WisdomTree Investments CEO Presents at Bank of America Merrill Lynch 2013 Smid Cap Conference (Transcript)

May.10.13 | About: WisdomTree Investments, (WETF)

WisdomTree Investments, Inc. (NASDAQ:WETF)

Bank of America Merrill Lynch 2013 Smid Cap Conference

May 7, 2013 02:20 PM ET

Executives

Jonathan Steinberg - Founder and CEO

Amit Muni - CFO

Jonathan Steinberg

I am Jonathan Steinberg, I am the founder and CEO of WisdomTree and Amit Muni is the CFO with WisdomTree and what we are going to do is we’ll talk about WisdomTree obviously specifically on growth but also a little bit about the ETF industry and the dynamics that are powering it and then we’ll save some time for questions.

A couple of things that WisdomTree. So one we are the only publicly traded pure play ETF sponsor. We launched our first ETFs in June of 2006, so we are approaching our seventh anniversary. You can see in the bar charts, you can see how we have grown recently in the last couple of years. If you stop on the dark dot blue, you can see 2012, we ended the year with $18.3 billion and currently as of this morning we are at $28.3 billion.

So, we got just an extraordinary year-to-date. Really we have one of the hot funds, and can a talk a little bit about that later but our DXJ, our Japanese equity that we hedged at the end had a very strong start to the year. And you can see all of our metrics have changed to the positive.

We have 47 ETFs. About 80% of our assets are in equity. So we have the global suite of fundamentally weighted equities, currencies, fixed income and some alternatives. About half of our assets are in emerging market between EM equities, bonds and currencies and then another real area of strength would now be Japan.

The key to the business will really affirm that to create the products and sell product, we outsource the portfolio management to Mainland Capital who follows our rules mostly and little bit to western so we have a very different business model than virtually all financial service companies. We’ve really gone out of our way to mitigate risk and anything that had a tail that could commoditized, we outsource so we can focus on the areas that we could really add value in and I am going to walk you through the business model but it's really looks more like a software company or an internet company in many ways than it does a traditional financial service company. We have 74 people at the firm.

So this will give you, we can talk a little bit about the industry. So WisdomTree I said we launched I June of 2006. We raised some money from Michael Steinhardt and Jim Robinson in 2004 and I was really writing the business plan at around 1998, 1999, 2000. So when we’re really getting organized the industry had 700 billion in assets.

So the trillion dollars of growth that we’re seeing was actually something that I expected and there are couple of things have had driven the asset growth over the last few years but it starts really with education. The benefits of the ETF, how to trade the ETF, we'll spend a little bit of time on that in a minute.

We as an industry, we’ve been very innovative we’ve added a lot of choice to the marketplace. So new asset classes and innovation have been a key to growing the business. One piece of the story which is very important is to understand that the financial intermediary, as their business model has changed, as they’ve gone to a fee based model, low fee ETFs work very-very well. So that’s been something that is driven us historically and will drive us in the future and then the last piece is, as you start using the EFT, it’s very seductive, they work very-very well and most people never leave the ETF. We continue to take market share.

The growth that you’ve seen historically, there is virtually no 401-K money and that is something that can power us an industry going forward, some rule changes at the end of last year transparency of fees is something that should drive growth going forward.

Question-and-Answer Session

Unidentified Analyst

(Inaudible)

Jonathan Steinberg

The biggest change was the department of labor mandated transparency of fees.

Unidentified Analyst

(Inaudible)

Jonathan Steinberg

Yes, they oversee the 401-K plans yes. That's very important. If you’re not aware of what you’re paying, you can pay anything.

Unidentified Analyst

(Inaudible)

Jonathan Steinberg

You now will have start showing your record keeping and the advisors have to start showing all of their fees for every service that goes in 401-K plan. Now I wouldn’t expect this to have instant uptick. I think this is a slow moving channel and people would need to internalize the bad advice that they have received over the many-many years and it will take, I would expect the next three or four years you’ll start to see meaningful change going forward.

