WisdomTree Inc (WT) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the WisdomTree third-quarter earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will be given at that time. (Operator Instructions). As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, WisdomTree Investor Relations, Stuart Bell.

Please go ahead, sir.

Thank you. Good morning. Before we begin, I would like to reference our legal disclaimer, available on 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 they 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 at, or by which results will be achieved. A number of factors can cause actual results to differ materially from the results discussed in our forward-looking statements, including, but not limited to, the risks set forth in this presentation and 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 the WisdomTree CFO, Amit Muni.

Thank you, Stuart, and good morning, everyone. Before getting into our results, let me give you a quick summary. This quarter, we generated solid financial results despite operating in a challenging environment. Our ability to flex when markets change has clearly been demonstrated this quarter. We won't let short-term volatility change our focus on executing our important long-term growth plan. To date, we have launched 13 new ETFs, including three yesterday.

We continue expanding our salesforce to go deeper and broader in channels where we compete, and into new channels. And we look for strategic opportunities to expand our product offering, such as our acquisition of the GreenHaven Commodity ETF we announced this morning. This has resulted in our ability to generate a 52% pre-tax margin on our US business, and a capital return through our usual quarterly dividend, plus the special dividend this quarter of $0.25 to reflect the operating efficiency of our business model.

Lastly, this week has turned out well, as we have taken in over $600 million so far.

Now let's get into the results for the quarter, beginning by first reviewing the US ETF industry specifics. Turning to slide 3, industry flows increased slightly from the second quarter to $44.3 billion. Fixed income and US equities were the flow leaders this quarter. Of note, three S&P 500 ETFs took in 77% of the flows in US equities this quarter. You can see on the bottom that emerging market equities continue to experience outflows, as has been the case for the last several quarters.

On the next slide, we can review our operating results. Our AUM decreased to $53 billion at the end of the quarter, primarily due to $7.6 billion of negative market movement, and $700 million of net outflows. The market's response to the slowdown in China and the potential ramifications for global growth, particularly for exporting countries, had a negative effect on our AUM and flow levels this quarter. As you can see, DXJ's AUM declined 16% on nearly $3 billion due to negative market movement, yet DXJ experienced modest outflows of $269 million or 1.5% of its AUM.

Hedges AUM declined 12% or $2 billion due to negative market movement. However, it had $818 million of positive net inflows. Even though hedge and PXJ follow a similar overall strategy, these fund flows into and out of the funds don't always move together.

Let's also put the numbers into perspective. Since November 2012, when Japan started its stimulus, DXJ has taken in nearly $14 billion of net inflows. Since Europe started its stimulus in September of last year, hedge has taken in over $18 billion. The outflows we have experienced to date have been modest compared to the amount we have taken in, which strengthens our conviction of the long-term strategic trends of currency hedging. And lastly, you can see the predominance of our outflows came from our emerging market equities, where we continue to experience the headwinds as well as the overall industry.

We continue to believe that currency hedging is an important category for us and the industry. Turning to slide 5, you can see, on the chart, international equity AUM was $329 billion and, more importantly, that amount that is currency hedged has been growing, and is now 18% of the total. In addition, year-to-date, about half of all the flows into developed equity markets have been in currency hedged products. We will continue to lean into currency hedging, as we see a significant opportunity to be a leader in this category for the long-term.

The next two slides reflect how we ranked against the other asset managers. Turning to slide 6, on the left, WisdomTree was ranked third in inflows on a year-to-date basis against the other US ETF sponsors, and we continue to have the best organic growth rate of the top 10 ETF sponsors.

Turning to the next slide, WisdomTree was also the third-best asset gatherer compared to all ETFs and mutual fund managers in the US, according to Morningstar. This translated into WisdomTree continuing to have the best organic growth rate versus the other publicly traded asset managers. We believe this reflects the positive momentum behind the ETF structure over mutual funds.

On the next slide, we can show how our ETFs 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, 55% of our ETFs outperformed their peer group, or 91% of the approximately $52 billion invested in these ETFs were in funds that beat their peers.

