WisdomTree Inc (WT) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the WisdomTree first-quarter earnings call.

(Operator Instructions)

As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, Mr. Stuart Bell of Investor Relations. Sir, you may begin.

Thank you. Good morning.

Before we began, I would 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, which are generally identified by terms such as believe, expect, anticipate and similar expressions suggesting future outcomes or events. Forward-looking statements reflect our current expectations regarding future events and operating performance and speak only as of the date when made.

Forward-looking statements are subject to numerous assumptions, risks and uncertainties which may prove to be incorrect. Such statements should not be read as guarantees of future results and will not necessarily be accurate indications of whether or not, or the times under by which, such results will be achieved. 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 Company's annual report on Form 10-K for the year ended December 31, 2014.

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

Thank you, Stu, and good morning everyone.

I can sum up the quarter in a few words: record inflows, record revenues and record pretax earnings. WisdomTree is now the sixth largest ETF sponsor in the world due to the strong results we demonstrated this quarter. We continued to execute on our strategic growth plans including expanding our distribution capabilities and launching innovative products to capitalize on market opportunities like our European SmallCap hedge equity ETF and Japan's hedge dividend growth ETF. And we continued to expand our product offerings in Europe. We focused our efforts on best positioning us for the long-term growth of the ETF industry worldwide.

Now let's get into the results for the first quarter, beginning by first reviewing the US ETF industry statistics. Turning to slide 3, industry flows were $56.7 billion in the first quarter, which came off of a record fourth quarter of last year. On the right, we have the categories for the flows. I want you to note one important flow dynamic. The hedged equity flows dominated. This is an important point that Jono will touch on in his closing remarks.

On the next slide, we can review our operating results. Our AUM increased 42% this quarter, to $55.8 billion, led by a record-setting inflows of $13.5 billion, as you can see in the chart in the middle. As the chart on the right reflects, our currency hedged equity suite led our flows with HEDJ and DXJ taking in the vast majority this quarter. We faced headwinds in the emerging market categories where we had outflows across several asset classes.

The next slide focuses on Europe and Japan. There are two important takeaways from slide 5. First, WisdomTree dominated the flows in Europe and Japan. You can see on both charts, we took in over 60% market share in the category. And this is important for the second takeaway. Europe, Japan and the developed world are huge asset allocation categories for investors. Having the leading products in these categories allows us to be in the best position to capitalize on this asset allocation opportunity. Our dominating position in these two markets were led by HEDJ and DXJ. One of the questions we get often is who are buying these ETFs. I will answer that on the next slide.

The first bar on the graph reflects our overall assets by Channel at the end of last year. The next two bars reflect the estimated flows by Channel in these two ETFs. You can see the buyers of HEDJ and DXJ are similar to our overall product set, with the exception of the international category, which are non-US investors buying these ETFs. This clearly demonstrates that HEDJ and DXJ are becoming globally accepted securities. Mutual funds make up the majority of the Institutional category.

The next two sides reflect how we rank against the other asset managers. Turning to slide 7, on the left, WisdomTree was ranked third in inflows compared to the other US ETF sponsors. This translated into nearly 24% market share for the quarter. What is even more impressive is the chart on the right. WisdomTree was also the third best asset gatherer compared to all ETF and mutual fund managers in the US. Another interesting fact, when you look at the chart on the right, the top three asset gatherers were those with strengths in ETFs and not solely focused on mutual funds.

This fact is also very apparent on the next slide. As you can see on slide 8, our organic growth rate significantly beat the other publicly traded asset managers. The combination of the last chart and this chart further supports our view of the superior growth prospects of the ETF industry has over the traditional mutual funds. The chart on the right reflects our organic growth rate compared to the top 10 ETF sponsors in the US, and similarly, we ranked number one.

On slide 9, we show you how our ETFs have performed according to their MorningStar peer groups. These comparisons take into account fees and transaction costs and reflect how our equity, fixed income and alternative ETFs performed against active and passive mutual funds and other ETFs. Since inception, 60% of our ETFs outperformed their peer group, or 90% of the approximately $50 billion invested in our ETFs were in funds that beat their peers.

