What: Shares of WisdomTree Investments, Inc. (NASDAQ:WETF) were down more than 10% by market close on Friday after the company reported disappointing second-quarter earnings.
So what: WisdomTree Investments reported net income of $3.7 million, or $0.03 per diluted share in the second quarter, a marked decline from net income of $24.2 million, or $0.18 per diluted share in the year-ago period.
Declining net income was driven primarily from a decline in assets under management. WisdomTree reported that its U.S.-listed ETFs had just $38 billion in AUM at the end of the quarter, down 37.9% from the year-ago period, and down 14% from the sequential quarter.
The drop in AUM was largely the result of customer outflows, as investors pulled their capital from its hedged currency ETFs. The company said that it lost $10.3 billion and $3.5 billion of AUM to outflows and negative market movement, respectively, year to date.
Now what: WisdomTree remains highly leveraged in its most successful currency hedged funds, which allow investors to purchase Japanese and European stocks in a way that is hedged to currency fluctuations. These funds made up $22.6 billion of the company's AUM at the end of the second quarter.
The image above, which appeared in the company's quarterly presentation, shows that while ETFs as a whole continue to attract AUM, hedged equity ETFs -- WisdomTree's largest fee generators -- lost more than $7 billion of AUM industrywide in the second quarter.
As these currency-hedged funds are responsible for just under 60% of the company's assets under management, WisdomTree's quarterly results in the intermediate term will ebb and flow with inflows and outflows trends of the broader industry.