The ETF provider gave its own shareholders a nice dividend. Image: WisdomTree.
The stock market's swoon during the summer sent shockwaves through the investing community, with investors not having seen any substantial downturn in years. For investment managers, the chilling effect of nervous investors created new worries, and exchange-traded fund provider WisdomTree Investments (WETF +2.30%) has seen its share price drop substantially as its shareholders feared that it wouldn't be able to weather the storm as well as industry leader BlackRock (BLK +0.00%) and other larger competitors. Coming into Friday's third-quarter financial report, WisdomTree was still looking to grow at an impressive rate, and its results largely delivered on that promise. Yet investors clearly remain nervous about the market's rising volatility and its impact on WisdomTree's ETFs. Let's look more closely at how WisdomTree did and whether fears about its future are justified.
WisdomTree keeps growing despite the market's swings
WisdomTree's growth has been impressive for a long time, and the ETF provider didn't slow down much during the third quarter. Total revenue jumped 71% to $80.8 million, eking over expectations from investors for a 68% growth rate. Net income once again more than doubled, rising 120% to $23.3 million and working out to earnings of $0.17 per share, matching the consensus forecast among investors. Yet it was noteworthy to see that on a sequential basis, WisdomTree's net income actually fell 4%, showing the impact that falling markets can have on an asset manager's results.
Perhaps the most unnerving thing about WisdomTree's results came in its operational performance. Assets under management came in at $53 billion, which was up 48% from a year ago but down more than 13% over the past three months. The company saw net outflows of $700 million during the quarter, ending a long streak of inflows for the ETF provider. In the smaller European division, WisdomTree continued to see asset growth, with assets under management of $695.7 million posting a 14% sequential rise and more than quintupling from year-ago levels. Advisory fees held their ground generally worldwide despite the reversal in fund flows in the U.S. market.
Still, WisdomTree once again did well to keep its costs in check. Total expenses were up 54% from the year-ago quarter, allowing the company's operating margins to expand once again. Incentive compensation was the one area in which WisdomTree has seen costs rise dramatically, with another 94% rise coming from increased headcount and stock-based compensation. Spending on sales-related activities also jumped more than 90% as WisdomTree seeks to consolidate its increasing popularity.
CEO Jonathan Steinberg took the tough market conditions in stride, arguing that "these results reflect our overall financial strength and demonstrate the profitable, scalable, and highly efficient nature of our operating model" despite a challenging market environment. The CEO also noted that trends in the industry are favoring its funds over those of BlackRock and other competitors.
Can WisdomTree keep climbing?
In particular, Steinberg sees WisdomTree benefiting from several trends in the industry. He said, "The structural shift to passive investing and ETFs is continuing, the appetite for investment innovations like Smart Beta and Currency Hedging is growing, and a decisive move toward greater transparency in financial products and advice is more pronounced than ever."
WisdomTree has also gotten aggressive in diversifying its ETF offerings. The company announced in October that it would acquire GreenHaven Commodity Funds to get exposure to the commodity-ETF space. The move is interesting, as commodities have performed extremely poorly for a long time, and BlackRock in particular has seen mixed performance from its commodity ETFs as many investors have shied away completely from the space. Yet WisdomTree has often taken a longer-term view, and if commodities rebound, then its timing might prove to be fortuitous in picking the bottom of a promising market.
Dividend investors will also be happy with WisdomTree, as the company announced a special dividend of $0.25 per share. The move sent WisdomTree's effective yield above BlackRock's, and it shows that even in a tough environment, the ETF provider remains committed to its dividend policy.
WisdomTree investors weren't happy with the fact that the ETF company didn't exceed consensus forecasts by as much as it has in previous quarters, sending the stock down further after the announcement. With the stock market having bounced back fairly convincingly, though, WisdomTree might well be entirely back on track by the time it reports its end-of-year results three months from now.