Now I would like to update you on our European business on slide 10. We have seen strong growth in our European AUM, which increased to $335 million, and stands at about $430 million today. This increase was led by our Boost oil leverage products. We also expanded our Boost product set by launching seven new Boost ETPs in the quarter and cross listed four more in the UK. We also cross listed six WisdomTree UCITS in Germany and Switzerland to expand our client reach.

In April, we acquired the ISEQ 20 ETF from Investec. This ETF is a basket of the top 20 companies listed on the Irish exchange and the only ETF of its kind in Europe. We paid nothing up front but will pay a small revenue share based on growth in assets. And lastly, we continue to build out our team in Europe with the addition of a Head of Sales.

On slide 12, we can start to go through our financials. On the back of record inflows this quarter, total revenues continued to climb, reaching $60 million, an increase of 40% from last year. Pretax income also reached a record $21 million, an increase of 28%, from last year.

As I will discuss a little later, our results this quarter were affected by timing differences between recording compensation tied to inflows and recognizing the full impact of the revenue earned on those inflows. Earnings per share was $0.09 for the quarter, which included approximately $0.01 for higher incentive compensation due to our inflow levels in the quarter.

Turning to slide 13, you can see in the left chart that as a percent of our overall average AUM, the hedged equity category increased to 53%, which generated a nearly 60% increase in our revenues from this category, as you can see on the right. ETF revenues reached a record $59 million this quarter and our average revenue capture remains at 52 basis points. Our average revenue capture today is 53 basis points.

On the next slide, we can review our key margin metrics. Gross margin for our US listed ETF business increased to 83.2% due to the significant increase in our AUM. In the chart on the right, you can see in dark blue our US pretax operating margin was 38.3%.

Now there are three important points I want to make about margins. First is on gross margins. Because of the significant increase in our AUM, we are raising our guidance and anticipating gross margins will be between 84% to 86% in the near-term, assuming this current mix level that we have.

Second point, we have a timing difference this quarter which compressed our margins. We accrued higher incentive compensation due to our record inflows; however, we did not recognize the full impact of the revenues from those inflows.

Let me give you some data points. Our average AUM in the first quarter was $46 billion. If today's AUM and mix remained constant, our average AUM in the second quarter would be $61 billion. That translates into a 30% increase in revenues, to approximately $80 million in the second quarter. So you can see, it is only a timing factor between recognizing the expense this quarter and the revenues the following quarter.

The third point I want to make: we are targeting our US business, achieving a 50% pretax operating margin at $55 billion to $60 billion of average AUM. Based on current trends, we are on track to achieve this target in the second quarter.

Next, we will review expenses on slide 15. Fourth quarter total expenses were $32.9 million. We recorded $5.3 million in additional compensation expense, primarily due to our record inflow levels. We also incurred $1.4 million of additional fund related expenses due to higher AUM.

Marketing and sales related spending increased by $0.5 million. Operating expenses for our European business declined by $229,000, due to costs associated with launching our WisdomTree branded UCITS in the fourth quarter.

We also recorded $267,000 of expense related to our acquisition of Boost. This represents the expense accrual for the expected future payments due to the former Boost shareholders, primarily driven by growth in AUM in Europe. We ended the quarter with $39 million in expenses.

Compensation as a percent of revenue for our US business was 31% for the quarter. Remember our guidance was 21% to 25% for the full year. This percentage is high this quarter because of our record inflows.

We have a pay for performance model and we appropriately recognized compensation for achieving record inflows. Based on our year-to-date results, we're still tracking our US compensation to be between 21% to 25% of revenue for the full year.

However, as we have seen over the last two quarters, timing and flow levels may impact that target in the short term. We will keep you updated as we have more visibility.

