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WisdomTree Weathers Market Storms, Boosts Buyback

By Dan Caplinger - Apr 29, 2016 at 11:07AM

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The ETF provider managed to hold earnings steady despite a drop in assets under management.

Image source: WisdomTree.

Market turbulence is bad news for money managers like WisdomTree Investments (WETF 0.90%), because nervous investors tend to pull money from exchange-traded funds and other managed financial products. The fact that the stock market has recovered from its losses early in 2016 hasn't lessened the nervousness among ETF shareholders, and coming into Friday's fourth-quarter financial report, WisdomTree investors expected to see pressure from the market's fluctuations on its revenue and earnings. WisdomTree's results did indeed show signs of those negative impacts, but the company still managed to keep sales and net income stable to slightly higher despite the headwinds. Let's look more closely at how WisdomTree did and whether shareholders can expect a stronger recovery in the near future.

WisdomTree holds its own
WisdomTree's first-quarter results didn't show the high growth that investors got used to seeing in the past, but they still were reasonable given adverse market conditions. Revenue rose just over 1% to $60.9 million, growing slightly faster than investors had expected. Net income of $12.1 million was nearly identical to year-ago figures, and that translated to earnings of $0.09 per share, exactly matching the consensus forecast among investors.

Looking more closely at the operational numbers for WisdomTree, assets under management for its U.S. ETFs reflected the market downturn and responses among fund shareholders. At the end of the quarter, assets under management stood at $44.3 billion, down more than 20% from year-ago levels. Outflows of $5.4 billion accelerated from last quarter's pace. In Europe, WisdomTree's European ETFs kept gaining transaction, posting nearly $200 million in inflows, but the total $885 million in assets under management is inconsequential compared to the U.S. business. Advisory fees stayed steady at 0.52%.

On the expense side of the equation, WisdomTree benefited greatly from a 22% decline in compensation and benefits-related costs. That drop reflected decreases in incentive compensation because of outflows. The fund company used all of those savings to boost its spending on marketing and advertising, and sales and business development. Professional and consulting fees also jumped substantially due to WisdomTree's acquisition of commodity-ETF specialist GreenHaven.

CEO Jonathan Steinberg put WisdomTree's performance in perspective. "Against a backdrop of equity and currency market headwinds, our largest Japan and European based exposures experienced outflows in the first quarter," Steinberg said. "However, despite this difficult operating environment, we achieved solid financial results, underscoring the efficiency and durability of our business model."

Can WisdomTree get its growth going again?
Steinberg is optimistic about WisdomTree's growth trajectory. As the CEO said, "We are continuing to build on our market leadership position and invest in initiatives for future growth, including expanding our product footprint with 29 new ETF listings across equities, fixed income, commodities, and alternatives since the start of 2015." Moves to break into new categories and enhance distribution have already started to pay off and should enhance results in the future as well, as should the commencement of operations in Japan during the first quarter. WisdomTree also said it plans to enter the Canadian ETF market in the near future, and launches of numerous new products should continue to add to its assets under management over the long run.

WisdomTree also expressed confidence in its own stock. The company boosted its authorization to repurchase shares by $60 million, bringing the total amount to $100 million. WisdomTree sees the move as a sign of its financial strength, again supporting the durability of the ETF business model even under tough market conditions. The program extends through 2019.

WisdomTree investors didn't seem entirely convinced by the company's performance and explanations, sending the stock downward by almost 3% in the morning trading session following the announcement. Yet given how the ETF provider is so closely linked to the prospects of the financial markets, a recovery should bring investors back into the fold and get WisdomTree growing again at a healthier pace.

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