Portfolio diversification is an important thing for investors to apply to their own investing. For asset manager WisdomTree Investments (WT -0.82%), diversifying the products it offers to its exchange-traded fund customers is how the company hopes to stoke new growth: by driving greater demand for its ETFs.
Coming into Friday's second-quarter financial report, WisdomTree investors wanted to see a modest pickup in revenue that would help spur a sizable rise in earnings. WisdomTree wasn't able to meet those wishes, with advisory fee revenue remaining unchanged and its bottom line falling slightly short of expectations. Let's look more closely at WisdomTree and what its latest results say about the ETF manager's future.
WisdomTree deals with industry crosswinds
WisdomTree's second-quarter results didn't live up to the company's full potential. Total revenue was up 16% largely due to a one-time settlement gain, but advisory fee revenue rose just 0.3% from the year-ago quarter. Adjusted net income was down by nearly a fifth from the second quarter of 2016, and that resulted in adjusted earnings of $0.06 per share, missing the consensus forecast among investors by $0.01 per share.
Looking more closely at WisdomTree's results, the ETF provider did manage to continue attracting assets to its funds. In the U.S. market, assets under management climbed 13.5% to $43.2 billion, reflecting $600 million in fund inflows in the past quarter. Yet average advisory fees on its assets stayed low, at a current level of 0.50%, having fallen from 0.52% at this time last year.
WisdomTree kept focusing on international growth to bolster its overall results, and the ETF provider has seen early signs of success. Assets under management in Europe climbed by more than 50% to $1.46 billion, with nearly $150 million in inflows in just the past three months. Canadian assets were up a quarter to $91.5 million. In both cases, though, average advisory fees fell as assets rose.
The ETF provider also saw pressure on the cost side of the income statement. Paying its employees cost WisdomTree 28% more than it did last year, mostly because of higher headcounts and greater levels of incentive compensation. Lower costs for ETF management helped to offset some of those labor cost increases and help on the bottom line, and WisdomTree showed some success in reining in marketing and business development expenses as well.
Can WisdomTree turn the corner?
CEO Jonathan Steinberg continued to focus on the long-term advantages he believes WisdomTree has to drive future growth. "We continue to make progress diversifying the business," Steinberg said, "and positioning the firm to capitalize on the secular shifts underway in the industry." The CEO went on to note that technology should be a valuable way in which WisdomTree can distinguish itself from its ETF peers, bringing together tools to enhance ETF shareholders' experience with the products as well as a proven ability to outperform market benchmarks over the long haul.
WisdomTree made a number of strategic moves that should shape that vision going forward. In May, the company cross-listed seven of its ETFs on the Mexican stock market, helping to broaden its geographic reach. New product launches included a short-term bond fund and a smart-beta ETF offering that focuses on multiple fundamental factors to produce outperformance. If successful, these moves should develop positive momentum that could restart WisdomTree's growth engines.
Yet for now, WisdomTree shareholders weren't excited about those future prospects, looking instead at the short-term challenges it faces. The stock fell 5% in morning trading following the announcement. Until the ETF provider shows clearer signs of strength in its financial results, many investors will remain skeptical of the success of WisdomTree's turnaround efforts.