On the next slide, we can review our balance sheet and cash flows. Total assets grew to $218 million due to our strong cash flows. As you can see on the right, we generated $16.9 million of cash from our operating activities due to our record inflow levels.

We spent $14.1 million to buy back approximately 773,000 shares to offset stock we issued to employees as part of compensation. We returned $10.8 million to our shareholders through our quarterly dividend and ended the quarter with $173 million of cash.

And lastly, as you can see on the bottom, the amount of pretax income we can shelter from future cash tax payments increased to $142 million. A full analysis of our tax loss is included in the appendix.

Before turning the call over to Jono, let me give you an update on where we are so for this quarter. The momentum has carried over to the second quarter. Our AUM reached approximately $60 billion, and we have taken in nearly $4 billion in inflows led by HEDJ and DXJ. You'll also note, we have started to see slight positive momentum in our emerging market equities, so that is a good sign.

Now let me turn the call over to Jono.

Thanks, Amit.

Good morning everybody. It has been a terrific start to the year. The first four months have simply been the best we have ever experienced. I would now like to address the most common question we received this quarter, which revolves around the direction of the US dollar and what we're doing to manage potential concentration risk in our currency hedged equities.

Let me be very clear. I do not believe that is the appropriate question. The question we are asking ourselves -- Is WisdomTree doing everything it can to maximize the opportunities in front of us right now?

Since 2006, WisdomTree has been a leading innovator in the ETF industry. Over the course of WisdomTree's evolution, different product categories have led our growth. Some of our earliest success was in dividend and SmallCap portfolios. That was followed by our emerging market product suite, which at one point represented over 50% of our assets.

By the end of 2013, DXJ was by far our largest fund. Today, it is not and European equities have led our growth. Throughout it all, however, we have consistently increased assets under management and parlayed our individual ETF successes to build a broad-based multi-asset class ETF manager.

We have been able to successfully pivot when appropriate in the past. Our laser focus on creating differentiated investment solutions, which address real needs in the market, has served us well. The common thread is a focus on investment innovation in the investor-friendly ETF structure.

Now, with respect to currency hedging, I believe WisdomTree is changing the way investors think about foreign stock ownership. The dollar's rise in 2015, has led many to suggest currency-hedged ETFs represent tactical short-term bets.

Of course, thanks to its dynamic structure, ETFs can be used as trading pools or for long-term holdings. This statement is true for even the most traditional of exposures like the S&P 500. We know that hedged equity has both tactical and long-term applications.

We think the growing acceptance of currency hedge strategies represent a very large and longer-term trend in the way investors manage international equity exposure. While a strong dollar brings the case for currency hedging into focus, it illustrates a larger point. Unhedged foreign equity exposure is not currency neutral.

Let me repeat that. Unhedged foreign equity exposure is not currency neutral; rather, investors are inherently expressing a long or bullish view on foreign currencies when they buy foreign assets unhedged. Through currency hedging, you isolate the equity exposure you want without taking the additional risk from the FX market.

So how big can this opportunity be? We believe that, unless you, the investor/advisor, has a strong opinion on the direction of currency, the new normal allocation could be at least a 50/50 split between hedged and unhedged positions for your international developed equity exposure.

If that is a new baseline, the market opportunity is simply massive. As you can see on the bar chart on the right, as of today, that would imply the market opportunity is currently roughly $160 billion.

At the industry level, in the first quarter, hedged equity as a category led all categories in inflows, with $24 billion, edging out fixed income, which had inflows of $21 billion. WisdomTree's current market share of hedged equity is 69% and it is simply incredible today that H-E-D-J, HEDJ, is the largest European equity ETF and it's currently over 40% larger than the next largest European equity ETF, which comes from Vanguard.

So what does WisdomTree need to do, to stimulate future growth? The answer is simple. We need to stay focused on our Business and our customers.

We are already executing on our previously announced growth investments, we are adding people and we are launching new funds. We are investing to support our growth but we are not changing our business model.

We are simply becoming bigger, stronger and more efficient in the process. And lastly, our execution as a Firm remained excellent.

