oriented solution is something we could look at bringing to the US at some point. But generally, we are working on that full initiative and we do expect more than just emerging markets for sure.

Jonathan Steinberg -- Founder and Chief Executive Officer

Thank you, Jeremy. Jarrett, is there anything you'd like to add or are we good?

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

The only thing I'd draw on top is, one of the things in the US. This is a global concept in terms of US investors in it, it's really growing now fast, but we're behind where Europe is. So one of the tasks that we've undertaken as well in the US is education. We did some extensive proprietary market research and really the gap between the end investor and the financial advisor. And one of the things that is, I think paying dividends for us is helping close that gap between advisors and their clients and helping really connect the dots. But again, this is part of a holistic package. It's a big movement. And we believe we're really well positioned to be part of the growth here.

Ryan Bailey -- Goldman Sachs -- Analyst

That's very helpful color. Thank you. And maybe if I can just follow-on with one additional question. So it seems like from the table that you put in at the ESG AUM exposure, Invesco and iShares, you guys are third, but there is still a pretty healthy gap. Is there a way you are thinking about trying to bridge that gap and catch-up to them, putting more ESG into model portfolios, which I think generally clients would like. But any sort of strategic thoughts there? Thank you.

Jonathan Steinberg -- Founder and Chief Executive Officer

Jeremy, you want to begin?

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

I am for sure. You heard us talk a lot about model initiatives and model growth initiatives, and I think we are very actively working on ESG-oriented model solutions. And we do -- as Jarrett said, we expect models to be a more meaningful contributor to flows and we would expect the same with ESG models.

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

And I'd say another thing here, we've been, I think it might price to some to see how much we have in ESG assets today. We've been relatively quiet about it as, again, we've been pursuing in advancing this holistic approach. We now have it all together and we're looking to sort of amplify the message. So I think you'll be also hearing more about ESG from us, and I think that's going to help us close the GAAP a bit.

Jonathan Steinberg -- Founder and Chief Executive Officer

And let me just say in terms of models. The ex-state owned has tremendous momentum, accelerating momentum. And it's very appropriate for that to be included in third-party models and that might be a way for us to narrow the gap with Invesco and iShares. Thank you for your question.

Ryan Bailey -- Goldman Sachs -- Analyst

That's very helpful color. Thank you.

Operator

Thank you. Our next question comes from Keith Housum with Northcoast Research. You may proceed with your question.

Keith Housum -- Northcoast Research -- Analyst

Good morning. Jono, maybe I heard this wrong, but I think I heard you say that you guys are pursuing a low cost ETF for gold, maybe as a gold token. I guess the question happens to be around, is there a risk of cannibalizing your existing gold ETFs, as you go out with a lower cost product?

Jonathan Steinberg -- Founder and Chief Executive Officer

So, we have a very broad gold suite of funds. As we've said, we have the most assets. We have a number of -- we really have two low fee products in the market. We try to differentiate where we can. So our original low fee fund, which is a 15 basis points Swiss vaulted gold is at 15 basis point, that's the as low as anything in Europe. We most recently, this past quarter, listed London vaulted low fee gold at 15 basis points also WGLD. I think both of those position us well to participate in future of flows. But we're very interested in also maintaining the balance with strong economics. So it's really a balance for us. And the cannibalization in beta takes place whether you, the sponsor launches it or not. So we might as well participate in the drive for lower fee goal. So it's not really a concern that we're going to cannibalize ourselves more. Low fee gold already exist in the market.

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

And if I could add to that just a short thing. Gold, when we look at 2020, gold and also other commodities. But it really dampens the volatility in our flows. In 2021 with inflation in the forecast, it's really got a different look to it, it positions us for growth as we expect growth in the asset class. And then, as Jono said, our gold offering is well positioned. We have suite of a lot of different products serving different clients at different price points. But with 26% of our global assets in gold, what's good for gold is also good for us. So we're excited about gold in 2021.