I'd like to update you on our European business. Our European AUM continues to grow, reaching nearly $700 million at the end of the quarter. Volatility in the markets continued to attract clients to our Boost ETPs, and we continue to experience inflows into our European equity-themed UCIT ETFs. We are cross-listing additional funds into Switzerland and Italy to meet client demands.

Now, before turning to the financials, I want to talk about an important acquisition we announced this morning. Today we announced we entered into an agreement to acquire the GreenHaven family of commodity funds. Through this transaction we will be entering the US commodities space, and expanding our product offering into a new asset class.

The two funds are the GreenHaven Continuous Commodity ETF, as well as the industry's first coal ETF. Total AUM in the funds are approximately $250 million, and we will be paying $11.75 million in cash. The continuous commodity ETF tracks a broad basket of diversified commodities and follows a well-known industry benchmark, with a long and strong performance track record. We believe we can grow these unique funds over time with the strength of our distribution force. The transaction should close before the end of the year, and is expected to be accretive to our financial results.

On slide 12, we can start to go through our financials. As I mentioned earlier, despite the challenging quarter, we generated solid financial results. Revenues increased 71% from the third quarter of last year to $80.8 million, and net income more than doubled from last year to $23.3 million. Earnings per share was $0.17 for the quarter.

Turning to slide 13, as you can see from both charts, the currency hedging category continues to make up a larger portion of our asset base, and has contributed significantly to our revenue increase year-over-year. You can also see how the headwinds we're facing in the emerging markets category have negatively affected our AUM mix and revenues since last year. While asset classes will come in and out of favor over time, we believe building or acquiring an innovative and differentiated product set will help us weather the cycles. Our average revenue capture was 53 basis points in the quarter.

On the next slide, we can review our key margin metrics. Gross margin for our US-listed ETF business increased to 82.7% due to the significant increase in our AUM from last year. Sequentially, gross margin increased due to lower regulatory fees that are tied to inflow levels. We anticipate gross margins will be in the 85% to 87% range in the near-term.

In the chart on the right, you can see our US business had a 52.3% pre-tax margin on $60 billion of average AUM, and our overall margin was 49%. I think you will agree that these are impressive margins, given the market environment.

Next we will review our expenses on slide 15. Second-quarter total expenses were $40.6 million. Lower AUM, as well as net outflows, contributed to a decline of $800,000 in fund-related expenses. Professional fees decreased by $127,000 due to lower staff recruiting fees in the US, and for our new Japanese office. Compensation expense increased $478,000 due to headcount-related growth as part of our strategic growth initiatives, higher stock-based compensation for awards granted to our salesforce as part of their first-half performance, partly offset by lower incentive compensation due to our inflow levels.

Marketing and sales-related spending increased $271,000 due to an increase in sales-related activities. Other expenses increased $322,000 due to higher insurance costs, technology-related spending, and property taxes. Operating expenses for the European business increased by $500,000 due to higher headcount-related expenses as we continued to build out the team, as well as higher fund-related costs. We ended the quarter with $41.2 million in expenses, up 1.5% from the second quarter.

On the right, you can see our compensation as a percent of revenue for our US business was approximately 25% on a year-to-date basis. We are still tracking our US compensation to be between 21% and 25% of revenues for the full year. But from where we stand now, I expect it to be close to the high end of the range.

On the next slide, we can review our balance sheet and cash flows. Total assets grew to $292 million due to our strong cash flows. As you can see on the right, we generated $110 million of cash from our operating activities due to our record inflow levels. You spent $23.7 million to buy back approximately 1.2 million shares of stock we issued to employees as part of compensation, including 330,000 shares this quarter. We returned $32.9 million to our shareholders through our quarterly dividend, and ended the quarter with $236 million of cash.

On the next slide, we can go through our taxes. As a reminder, while we record GAAP tax expense, we don't actually pay cash taxes, due to our tax losses. The tax rate for our US business increased slightly to 39%, due to a change in how our revenues are spread amongst the various states. At the end of the quarter, we have about $61 million of pre-tax earnings that can be sheltered from paying cash taxes. At today's rate of growth, it is likely we will run through our remaining tax shields in the near-term.

However, we continue to generate tax losses through employees exercising options, and investing in restricted stock. You can see the detailed information of that on the right-hand side of slide 17.