With that, let's open up the call for questions.

Thank you.

(Operator Instructions)

Douglas Sipkin, Susquehanna.

Yes, thank you and good morning, gentlemen. How are you?

Good morning.

So first question, just on the buyback. How should we be reading that? Is that more a function of looking to neutralize stock awards? More of a seasonal first quarter thing? Or is that something that you guys are adding to the mix of capital returns as the stock price fluctuates?

Hey, Doug, it is Amit. So there are two components to our buyback program. The first is to eliminate the share count creep when we issue stock to employees. And second is to be opportunistic. I would say our current focus right now is to eliminate the share count creep portion of that. That's what we have done so far in the first quarter. We will be opportunistic if the time comes but I would say right now the focus is on the share count creep portion of it.

Great, that is very helpful. Second question. Obviously, good news on the margin for the second quarter, obviously with the AUM levels and your guidance. Now what type of comp is that incorporating? I mean, is that assuming a reasonable comp ratio? Because you have, I think you indicated already, $4 billion of flows in April.

Sure, so based on the current average AUM that we're seeing, we should hit that 50% margin in the second quarter.

We had a very significant comp as a percentage of revenue in the first quarter. But as I said earlier on, we are still targeting for the full year to be at 21% to 25%. And so, kind of like what you saw last year, you should see sort of a natural decline in that ratio as we get to the full year amount sssuming the flow levels that we see on a year-to-date basis. As we have seen over the last several quarters, the level of flows that we have, the timing of when the flows come in, if they become very lumpy you may have a little bit of noise there, but we're still targeting that 21% to 25% for the full year.

Okay, great, that's helpful. And then Jono, very interesting analysis at the end. Can you shed a little bit more light on it? I guess effectively, your 50/50 -- I don't know if you call it a forecast, but your view -- where does that sort of 50/50 in terms of hedged versus unhedged on that $322 billion come from? Did you guys survey? Or is that just from dialogs you have had with institutions and the like?

So, it's our opinion that now that we, the ETF industry, have created the tools that allow you to very easily take out the currency exposure, now that you have a choice, you don't have to just default to unhedged equity exposures that have the currency risks to it. So we think that for, again, unless you have a very strong bias on a currency one way or the other, your natural default could easily become 50/50 or better. In fact, we could see how, just by taking out the currency, you're certainly reducing volatility often with your exposures.

Now, what I would also say is -- we do understand that currency hedged has both tactical and strategic applications. So from the tactical standpoint we have a tremendous amount of momentum right now. We took in, as a firm, $13.7 billion in the first quarter, about $3.6 billion in the second quarter. The industry itself was led, in terms of inflows, by currency hedging. So again, incredible strength, and a lot of people believe that the dollar rally will resume. But, what I think is extremely positive is that, over the last six weeks, you have seen the dollar consolidate. And through that whole period, we've continued to see positive inflows across the suite of currency hedge funds.

And then from the strategic standpoint, as I said, we think a lot of investors, now that these tools exist, will want to isolate their equity exposure. And if they want to add currency on top of it, they'll be able to do that with other tools. So the net net of it all seems very, very positive to us and as you look at that chart, how fast the growth, the percentage of hedged equity has gone from less than 1% in 2012, to over 15% today, it's easy to imagine, in light of the first quarter results, particularly if you get a strong dollar environment, that in the next three to five years, you can easily have $150 billion to $200 billion of assets within the category industrywide and currently we're running at about almost 70% of the category. So that's really how our thinking has evolved.

Great, that's very helpful. And a very interesting analysis. And then just a final question from me. Obviously, tremendous flows. And I appreciated the slides showing the mix by sort of investor category. How much of a factor has -- some of the investments you've made within distribution, I know you guys ramped it up recently. How much of that has played into the elevated flows? Obviously the category's been great but you guys definitely have took some effort to spend more and get deeper in channel. So I'm curious what the results have been so far.

Hi, Doug. This is Luciano.