So, this is really I think the most exciting piece of the pie. So in the pie chart it shows you long term assets between the mutual fund industry with $11 trillion and ETF with the $1.4 trillion. In the middle the bar chart and the reason we’re doing seven years here, our first full year was 2007. So ETF had taken in roughly 50% of the inflows even though we’re now 11% of the assets. So we’ve been taking massive market share away from the traditional structures and if you go the right hand side, this is really stunning. The dark blue shows you the inflows for equity ETFs and the bottom shows you the outflows for equity mutual funds.

So, it's about a $1.1 trillion difference. We virtually take all inflows in equities goes to the ETF industry right now. And the reasons are very, very simple and this were known, 10 and 15 years ago but this is what got me excited about the industry. Full transparency, intraday liquidity, tax efficiency, it makes a better investing experience, period. And as you educate people on those benefits and how to trade the ETF, you will take market share. So, in my belief as the mutual fund industry today, as challenging it is today, this is as good as it will ever be.

It's getting worse as people get more educated, that's what I believe.

Unidentified Analyst

(Inaudible)

Jonathan Steinberg

ETF's are passive and active and we will talk about WisdomTree's approach; but let me say that if you get fees and taxes wrong, it doesn't matter how great you are. I mean you can be really great but if you are high fee and tax inefficient, it's going to eat way at a lot of your performance.

Now if you can; so this is what got me excited. So it was a better wrapper and then this was our big idea. So, back in 1999 and so, I fell in love with ETFs but I knew that I wouldn't compete long term with Vanguard on the same cap weighted indexes. And so I needed a different approach. So in ETFs everybody is transparent, everybody is liquid, everybody is tax efficient. So, you need to differentiate. So what we did was we created our own indexes.

So, the first innovation for the firm was affiliated indexing. What separate WisdomTree from Vanguard or iShares, we create our own in taxes. Now, the world of in taxing was cap weighted, Russell, MSCI, S&P they are all cap weighted. So, cap weighting as stocks go up they weight more, as stocks go down, they weigh less and they run into every bubble. By definition it have to have in cap weighting.

So, I thought there might be a better way to construct the portfolio. What we; and it did not come to me overnight it took a number of years of different iterations and tests before I got to the equity approach that we are doing today which is our dividend and our earnings approach which is fundamentally weighted. So we take all dividend payers, we weight them by your contribution to the total dividend paid and then we re-weight once you are back to the dividend stream.

Now I would recommend you go to wisdomtree.com to really get a full sense of the approach but the key to active management is outperformance. So what we're showing you here is and it is about 80% of our assets are tied to this chart.

So, in the one year number ending March 31, 2013 44% of our equity ETFs and 36% of the asset beat the no fee indexes and longer term 35% and since inception a majority 50% to 60% or 60% to 70% of the time we are beating the cap weighted indexes no fee. So ours is the active fee performance of the ETF. So if Vanguard charges nothing, we would be creating value for our customer.

Now a lot of people thought, when I say Vanguard charging nothing, a lot of the questions are fee compression, low fee data, though people are aware of it today, was knowable 10 years ago, Vanguard was playing 10 years ago and they were 7 basis point for domestic large cap. All you're seeing is low fee data extending to bonds to gold, so we're seeing that but we were created for this moment in time.

Unidentified Analyst

(Inaudible)

Jonathan Steinberg

First of all won't always but high volatility outperformed for much, this is much of last year. A lot of what we do is dividend based so we have low volatility, sort of higher quality. So we underperformed a little bit, but it causes me no concern whatsoever

Unidentified Analyst

What's the inception dates again?

Jonathan Steinberg

Each one is a little bit different but 20 of our 47 ETFs were launched in June of 2006. So this a graph of the assets as they grown by category, so one on the right people ask, so how do you do it, what do you focus on.

So at the very top it gives you we have proprietary index capabilities and broad regulatory relief, but philosophically and this is what I knew 10 years ago, you need to be different period. You have to be different, if you can be first that's great, if you're not first you better be better or different in a way that's constructive.

So when we launched we introduced international size cuts. So international small cap, emerging market small cap, we did the first Indian equity ETF. So things like that. Now I spoke to you earlier at the very beginning about we had a very strong showing in the first quarter. Our Japanese equity ETF where we hedge out the yen. So that was launched in June of 2006 in the original suite of 20 funds. After about two years, we, and ETF is just a tool, there is no friendship involved, no personality, it's just a tool. After about two years, we added a hedge.