Now to give you an update on a few items: first, on our strategic growth plans for the rest of the year. As you remember, we laid out several initiatives at the beginning of the year that we believe are important for our long-term growth. They encompassed a significant expansion of our salesforce, continuing to launch funds, increased spending in marketing and sales, and, lastly, investments in technology. We estimated that this will cost us between $12 million to $16 million in 2015. To date, we have spent approximately $8 million. And I expect that we will wind up on the lower end, or maybe even below the full-range amount of guidance that we had given, primarily due to timing.

Second, on the buyout obligation for our European business, when we acquired Boost in April 2014, we agreed to acquire the remaining 25% we don't own at the end of 2017. The payout will be based on a formula that takes into account the AUM in the business, its profitability levels, and the trading multiple of WETF. Since the time of the acquisitions we used this buyout formula as an approximation of the fair value of the buyout obligation. Now that we are nearly 50% through the deal term, we are updating the fair value method to better project what a potential payout could be. This change will likely result in a non-cash charge in the fourth quarter and in future quarters.

While we are still working through the fair value model, in light of the AUM growth we have already experienced in the business, we may take a non-cash charge of $1 million to $2 million in Q4, and each quarter going forward. And lastly, just as a reminder, we will be giving you our 2000 (sic) expense outlook on our next call, in early February.

I'd like to share with you a slide that I think puts the third quarter into some perspective. If you look at the next slide, we all know it was a challenging quarter for the entire industry. But relatively speaking, WisdomTree fared better than most of our public peers; yet, at the same time, generated the highest margins of our industry. We believe this is a reflection of our superior business model that can withstand adverse market conditions.

Now, before turning the call over to Jono, let me give you an update on where we are so far this quarter. The challenges of the third quarter carried over into the fourth. However, we have seen some recent encouraging trends. First, positive momentum in the equity markets contributed to an increase in our AUM to $57.5 billion. Second, we entered this week with $715 million in net outflows. However, we have taken in over $600 million this week -- again, encouraging signs.

Thank you. Now let me turn the call over to Jono.

Thank you, Amit. Good morning, everyone. First, we are encouraged by the positive inflows this week which Amit just reviewed as part of the fourth-quarter update. Though fourth-quarter flows are not yet positive, the $620 million so far this week, led by HEDJ with $376 million, and DXJ with $284 million, is certainly welcome momentum.

As already discussed, the third quarter was challenging, certainly from a market move and flow perspective. But we entered the quarter from a position of tremendous strength and record assets. The strong financial results we demonstrate demonstrates the strength, scale, and efficiency of our business. Not only can we weather adverse markets, our strong balance sheet and our strong cash generation means we can continue to invest in our core business, maintain robust capital return program, and we can make strategic investments in new geographies like our recently opened Japan office and new asset classes like today's announcement of the acquisition of GreenHaven for commodities.

We continue to see so much opportunity. Make no mistake; there is a revolution underway in asset management, and ETFs are leading the charge. The movement towards transparency of fees and transparency of holdings, hallmarks of the ETF structure, is common sense, universal, and irreversible. It is amongst the reasons why the ETF industry is poised for massive future growth.

We are continuing to invest in our platform. We are expanding our teams in the United States, Europe, and Japan. We currently have 164 people worldwide -- a record. And we have 82 ETFs in the United states, also a record for WisdomTree, after this week's three new fund launches.

In summary, we are demonstrating an ability to profitably grow the business, reinvest for future growth, and return surplus capital to our shareholders.

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

(Operator Instructions). Surinder Thind, Jefferies.

I'd like to start with just your thoughts on capital return. How did you guys decide on a special dividend, versus maybe an increase to the quarterly dividend, or perhaps balancing that against share repurchases?

Sure, Surinder. When we think about capital return, there's various tools that we have available to us. And we're going to pick the best tool that we think at the time. When we looked at maybe possibly doing a buyback versus doing a special, I think there were probably three things going on that affected our decision to lean more towards a special dividend versus a buyback. There has been a lot of volatility in the markets. As you know, our stock was extremely volatile. There was a lot of macro uncertainty, what was going on with rates, given the Fed meeting was coming up. And then just particular with us, we were going up against the close of our trading window when we could actually buy back stock.