I would say it's a combination of the investments we've made on the sales side, as well as investments we've made on the research side and on the marketing side.

We've been able to add people, capacity, personnel, dollars. We've had a very focused effort. Job one at the beginning of this year was very clear. We told the sales guys we thought we had the right strategy and that if we executed at a very high level we had a very large opportunity in front of us. So they've have been focused square on on DXJ and HEDJ.

What you can see from that slide is that it resonates across the channels. And when you have a product in a large asset class, that all the sales guys can sell, in their channels, you have a real opportunity. And we were able to, as Jono mentioned, take in roughly 57% of the inflows that went into currency hedged in that first quarter. And so we obviously executed at a very high level.

Let me just add to it, Doug, that one of the other investments that we have made is our European operation. And obviously, Amit touched on how significant the growth has been. You know, the first $500 million to $1 billion is the hardest. But I am extremely happy with the way we structured the deal. Because, for us, as we were getting into another jurisdiction, another geography, we were very conscious of not taking our eye off the US ball. And the way we structured this, even though the US team, which has worked very hard to support the European team, it is the European team that is shouldering all of the -- really shouldering the effort. So it's just another, when you're talking about investments being made, don't miss what we're doing in Europe.

Great. Thanks for taking all my questions, guys, I appreciate it.

Chris Shutler, William Blair.

Hey guys, good morning. On the international clients that are buying the HEDJ and DXJ, certainly appreciate the color on the flows there by channel. Amit, just wondering, can we get the breakout of institutional -- or international breakout, by retail versus institutional?

We don't have that level of granularity or that portion of channel. So, unfortunately we can't give that to you, Chris.

Okay.

Luc, I'm not sure if you have some general sense from --

Yes, we do have visibility into where the countries are, in terms of where the assets are being custodied at. But to actually say how much of that is institution buying versus a private bank, who's buying on the behalf of a high-net worth individual, that's harder to tell. But we do have visibility into where the assets are flowing back to by country. And at a high level it's UK, it's Europe, it's Israel, Canada, Latin America. We're also seeing flows into Asia.

But again, these are aggregated data points from various data providers. So, at this point, we don't include it in the presentation. But that number, as you can see, has continued to grow as a percentage of our overall assets.

And Luc, could you add a little commentary with respect to the institutional channel in the United States?

Yes, so the institutional channel in the United States today, we've added personnel there. So we have a national head on Institutional, Chris Krein, but then we have three individual RDs who cover the country and then two internals who support them. So we've reinvested in our institutional capacity over the last two years to three years. That's led to growth in our institutional reach, we're starting to see a lot of interest from mutual fund managers, institutional asset managers, who are buying into these funds. And we also have the ability through broker-dealer exemptions to talk to institutions in Canada. And so we have a institutional outreach effort today in the United States that's as strong as it's ever been.

And the only point I really wanted him to address was that, within the institutional channel, we think that our biggest strength, the biggest bucket, would be the mutual fund investor.

Yes. Okay thanks, and then just one other one. Recently, a large asset manager a couple of weeks ago made some comments about currency hedged products focused on exporters in particular like DXJ and HEDJ, without naming names. And whether you really need to hedge the currency, given the companies generate the majority of their revenue from outside of domestic economies already. Can't argue, certainly, with the interest that we've seen in those products, but just wanted to get your thoughts on that comment that they made. Thanks.

Yes, we've issued a white paper that expresses all of our views on currency hedging generally. I would just say specifically, obviously there are companies that can hedge their foreign currency exposure. Some do it better than others. And at the end of the day, if they do it well and their stock price benefits from it, that benefit will be reflected in the aggregate return of that equity market.

But the key thing for US investors, you know -- are you going to still take on the currency risk from that exposure? I think the simplest way to think about it, is the same companies that generated the roughly 5% return in Europe, from managing all of those moving pieces in the first quarter, if you are unhedged, the returns were in the neighborhood of 5% or 6%. If you are able to hedge out the currency, and actually capture the local returns, the returns for the first quarter were 18%, 19%, 20%.