Now to do that you got to go up to trustees just like these are (inaudible) funds, we added a hedge. So now we were competing with iShares, who had a cap weighted broad based equity, Japanese equity which had yen exposure. We were fundamentally weight Japan with a tilt toward exporters but the key differentiator was the yen.

So, that fund grew slowly over the last few years. December 1st, it had $500 million in assets and it was trading about 35,000 shares a day. We were very prepared for the election in Japan. Our research department had researched ready that if the election played out the way it did and we are now an $8 billion fund. In the first quarter we took in 72% of all money going into Japanese equities in the ETF format. Now, it’s not better, it’s just different. Yes sir.

Unidentified Analyst

How do you pay?

Jonathan Steinberg

Once a month we put on a non-deliver forward to either to head Japanese exposure to the yen. We reset it once a month, six or seven or eight counter parties that were dealing with. So, it’s quite inexpensive.

Unidentified Analyst

(Inaudible).

Jonathan Steinberg

No. In fact because it’s such a low interest rate market deal, it does work. It would not work in, it’ll be hard to hedge out the Brazilian real with such a high interest or something like that. So, in this case it does work. Again, it’s not necessarily better but it is different.

We have other products that are not as differentiated or sort of like right now in TB we’re marketing domestic small cap dividends. So, there we’re going up against iShares and Russell 2 and Vanguard at 7 basis points whatever it is. We are 38 basis points.

But in the six years that that fund has been up, it has 200 basis points a year of outperformance and it starts with like 300 basis points of more yield than the Russell 2000. So it’s a $600 million fund and we have research that we’re supporting it. It’s a fair fight but it shows you even we launched, when we had no assets, day 1 at 38 basis points that was an original 20. So, just to give you a sense, we’ve always been fee conscious.

So now we’re going to talk a little bit, if you look at the first quarter in the middle that shows you what WisdomTree did. WisdomTree took in $5.9 billion in the first quarter. We were only beaten by Vanguard and iShares. On the very far right, you can see in dark blue the 10.8%, we took in almost 11% of the industry's inflows. That was a big number for us.

We currently have about 1.9% of the industry’s assets. So we are definitely taking market share. On the far left you can see the annual inflows for 2010, ’11 and ’12. So 2012 was our best year ever. We took in $4.7 billion year-to-date, we're at $8 billion.

You know history. We’ve only had one quarter of outflows, when Neiman went bankrupt, $15 million. So even in 2008 as a pink sheet company losing money, we still had $900 million of inflows, and I think a lot of that is the strength of the ETF structure, than maybe the way we handled ourselves, yes.

Unidentified Analyst

(Inaudible) lots of shares (inaudible), what would it look like

Jonathan Steinberg

So I am going to jump over to some pages for you, because we have something that would show you, because it was such a great quarter for us. I will show it to you right here and it's in your book on page 27. So on the left it shows you the full $5.9 billion. So we took in $1.9 billion X DXJ or in addition to DXJ.

And on the right you can see that we had record inflows in our bond funds. Really we don’t have a full suite of bonds. We are an emerging market fixed income. So that was our best quarter ever. And then on emerging market equities which has really been historically a place of great strength for us, we actually took in more than any other ETF sponsor in the first quarter.

Now it wasn’t an easy quarter for emerging market equities but it was a great quarter in very sense and then now on the page we give you a little bit more detail into the inflows into Japan. So as I said earlier Japan took in $5.4 billion, we took in $3.9 billion 72%. In the first quarter Japan DXJ took in more inflows than any other ETF in the U.S. ETF industry.

And what a lot of people ask at this point is, so where is the money coming from, and we tried to answer that question. So on the right hand of the bar chart it shows you our estimated inflows by channel and then we compare it to at the end of last year all of our inflows since inception and you can see that the breakdown is not very different. We had a big bump up internationally. DXJ has become a globally known security. So that was interesting, but in general a great quarter in every way.

Unidentified Analyst

(Inaudible) how do you go about (inaudible) that increased your chance of (inaudible) DXJ.

Jonathan Steinberg

So first of all DXJ has been around for many-many years, right? I mean it actually goes back. So the first thing we actually saw that there was a negative correlation between the currency and the equities in Japan. So that helped us actually with that particular thing. But it really does go back to can we be first. Can we be better?