So when we looked at that altogether, we felt the best way to return the excess capital back to our shareholders was through the special dividend.

Surinder, this is Jon. Let me just emphasize one thing. Our capital management program is so new that there really isn't enough history for you to make any assumptions. I'm sure that the components will shift over time, depending upon market sentiment and circumstances. The only thing I would have you take away is WisdomTree's investor-friendly approach to capital management, and how we are committed to being a capital-efficient firm.

That's helpful. And then maybe one additional follow-on question here -- can you maybe provide a little bit more color around the GreenHaven acquisition? Why is this the right transaction at this point, the timing of it, and maybe how that fits into the big picture, in terms of your outlook for the commodity space in general and how big that market might be, relative to maybe the other markets.

Sure, Surinder. So we are excited about the acquisition of GreenHaven. We have been talking about for quite some time that we do have one hole in our product set, which is particularly commodities. And we have been looking at various ways to solve that. And we felt, in this case, with the GreenHaven Funds, it's got a great track record; it follows a very well-known benchmark; it is already on platforms. And commodities are out of favor right now. And we think being able to get a product like this that's very unique; it's a broad-based basket. And with the addition of our salesforce behind it, when commodities come back in favor, we think we could have a very unique product that could help diversify our product offerings, and grow.

At one point, GCC was close to $1 billion in AUM when commodities were in favor, when it didn't really have a salesforce behind it. So we are excited about the opportunity that, over time, we think this could be a very interesting product for us.

And, Surinder, let me just add that one key to this was that commodities were at a trough, making it an affordable acquisition. Also, just for your knowledge, GCC has never had a salesforce against it. And so we do think that this has some greater potential than they have been able to demonstrate on their own.

Okay. That's very helpful. Thank you, guys.

Craig Siegenthaler, Credit Suisse.

If we go through a six-to-12-month period where European equities outperform, but the euro also rebounds versus the dollar, internally do you view this as a positive scenario for HEDJ?

This is Luciano speaking. A lot of HEDJ obviously has been driven by investor sentiment and expectation towards the euro. All I would say is we've had some periods where the euro has strengthened, and hedged has been able to maintain a good deal of its assets. So I think that thesis still remains to be tested, what happens to hedged in rising euro environment.

Don't forget, when hedge is long the stocks, it benefits from the European equity market going up. So I think, up to this point, we've seen hedge hold onto its assets even in a few periods where the euro had a short rally. But we've also diversified our product set. So there's plenty of other products that WisdomTree offers that would benefit very well from the European recovery, and from a rise in the euro. We also have, of course, an unhedged offering suite of European equity ETFs, as well.

Got it. And just as my follow-up, you are continuing to see a nice ramp here in your European ETF flows. Can you provide any thoughts on when profitability will inflect here and turn positive?

So a lot of it will depend on the types of product that taken the flows. The Boost ETPs are much more profitable for us than the UCIT funds. But let's just rewind a little bit. In April of last year, when we acquired the business, we put in $20 million. We think that that's how much capital it needs to get to breakeven in about four years. And I'd say, right now, we are on track with that. The business is a little over $700 million of AUM as of this morning, and it's on track as what we had planned. So think about another three years from now, probably, getting close to breakeven.

Thanks, guys.

Bill Katz, Citigroup.

I appreciate the nice update. Can you talk about margins for just a second? You mentioned you probably ranked the lower end of your strategic spend on timing. I know you say you're going to provide guidance as we get to the end of the year, in the early part of next year. Can you talk about, just from an initiative perspective, of what the focus might be next year? And then what, if any, of these expenses might spill into next year as a result of that?

Sure, Bill. So we will give more color to expense and strategic growth spending next year, on our next call. But I wouldn't expect it to be that different than what we've done over the last couple of years, right, continuing to innovate on products, continuing to launch funds. We will look at what the headcount-related initiatives that we will have. But we'll give more update then.