And I think that's the simplest way to think about it, that right now there is very little cost to hedge out the euro, so cost is not an issue. And at the end of the day, for a US investor, the currency impact can have an overwhelming impact on their returns in any given period.

And Chris, let me just add -- at WisdomTree, we are very, very comfortable having an opinion that differs from others. We're often early and we're very comfortable with that. And what we see we're very comfortable that eventually others will come to appreciate.

All right, thank you.

Bill Katz, Citi.

Okay, thanks and good morning everyone. Appreciate the thorough updates, always very helpful.

First question, just coming back to margins for a moment. You've seen a structural increase in your gross margin including the update today. And you have certainly, if you get to that 50% next quarter as you anticipate, clearly best in class margins. But is there any reason to think that the 50% margin is the limit, given the structural increase you see in the gross margins? I guess the real question is, can you transmit from the gross margin, down to the operating margin as the assets continue to scale?

Sure, so we gave out that 50% margin target. And as you said, as we said, we're on track to hit that, said in the second quarter. Is that the limit? No, that is not the limit. And we've seen improvement in our gross margins, as our AUM continues to scale.

Could some of that flow down to the bottom line and improve our margins? Absolutely. Did we consider that in our 50% margin target? Absolutely. But we need to balance that as we always do with between -- investing that back into the business, to help support our growth and then having it flow down to the bottom line.

But just as a general framework, I think the important thing to remember is over what we have said. Is that because of the operating efficiency of our business model, our goal is to operate our business on an annual basis, to have the highest margins of any of the publicly traded asset managers. And that's really what we're focused on.

And Bill, I mean, the key to your question really is about our ability to continue to scale. And one, obviously we're scaling very quickly right now. But that's really what would drive that higher margin.

Okay, just along those lines, you're obviously doing very well in terms of flows. Some of your peers, when they tend to get products that start to sell themselves, so to speak, tend to tinker around with the compensation structures from there. For the wholesale is to try and balance out that growth. How are you thinking about that, in light of the fact that you had a very high comp ratio in Q1? I appreciate your full year-end guidance. But as you look ahead, any way to sort of tweak that, to maybe broaden out the sales of the platform?

This is Jono -- we had a very -- we saw positive flows in US equities even though US equities were not strong in the quarter. And when you say funds that sell themselves -- European exporters, dividend weighted with a currency hedge, doesn't sound to me that it just sells itself. This is not licensing a third party index that people have known for 30 years and then putting it out. We really do have to go and educate the market. And because of that, that's why we have the majority of the assets in this new category. So I'm not sure, eventually, yes, the funds really do take on a life of their own. But we really have to work very, very hard to establish our funds and maintain our leadership position.

Just one last one from me. Just to play devil's advocate for a moment. You mentioned in the other response that the buyback is really at this point just to offset the drift. Stocks pulled in a fair amount, you gave some pretty good guidance in terms of where the second quarter earnings going to be. You know, why not a little more buyback given where the stock is? Is there any kind of other investment or balance sheet constraints, considerations you're considering at this point?

There's no balance sheet constraints that we have. We balance returning capital, whether through dividends or buybacks, against all the other growth opportunities that we look at. And like I said, our goal, our focus right now, we think, is to eliminate the share count creep. But don't take it out as a fact -- don't discount the fact that we could be opportunistic if we think the time is right.

Okay. I will follow up later. Thanks so much, guys.

Thank you.

Adam Beatty, Bank of America Merrill Lynch.

Thank you and good morning. Just a question. I appreciate the implieds, or channel breakout. And to my mind, I guess we have a bit of a case study on -- large inflows and taking market share with some of the prior year performance of DXJ. So I'd like you to comment around -- one of the notable things about that, about DXJ in 2012 and 2013, is that the assets kind of flowed in and they didn't necessarily flow back out. They kind of stayed with the firm. Where did that settle? Was it with retail? Was it with institutional? What was your sense of -- how DXJ settled out? And whether the experience might be the same with HEDJ, thanks.