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

And as we said earlier, we're playing for the future of gold, which we think will be tokenized gold where it can really be more than just an investment, but it could be used in as a -- for payments, transactions and other things.

Keith Housum -- Northcoast Research -- Analyst

Great. Thanks. If I can just change gears on to your cost guidance there. Discretionary costs will be up roughly 20% in 2021 according to your guidance. I guess, as you kind of think about like the payoff period, do you think we get enough for that to be offset by increase in revenue this year or is this really a multi-year investment you're looking at?

Amit Muni -- Executive Vice President and Chief Financial Officer

So Keith, I say, it depends. I remember we're making these investments where we're seeing momentum in client demand. And so what we're trying to do is accelerate that. So we do expect some portion of immediate pay off on some of those investments as we hopefully see accelerated growth where we're seeing that momentum. And then others are for the long-term, as Jarrett mentioned, right, the investments we're making to provide a holistic approach around models, around ESG. We think these are longer long-term trends. So it's really a combo of both. I'd say long-term as well as a payoff on the short-term.

Keith Housum -- Northcoast Research -- Analyst

Got it. And then if I could squeeze one last one. The comp and benefits you've guided there, what are you assuming for, I guess, for inflows for your guidance there.

Amit Muni -- Executive Vice President and Chief Financial Officer

So we don't give guidance on flows, we published our flows every day -- every week on our website, so you can track it that way. But I would just say at a very high level, when you think about comp -- the biggest drivers, flows revenue earnings on a year like today where this year in 2020 where we had relatively flat net inflows for the year. You can see we came in on the lower end of the guidance range. So that just kind of give you some data points of how that could move.

Keith Housum -- Northcoast Research -- Analyst

Got it. Thank you.

Operator

Thank you. Our next question comes from Mike Carrier with Bank of America. You may proceed with your question.

Shaun Calnan -- Bank of America -- Analyst

Hi guys, this is Shaun Calnan on for Mike. Just one question on capital return priorities. In the slide it says your number one priority is to pay down of debt. So can you guys give us a timeline of the potential pay down? And then we didn't see any share repurchases in there. So does that mean they're off the table in 2021?

Amit Muni -- Executive Vice President and Chief Financial Officer

Sure. So when we think about our capital as we laid out, it's pay down our debt, debt comes due in three years, we can't prepay it. So we have to wait for that. So our goal is to accumulate our cash to pay that down. We do have the return of capital with -- through our dividends, and then we want to make sure we have dry powder, so that we can make the right investments in the business to support the growth and other opportunities that may come around. We did do a large buyback earlier in 2020, when we did the convert. So I don't want to say buybacks are ever off the table, but I would say, given the capital priorities, I would think accumulating cash, paying dividends and keeping some dry powder are the main priorities right now.

Shaun Calnan -- Bank of America -- Analyst

Okay. Thanks.

Operator

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Jonathan Steinberg for any further remarks.

Jonathan Steinberg -- Founder and Chief Executive Officer

So we're very excited about 2021. We have tremendous momentum, January almost $800 million of flows being led by ESG and thematic. And we're really bullish on how market sentiment is aligning with our strengths. And so we hope 2021 will really be a breakout year for us and we look forward to talking to you next quarter. Thank you for your interest. Have a great day.

Operator

[Operator Closing Remarks]

Duration: 51 minutes

Call participants:

Jessica Zaloom -- Head of Corporate Communications

Amit Muni -- Executive Vice President and Chief Financial Officer

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

Jonathan Steinberg -- Founder and Chief Executive Officer

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

Craig Siegenthaler -- Credit Suisse -- Analyst

James Steele -- Jefferies -- Analyst

Jeff Drezner -- KBW -- Analyst

Brennan Hawken -- UBS -- Analyst

Michael Cyprys -- Morgan Stanley -- Analyst

Ryan Bailey -- Goldman Sachs -- Analyst

Keith Housum -- Northcoast Research -- Analyst

Shaun Calnan -- Bank of America -- Analyst

More WETF analysis

All earnings call transcripts