I will give you an example. When we launched our Indian equity ETF, there was a structured note that iShares had launched for India which had been very successful had like a $1.3 billion. So that note now has maybe $300 million in it and our 40 act ETF has a $1.3 billion and so the market moved to the better structure. So that one I would say was better not different but better.

Unidentified Analyst

But is it more of a marketing accident (Inaudible) versus an investment economic that are being invested (inaudible).

Jonathan Steinberg

I would say that it takes a little bit of everything. The thing about an ETF we have no loads we have no 12b-1s, we will have only one share class. And so the selling process is very different. So what is hard to truly understand, if you haven’t actually done it, you actually have to create demand. Demand has to be there. We can market on TV but if there isn’t demand people aren’t going to pull the trigger.

So DXJ it grew slowly a little bit for six years until it got the $500 million and then when the Japanese market started to soar and it soared relative to other global markets. We were there and ready for it and then we supported it with research and we were on television. We made sure that at a minimum if you were interested in Japan for the first time in a decade or more, you were at least aware that we existed.

That is sort of what it is. I would like to say that it is brain surgery. My grandfather would always say are you watching the store. We are very focused. This is all we do. We are watching the business very, very closely very sensitively. So we had success with DXJ.

So we have another fund, European equities where we hedged at the euro and on the strength of DXJ our sales team was able to extend the conversation and that was a fund that had gone from $30 million or $40 million to $250 million in eight weeks. So it helps that kind of thing.

Unidentified Analyst

Just a question on the sales part. (Inaudible). You wouldn’t think of the private wealth managers and (inaudible), especially something like Japan would be so hot and quick to jump on this thing and (inaudible). So I guess if you could explain the dynamic (inaudible).

Jonathan Steinberg

Well two things I think there is two things that I would say but well, this is that we have assets come by channel and the number of people but, most people would underweight Japan because Japan penetrated badly for like 20 years.

The other thing that made Japan so interesting, it wasn’t just that it started to perform but its relative performance was extraordinary. So a lot of people had to chase that they would just underweight, and if they might have hedged out Japan.

Unidentified Analyst

Were dealers making decisions on behalf of their clients or (inaudible)…

Jonathan Steinberg

So, the key to this is we only target the financial intermediary and the professional investor though self-directed retail, we have a lot of people who come to the website, do PR, they see the commercials and they are just a lot of them, they just have no money in the aggregate.

The vast, vast, vast majority of all money, regardless of affluence goes through an intermediary and so they are very sophisticated. Now if you have, everybody has had a different level of education with ETFs, we find that if you are in a fee-based model you're going to be more receptive to ETFs. If that works you are doing asset allocation, you are using ETFs or other things but ETFs work really, really well.

You should be comfortable with ETF. So how is it possible that a fund that traded 35,000 shares a day, which is a $45 stock at the time, just $2 million, how could it taken $500 million in month or 7 billion in four months, you need to know how to trade it. But if you know how to trade in ETF, they can scale.

Now, we have a very developed capital market team and we will help you come in and let me tell you when the money wants to go out if you give us a heads up we will. You don’t trade through us but we will help you on your executions on the way out. It has to be, we have to do that or you not going to come back in if you don’t have.

So when you type in a ticker symbol and I say this all the time but it’s hard to truly understand it. So in November, you are typing DXJ, 35,000 shares comes up that’s not liquidity, that is demand. The fund is trading 500 million shares a day, that's liquidity. It’s the underlying securities that define the liquidity.

Unidentified Analyst

(Inaudible)

Jonathan Steinberg

We have two right now and we have filed for three or four more. So over the next couple of months, part of our product development you will see us expand that franchise and DXJ was such a strong example that, now people are looking for this type of execution. So we help to make it franchise. We will see but we were not the only Japan hedged equity fund.

Deutsche Bank had MSCI Japan and they hedged at the end. Now they were smaller than us. They had $5 million but we only traded 35,000 shares. So it’s not that the moat around the exchange was so strong, now it is strong. So, as an alternative maybe it is easier to understand. GLD state street gold, gold will do what gold will do and if they fired every salesman or they triple their sales force, its market sentiments what’s going to drive gold flows and no one can change it. Now we’re not that big. We still need to educate you on how to use the asset, when it works and when it doesn’t and stuff like that but that’s a type of thing we try to educate you on.