Adam, this is Luciano. So the assets for DXJ, like HEDJ, have flown into the three major categories. We did see a reduction in DXJ earlier in the first quarter of last year. I believe it was on the order of maybe a 25% pull back. But you are right, the vast majority of the assets were retained, and recently DXJ made new highs, both in terms of assets and I also believe in terms of shares out.

So, I understand where the question goes, but you've got to realize there are hundreds, if not thousands, of individual actors making these decisions to buy these funds. And how they hold onto them, the duration, all that remains to be seen. There are many different factors that could impact that. But right now, we are coming off of a first quarter where the equity market in Europe was very strong. The euro was very weak. And a lot of money moved out of unhedged European funds. There was a change in investor behavior and it's a fairly new phenomenon. So we will monitor accordingly and we'll update you in terms of where we are, in terms of the shares outstanding of the funds.

And just to reiterate what Luciano just said -- DXJ, and you can see this when you go to our website and check out the flows on a weekly basis, on a daily basis, when you click through. DXJ, top ticked in 2013 at about $12.5 billion, pulled back to about $10 billion and it's 70% higher today. 70%, it's now over a $17 billion fund. So there was a lot of angst -- a year ago with respect to our Japan exposure, and I was saying throughout the whole period to investors, particularly on these calls, that there really seemed to be a lot of conviction in these allocations. And I would take the last six weeks as another indication of a lot of conviction in these allocations. The dollar has been pulling back and consolidating recently and we've seen creations throughout the whole period.

Makes sense. Thank you, guys. Then a question around strategy and the allocation of effort between product development and distribution. Some of your comments today have kind of been around taking advantage of the great opportunities that are in front of you right now. You know, has launching new products kind of taken a backseat for the time being? And do you have to make that choice? Or how are you thinking about that? Thanks.

It's really a great question. We're doing all that we can do, in everything that we can do. And some of these, on a product launch basis -- we actually have had -- European SmallCap currency hedge which we launched, I think, at the beginning of March, most successful fund launch we've ever had. Nothing has ever gotten to $200 million faster. Germany currency hedge, I think it's over $300 million. Again, a lot of success. International developed -- dividend growth, another $300 million, a very quick uptake.

So we've been very successful there. Now we have -- we said to you at the beginning of the year, we're looking to do eight to 10 funds, we have done two this year. So we've already filed for things like -- Weak Dollar US Equity Fund, and the WisdomTree Barclays US Aggregate Bond Enhanced Yield Fund. We have a lot of diversifying funds that will be coming out later in the year. But we're also going to be supporting the category that we're competing in very aggressively with the other ETF sponsors in currency hedge. So it's not really a one or the other. We're trying to do it all.

Great. Thanks very much for the reiteration of the guidance on product launches. Appreciate it.

Robert Lee, KBW.

Great and good morning, guys.

Good morning, Bob.

Quick question -- you touched on institutional penetration of the currency hedge. I wonder if you can kind of delve into that a little bit more on -- what do you think is -- why maybe mutual funds have taken it up faster than other managers? And what do you think is kind of the hurdles you have to get over, to get -- pension and other asset owners to adopt? Is it more them thinking about it in their asset allocation work? What do you think the key things you need to do there are?

Do you mind if -- I'm going to start and then I'm going to let Luciano add to it. We're really seeing adoption in all of the channels. The point that I would make is, the mutual fund industry is $13 trillion. And so, it's such a big category that of course, it's going to be a leader.

Yes. This is Luciano. I would just say that the fact that we put the forward contract inside the '40 Act fund and then hedge out the currencies impact, that's a very efficient way of taking the currency risk off the table.

And for individual advisory firms or certain institutional asset managers or mutual funds, that might be a very efficient way for them to solve the currency problem in one trade. So they may be, you know, looking to hedge out a portion of their Japanese or European exposure. And with WisdomTree, they're able to do it, with getting exposure to the market in a hedged vehicle.