As far as spillover, obviously the things that we are spending now -- headcount will obviously -- the ramp-up that we are seeing there will spill over. But, of course, we are hoping to see revenue generation from that, from the expansion of our salesforce. Our marketing and sales-related spending -- a portion of that is discretionary. A portion of that will carry over. Some of it will depend on market conditions, and the like. So again, we will have to give you a little bit more updates once we have our full-year thoughts, on our next call.

And then just staying on that same theme, you did a very nice job defending the gross margin this particular quarter, despite the volatility and the decline in the AUM. Can you sort of walk through underlying dynamics of that? And then, beyond your intermediate-term guidance you provided today, how you are thinking about that longer-term?

Sure. So gross margin, particularly this quarter, increased. We have a particular expense that we pay. There's a regulatory fee that's paid that's related to inflow levels. So when we have outflows, we don't incur that expense. So we see the benefit of that.

As our AUM scales, we will see incremental increases in our gross margin. But it will have to continue to scale at a higher point than what we are seeing now. And so 85% to 87%, the guidance that we are giving, is a good number that we think for the short-term; and if we see changes to that, as we have done in the past, we will give you an update of how we see that gross margin changing.

Got you. If I could just ask one more -- thanks for taking all my questions -- there definitely has been a ramp-up in the number of players just entering the space. Legg Mason talked about getting ready to launch some things this quarter, I guess. You are doing very well with DXJ and hedge J. What is your thoughts about stepping up marketing? Obviously, you've put the infrastructure in place with salespeople around the world; but just maybe stepping up the marketing spend a little bit more to potentially accelerate market share gain?

I think we are a very effective marketer. We are making investments in marketing. Some of it, you might not -- it's not necessarily what you'll see on television. We do a significant amount of online marketing. We do a lot of events. So we are really invested, and covering the market, I think, extremely well.

What I don't think you will see, though, is us going away from marketing towards the advisor, towards the retail investor. That's a step-up of magnitude when you go towards sporting events and things like that. I don't see that in the near-term as one of our focuses. So I think if the assets continue to grow as a percentage marketing should continue to decline. But in absolute terms, marketing will continue to grow.

Okay. Thanks for taking all my questions this morning.

Adam Beatty, Bank of America Merrill Lynch.

Just to follow up on GreenHaven -- struck by their commodity focus, and Boost also having some commodity products. Not sure if you see maybe some marketing synergies there; maybe other synergies, in terms of the overall WisdomTree kind of universe of product offerings. But I'd just like to get your thoughts on that.

We are excited that we are building out commodity exposures. And you are right, that much of the Boost's increase in AUM is on leveraged commodity exposures. I'm not sure that there's real marketing synergy. But there is sort of knowledge synergy, as we continue to put emphasis, and build physical, mental, personnel support within the space. So I think that's where we will see the synergy.

Excellent. That makes sense, thanks. And just maybe a follow-up around competition and what you have seen so far. The fee rate continues to be kind of strong, so no pressure there, maybe. But have you seen others in the institutional marketplace in your sales efforts or what have you? And what do you see the impact, if any, so far?

There's a couple of things, with respect to competition. So first, if you are talking -- taking the competition from the perspective of new entrants, I would say fundamentally nothing has changed. The players already in the market today, which includes WisdomTree -- they are the ones that are moving the fastest, the most aggressive. So that dynamic really hasn't changed. Though when you see things like Legg Mason getting into the business, and Goldman Sachs getting into the business, you can only see that there's this increasing critical mass which is helping to just expand the pie. So we are excited about that.

Now, the way that we compete is always through innovative product. When you talk about fee compression, low-fee beta and commoditization of indexing was a reality from day one. That's why we chose the business model that we have. And by that, I mean self-indexing. So again, we always compete through innovation. Innovation, differentiated products -- we try to be first to market. So from a fee standpoint, we are not immune to the pressures. But we have to be amongst the best positioned of all of the asset managers, if not the single-best positioned for this dynamic.

Great. That's very helpful. Thanks for taking my questions.

Robert Lee, KBW.

A lot of my questions have been asked. But maybe one on kind of -- another one on the competitive universe. I was just kind of curious. Obviously we've seen an increase in product offerings, and smart beta currency hedged here in the US. But can you maybe talk about if you are starting to see more of that globally, in Europe and particularly into smart beta spaces? Obviously, it feels like it's much less, I'll use the word mature, or more immature market. But if you can maybe compare and contrast the new product competitive environment in the two markets?