Unidentified Analyst

(Inaudible) and then really getting all the benefits from it. What are you competitors (inaudible)?

Jonathan Steinberg

So barriers to entry are not very high. So it takes a $2 million or less and a year maybe to get you exempted relief okay but at this point we have hit enough scale that we’re really ahead of the game but we compete with the iShare and Vanguard every day since we’ve launched the firm. Vanguard is cap weighted, very sort of vanilla in their execution but think about iShare, they have 250 ETFs, they have no loads, just like us, we have no loads. They have no incentive fees. So a salesman has to, they launch a new fund like if iShare wanted to launch a hedged division of their Japan fund they’d be the weak, they wouldn’t be the dominant player.

Each ETF needs to live and die in its own on its own, right. Vanguard is one of the few firms with a brand that's so powerful that it all works for Vanguard in it. After 35 or 40 years of doing the same thing, exactly the same way you get that but very hard to really get that.

So low barriers to entry but high barriers success and we constantly saw a lot of people coming to the dividend space, you’re seeing iShare now is launching a factor weighted ETFs which look like fundamental weight, but here with the first mover we’ve got the longer track record bigger volumes. So it’s again a fair fight.

This year shows you on the left, the growth rates of all of the publically traded asset managers and we're off the charts much-much faster. On the right, we show you the leading ETF sponsor. So the one I would focus on is Vanguard.

Look with vanguard is doing to stage treat at the bottom that asset gold or iShares. We were so proud in January, we took $2 billion. Vanguard took $25 billion. So just to put in perspective, but we’ve done $2 billion a months, every month this year. So it’s incredible for us.

We had made a few years going, 2009 we had made a public stretch goal of being a top five player to the industry and this year you could see at 2012, we ended the year at seven and now we are number five. We just passed a couple of players. So at the end of the earnings call on last Friday, we put out another stretch goal. We have laid the foundation to be a $100 billion asset manager in my opinion.

Now, just so you understand, we launched seven years ago. The industry in seven years that we in the business took in $1 trillion and we took in 2.5%. You remember we took in 11% in the first quarter. My guess is over the next seven years, the industry could take in $1.5 trillion or $2 trillion.

So, if we could do 5% or better we should be able to; I don’t know exactly but we didn’t put a timeframe on it, but we have laid the foundation to grow with the industry and we would like to be a $100 billion asset manager in the relatively near future.

I think we have spoken about; unless you have more questions on distribution, well let me just say one thing; we have 34 people and it's very, very traditional. We break it up by channel; by region, an external with supported by an internal. We support them with research; we are going to end on something or my part of the presentation, something very valuable the way we were communicating now and then we support it with marketing, not brain surgery; only 34 salesmen.

In the first quarter, we took in $5.9 billion. According to Morningstar; we were the ninth best asset gatherer in all of the U.S., all mutual funds and all ETF sponsors. The next smallest firm had $180 billion. So we're amazingly efficient as in organization. Before I turn it over to Amit, I will say we are building a trusted brand and when I say that I'm not trying to give you a glib sentence.

In 2008, the world is coming apart, we are in non-reporting pink sheet company trading under a dollar, mostly equities and we took in $900 million in 2008. I don’t know what else to say to you. That really says something okay. Now last summer we started doing social media, which has changed the way WisdomTree communicates. It now allows our research department to put multiple messages into the marketplace.

Every day we have research that advisors are getting and it's changing the way we have conversations. It's extraordinarily productive and I think this is something that is going to sustain us and allow us to continue to take a small fund and nurture it and grow it to be a big fund.

Unidentified Analyst

(Inaudible)

Jonathan Steinberg

Well, sometimes its education, sometimes its product, sometimes its market. You have to break it up, they can't all be a heavy sell, lots of things, all things were approved obviously.

Amit Muni

That is what we do, I'd just like to explain how we do it to show you how we built a very scalable business model, one that's very efficient and it's a very different risk profile than other traditional asset managers/ Now WisdomTree is 74 people and we really focus on what we do best, cross development, sales, research and marketing.