So I would just say that, as Jono said, the wire house, the REA channel, has had great adoption of HEDJ and DXJ. There has been tremendous support within the research teams, within asset allocation calls being made by chief investment officers and private banks. I mean, this is the number one ETF in America for inflows this year and over the last year because it's being used in a very broad, wide way across the industry.

Thanks. Maybe just one real simple modeling question, just on the tax rate. As the US continues to grow, it's such almost an exponential rate. And should we be seeing the all-in tax rate, I'm assuming kind of migrate down a bit over the coming quarters, just as the mix changes?

Sure, so there's two factors -- Bob, that's affecting the tax rate. One is, the non-deductibility that we have in our European business right now because it's in a loss position. In the future, we'll be able to take benefits of that loss once it turns profitable. So that's a little bit of a drag on our overall effective tax rate.

But on the US side, what really is driving that is the states that we're earning revenue in. Right now, based on sort of the mix allocation, our US rate is about 38.5%-ish. We had a little bit of an uptick this quarter. When we filed our returns we had a little bit more income tax due to two of the states. So that's going to be the big driver of where our revenue is coming in, on a state-by-state level.

And Amit, how often do you review the state-by-state analysis?

Once a year we will do that.

Thank you.

Great, thanks for taking my questions.

Thanks, Bob.

Dain Haukos, Piper Jaffray.

Good morning, this is Dain on for Mike Grondahl, thanks for taking my questions. I was just curious, could you give us a little bit more background on how the ISEQ deal came to be? What you think the potential opportunities are and if there are any other similar type deals in the pipeline?

Sure, so the ISEQ deal came to us -- our management team identified that as an opportunity. It's a unique EPS. It's one of its kind in Europe. It really didn't have a home where it was sitting at the time. And so, we struck a deal to bring it in. We're happy that it's part of the WisdomTree family now and hopefully see it grow in Europe.

Can you talk at all about kind of the revenue -- the revenue-sharing -- it sounded like it was no fee upfront and there was a revenue share, that type of a deal going forward?

Yes, very small. We have a small little trail that we're going to pay based on growth in AUM but nothing really material to note.

And then -- you talked a little bit about the buyback and the way you think about that. Can you talk at all about the dividend and what your thoughts are on potential raises for that going forward?

Yes, this is Jono. So we initiated our dividend in the third quarter. We came out with a healthy $0.08 a share dividend. Because we had such a strong cash position, and a NOL, and strong cash flows, we could come out with what was perceived, I think, to be a high number.

We gave an indication at the time that the dividend would not grow until we saw significant growth in assets. And though assets have grown significantly -- we review this with our board every quarter and we are -- we anticipate, just like with the buyback, that there will be more. At the moment, the dividend is set at $0.08 and as we will review it every quarter with the board, and obviously let you know appropriately when it will grow.

Okay, that's helpful. And just last from me. With the amount of potential assets that are out there right now, I'm curious, what are your kind of plans for hiring? And sales and marketing as we go forward? Do you feel like you've got the right amount of people right now? Or with the, kind of the in-depth sales process it sounds like there is in training investors on your asset allocations and that type of thing. Do you feel like you need to add more sales people?

Sure, so earlier this year, Dain, we announced that we were going to spend $12 million to $16 million on strategic growth investments. A big component of that was a significant expansion of our sales force. We want to increase it by about 50% from what it is today. So that's already built into our plan. One of the things that we were waiting for is to hire a US Head of Sales, and now that that process is done, we'll be continuing to execute on that plan. We've already hired a few salespeople so far in the first quarter but the big push will come later on this year.

Very helpful. Thank you very much.

Thank you. At this time I'm showing no further questions. I'd like to turn the call back over to Mr. Steinberg for any closing remarks.

So I just want to thank you all again for your interest and support and we look forward to speaking with you next quarter. Have a good day.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes your program. You may now disconnect.