Your question was not so easy to hear, so let me just reiterate. So your question really dealt with -- and you might want to mute your phone. The question dealt with product competition in smart beta, currency hedge, maybe with respect to Europe. And what I would say is WisdomTree has been very, very early in both of those trends. It's nice to see the market acceptance. And you are seeing market acceptance now. When you say smart beta, smart beta is a catchall phrase virtually for just innovation. It certainly means alternative rating systems, and it's also incorporating things like hedging of duration or currency, as well. These innovations are really being accepted around the world, which is very, very positive for WisdomTree.

Again, like I talked about, people entering the ETF markets, people entering smart beta and currency hedges, also very constructive for expanding the total pie. I think that these are very, very positive exposures that are offering choice to the market, and plays to some of our strengths. Though, in one sense, competition is a challenge; in another, it is very constructive for WisdomTree's message. And I don't think the dynamic has particularly changed much over the last few quarters.

That was all I had. Thanks for taking my question.

Chris Shutler, William Blair.

First, Amit, on the comp expense, can you just help us think through the sequential increase from Q2 to Q3 of about $500,000 in the US? Just trying to understand the magnitude of impact that the various factors you laid out had, so the headcount growth, the stock-based comp, and the lower incentive comp. And probably more importantly, trying to think out -- I know you are not giving guidance on 2016. But can you help us frame the baseline level of comp, before we get into all the incentive stuff? Thanks.

Sure. So let me take that last piece first. Conceptually speaking, we have always said all of our expenses should decline as a percentage of revenues, as our revenues continue to scale. That's just the way our business model works. This year, we've made a significant increase in our headcount, as we have planned to do, particularly in sales. So a lot of that is going to carry forward into 2016. So a lot of this will really have to depend on where we end up for the year, and what our plans are for 2016, to really see if that trend will continue on the comp line. Maybe it stays flat for a while; maybe it will come down a little bit; maybe not as much as what we've seen in the past. But you will have to wait till our next call so I can give you a little bit more clarity on that.

As far as the sequential change, Q2 to Q3, yes, so we had some ups and downs. We don't give too much inside guidance of what's moving in there. But just to talk a little bit about the components -- so, yes, we did have an increase in headcount this year. And you've seen the full-quarter effect of that carry forward into Q3. And then we had the stock compensation increase. We had a great first-half performance in current equities, so we saw an uptick in that in Q3 expenses.

And then, offsetting some of that is a decrease in our incentive comp because of the fact that we had outflows in Q3. So those are the three main components. And I think the key isn't just -- think about, on a full-year basis, the number that we are talking about, the 21% to 25%, I think we're going to be close to the high end of that range.

Okay, thanks. And then I also want to touch on the capital allocation again. When did your purchase window close in the quarter?

Two days prior, a couple of days prior -- a few days prior to the Fed meeting.

Okay. Makes sense. So you did have a period there, then, from late August to, let's call it, mid-September when the stock was in kind of that $15 to $19 range. And I guess the expectation would have been that, given the buyback, you would have bought back more stock than. Not really a question; more of an observation.

And then, Amit, lastly, I just wanted to touch on the GreenHaven acquisition. Should we view that more as just acquiring a couple of unique ETFs in the commodities space, or is this, in fact, the start of a much more material effort in commodities?

No. I think that we have been talking about for quite some time that we knew we had a hole in the commodities bucket in our product set. And we were looking for a very unique way of filling that. And this was one way of doing it. A broad basket of commodities, we think, is going to be -- is very unique and will work well when paired up with our other products. So I wouldn't say this is some sort of shift. It's just, we think, a very good way to add a product in the asset allocation sleeve.

Okay, thank you.

Alex Blostein, Goldman Sachs.

A couple questions for you guys around the ETF industry, and some of the regulatory observations, both in the US and Europe. On the US front, given how close you are to marketing and financial advisors, just curious what you are hearing on the DOL front, whether or not people have started to reposition their businesses already. Do you think that's on the come? What does it mean for your business? What does it mean for the ETF industry? So that's question number one, and then I have another one for Europe.