Anything that's labor intensive, cost intensive or risk intensive we outsource to third parties. So all of our back office fund accounting and administration is done by the Bank of New York. Its commoditized function let somebody else with that expertise take care of that. All of our portfolio management is done by Melon Capital, Western or Old Mutual.

So if you think about it, we've not built up the trading infrastructure, the risk management infrastructure, nor do we have the financial risk that's associated with trading. While we create the intellectual property for our indexes we were the first in what's called affiliated indexing where we created and launched products against it.

We pay Standard & Poor's or Bloomberg just a flat fee to calculate the indexes. Our competitors are paying variable fees based on growth in assets to Standard & Poor's or MSCI. So you really look at all this together, there's not a lot of moving parts at WisdomTree. It's very, very efficient, very, very scalable and has a very different risk profile when you compare us to another traditional asset manager.

A couple of the financial highlights. In this chart you can just see growth of our revenues on the left hand side. Now like any traditional asset manager, we earn our revenues based upon the daily value of our assets under management. The fees for funds range from anywhere from 28 basis points for a domestic fund, to 95 basis points for alternative strategy fund. The mix of where those assets will come in will have an effect on the overall revenue capture.

You can see from the two snapshots in time to pie charts, what the average assets looked like in 2010 and in the first quarter of 2013. In the first quarter we averaged about 54 basis points and today on our website as we disclose all the time, every week we update our inflows, every day we update our asset levels our average AUM in the quarter and average basis points. We're averaging about 53 basis points today.

And as our revenues are growing we're starting to reach economies of scale. So when you look at our expenses, as a percentage of revenue you can see on the left hand side our expenses are continuing to decline as the operating leverage in the business model is really starting to emerge. You can see in particular, our gross markets when you subtract out the actual cost of operating our funds, the fees that we paid to those third parties are starting to decline and our gross margins are starting to increase. We had 72% gross margins in the first quarter.

The increase that you see from 2012 for the first quarter resulted two pieces. First we ended our joint venture with the Bank of New York related to some of our currency and fixed income products and second is just on the increase in the asset levels. As I mentioned, the big really exciting thing is as the assets continue to scale we're starting to see the operating leverage in the business model. We had $7.9 million of net income in the first quarter and that translated into very attractive pretax operating margin, 27% in the first quarter of this year.

Now, that we’ve reached portability how are we thinking about operating margin on going forward basis. As you look at traditional asset managers, their pretax margins ranges anywhere from 20s into the mid-40s. Because of our business model, we believe at 35 billion of assets, we can get to a 40% pretax operating margin. And if you think about it, the ETF is built off of the exchange, the broker did exchange industry.

We don’t have to create the customer service infrastructure, the technology infrastructure to protect customer data. We don’t have any of the key man risks or costs of having star portfolio managers. Our funds are predominantly rules based.

Our marketing is focused on the financial intermediary. We’re not trying to build the broad based retail brand. And from the revenue standpoint, ETFs are growing up to the largest pools of money. Pensions and endowments are now starting to use ETF.

When you look at those all together, we believe that we can build a very, very scalable business model. And this a important thing, the key takeaway. If you look at like Black Rock or T-Roll (ph) price there March pretax margins are in the mid-40s. The way we’re operating our business, our goal to have highest pretax margins of any traditional asset manager at just a fraction of the asset levels that they have and then continue to drive that going higher.

As our profitability improve, our balance sheet continues to remain rock solid. We probably have one of the most boring balance sheets you'll see out there. We have about $76 million in assets, we have do debt and the reason I say it’s a boring balance sheet because we don’t use it to fund our business. All of our funds are seeded by outside market makers. So it’s a very capital like business and so no debt. The pie chart on the right hand side, you can see an ownership structure today, Michael Steinhart is our largest shareholder, owns about 15%. 67% is owned by the public. We have a NOL carried forward of about $137 million pretax and about $61 million post tax at about 45% tax rate.

Just to give an update on where we are so far for the second quarter, it’s off and actually fantastic start. We’ve taken in $2.2 billion of net inflows so far. From a revenue perspective, you can see in the middle graph our averages assets are up about 23%. So, whole is going to be another very strong record level revenue quarter for us. And you can see that flows on the right hand side, about three quarters that are coming in DXJ but again very strong flows in overall equities and fixed income.