The potential of the DOL fiduciary role being established -- I'm not sure people have started to reposition their portfolios. But you could, we would -- internally, we view that as extremely positive for the ETF industry, and consistent with the trends that you are seeing: that it's really in the best interest of investors to be in the most transparent, most liquid, most tax-efficient structures. And it's really just common sense that this will continue. But regulatory catalysts really focus the advisor's attention. And so you might actually see accelerated growth from something like that, if it were to take place.

Got you. And then on MiFID IIs, we got some final rules a couple weeks ago, or a precursor to final rules maybe a couple weeks ago. But obviously, one of the big changes is ETF's trading over-the-counter to exchange listed. Help us think through that framework, and what it means for the ETF industries there. Does that accelerate growth in ETF adoption in Europe in any sort of way? Or is it more just more of a market structure shift, and doesn't necessarily impact the asset gathering component of it? Thanks.

We think it's positive. Because what it does is -- there's a lot of ETF trading that's happening off the exchanges. So there's questions of how much liquidity is there in ETFs? Can I get this trade done? We think putting it onto an exchange platform, having that liquidity available for everyone, so that people can see it -- we think this is a growth driver for the ETF industry in Europe.

Got you. And you know, actually, one more, if I could squeeze this in -- it looks like you guys are listing three different ETF, doing ETFs on BATS; and they have been, obviously, pretty competitive on the pricing front. Is that a start of future -- should we view that as a change in how you view different listing venues? What kind of benefits are you guys getting from listing on BATS, aside from obviously just the pricing? And should we think of that as a source of potential cost savings, going forward?

Sure. So obviously, it's very known that BATS got some pretty attractive pricing for listing ETFs on their exchange. They are making a big push for that. I would say, if anything, it's just really about diversifying, where our products are listed. We have a big offering on NYSE. We have a good number of funds listed on NASDAQ. And we think, from a diversification standpoint, it's good to -- there are trading venue bets out there for ETFs. It's really nothing more special than that.

Okay, thanks.

Mac Sykes, Gabelli.

Congratulations on the acquisition. My question around that is, as we begin -- as you begin bringing on these commodity funds, how does that impact your compliance costs, operations, et cetera? Is this really a material dynamic change at all?

No. So, today, we are already a commodity pool operator because of two of our ETFs. So no, there's really no change really, from a compliance perspective, for us as a result of that.

And because of that, I would say the integration risk is extraordinarily low -- no people; two funds; bolts on to our infrastructure.

Great, thanks. Nice quarter.

Michael Cyprys, Morgan Stanley.

I just have a two-part question. I'm curious if you could first share your latest thoughts about increasing penetration among the different distribution channels. And then secondly, certainly a lot of flows going to ETFs the past couple years. But the distributors don't collect the 12b-1 fees, and mutual funds certainly have been challenged on the flow side. So just curious what trends you are seeing from the distributors wanting to take a greater share of economics from the ETFs.

So ETFs are taking market share. They're taking market share because it's just common sense that the newer structure has greater appeal, both to the end customer but also to the financial intermediary who is working in a fee-based model, allowing them to make unbelievably precise allocations using these terrific new tools that ETFs represent. In terms of platform access, the industry has always wanted greater access to the revenue streams of our industry. You have seen some success from distributors, some of the -- like the Schwabs and Fidelitys of the world. We will have to wait and see.

What I would just say is, what is most important to me, with respect to your question, is that we don't lose this pristine nature of the fee structure. One of the things I think people really fail to recognize, in terms of the attractiveness, is the transparency of the fee model. So you have fee certainty with almost every ETF. It has a unitary fee. And so there's no hidden costs to it. It inspires confidence. We want to make sure that we maintain as much of that as possible as an industry. So that's really the most important thing to me.

And then the last point is, however it evolves, because of the scale and strength that we have, we are able to participate in the industry, however it evolves.

Okay, thanks.

Thank you. I'm showing no further questions.

I would like to turn the call back to WisdomTree for any further remarks.

I just want to thank all of you for your time and attention this morning. And we will speak to you in 90 days.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone have a great day.