Unidentified Analyst

(Inaudible) shift their allocation toward equities more, (inaudible) in that.

Jonathan Steinberg

The ETF industry has always over the last seven years participated in equity. So, that great rotation was really more from the active.

Unidentified Analyst

(Inaudible).

Jonathan Steinberg

So, what I would say what we’re not seeing is outflows in funds being reallocated to equities. What we were seeing is may be some money coming out of money market funds that have gone into equities. So.

Amit Muni

And if you see in there in the bottom right hand side, if look at the industry flows, the ETF industry, still very strong and flows in fixed income, but you still see continued strong flows into the equity. Just to summarize, if you have to sort of think about the elevator pitch and what the key takeaway is about WisdomTree, I'd say that five things,

Number one; that we are uniquely positioned and one of the fastest growing sectors of the asset management industry and that ETF industry. We have a very unique and scalable product set, that’s really being differentiated through its performance. We’ve built very unique platform, that’s highly efficient and scalable, and that translates into very attractive pretax margins. And lastly probably besides our assets that we have gathered, probably our best asset is our people, all the people at WisdomTree to help put this company together and it going to take us to that $100 billion in asset levels.

Jonathan Steinberg

We actually have, probably because iShares was acquired, we may have the most senior team in the industry actually. We just hired and it started, I think it at the beginning of the week or last week, stage 2 ETF general counsel. So we are constantly going for high end people.

Amit Muni

Any more questions.

Unidentified Analyst

(Inaudible)

Jonathan Steinberg

Just our equities, this is what we're talking about, yes. Our equities were all either dividend based or earnings based and our fixed income is different obviously.

Unidentified Analyst

And how much of your actual dividend (inaudible).

Jonathan Steinberg

I would say, in equities. If equities here are 80%; about a $1 billion, almost a little less than $2 billion would be in the earnings weighted family. So yes, I'll tell you.

Unidentified Analyst

Will the public know where the market has been going?

Jonathan Steinberg

So what’s interesting like last year we had a very strong 2012. We raised our assets by 50% insiders, because we were venture backed, you don’t see it much in financial services but in technology you will see it. We allowed some debenture investors to get that big overhang off.

We were sued on patent litigation which we won completely, and the stock didn’t move. It wasn’t, so it wasn’t until the fiscal cliff resolution on taxes and dividends that we were sort of unencumbered. So we are ETF focused we’re dividend focused, where emerging market focused. So we have got some big sort of themes that are win to our back.

Unidentified Analyst

(Inaudible)

Jonathan Steinberg

Let me, so many exposures that, it’s very hard to make a generalization, just on certain markets in general. Interest rates will create some opportunities and create some challenges or certain funds will have a problem and others will benefit from it I mean.

So I don’t have any real concern on that. The key for us as we continue to launch funds, grow the potential moments that we could take in money in different cycles. So diversification is something we are striving for, answer your question?

Unidentified Analyst

(Inaudible)

Amit Muni

Yes so the short term, we gave guidance that we expect it to be anywhere from 70% to 75% in the next 12 to 18 months 20, 24 months. We will have opportunities for us to have that increase a little bit slightly. As our asset levels increase you should see small increase from that level but again we gave that 12 to 18 month target.

Jonathan Steinberg

We are also going to be launching more funds. So more funds that are small, you will hit minimum so that will hold down. So I mean there is a tremendous amount of leverage in the model I mean. Did we hire a person with all that growth in DXJ, nothing it all flows down? But we are launching more funds than we had historically in the last few years. So we are just being a little cautious but margin expansion is the key to the story.

Unidentified Analyst

How does the new bond idea process work?

Jonathan Steinberg

It is very involved. I sit at the table myself. I am one of the co-creators of the equity approach. So it is a very robust approach. I wish I could tell you that there was like a single magic formula for it. It is not but it is a lot of people, really. We listen to customers and we look at this marketplace, where we think we might add value to the markets I mean, it's really that simple but a lot of ideas get killed throughout the process before it actually gets to market.

Unidentified Analyst

(Inaudible)

Jonathan Steinberg

Depending on which product, some companies have it instant. It is hard to access marketplace Asian local debt. Phase I is $6 million (ph). Yes, absolutely.

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