WisdomTree’s Q3 Earnings: Close To Profitability

by on November 2, 2010

WisdomTree, the New York-based ETF issuer known for its suite of dividend-weighted products and active currency funds, reported earnings results for the third quarter this week. The company reported quarterly revenues of $10.1 million, up more than 8% from the second quarter and more than 75% from the same period a year ago. WisdomTree’s net loss for the quarter narrowed to $1.5 million, down from $1.9 million for the three months ended June 30 and close to $5 million for the third quarter of 2009. “WisdomTree continues on a strong growth path which has accelerated in the recent quarter, driven by the diversification of our product set in new asset classes, the lengthening performance track records of existing funds and the development of several strategic alliances,” said CEO Jonathan Steinberg in a press release.

WisdomTree’s earnings reports offer a glimpse into the economics of the ETF industry. Whereas most providers of exchange-traded products are privately-held companies or divisions of larger firms, WisdomTree is a publicly-traded company (WSDT) whose primary operations revolve around exchange-traded funds.

WisdomTree’s ETF assets surged from about $6.2 billion at the end of the second quarter to nearly $8.3 billion at the end of September. That increase of more than 30% was due in part to a rally in global equity markets, but primarily attributable to strong cash inflows. According to data from the National Stock Exchange, cash inflows into WisdomTree ETFs totaled about$1.3 billion through the first three quarters of 2010, which represents about 21% of year-end 2009 assets. Among issuers with at least $8 billion in assets, only Vanguard (29%) has seen greater inflows this year as a percentage of December 2009 assets.

Metric Q3 ’10 Q2 ’10 Q3 ’09
Revenue $10,058 $9,297 $5,716
Net Loss ($1,517) ($1,860) ($4,998)
ETF AUM $8,260 $6,240 $4,901
Avg. Expense Ratio 0.56% 0.54% 0.53%
Dollar amounts in thousands

Giving the company a boost in the third quarter was the launch of the Emerging Markets Local Debt Fund (ELD), an actively managed fund that offers exposure to debt of emerging markets issuers denominated in the local currency. ELD debuted in early August with $125 million in assets, and has more than tripled in size since inception. ELD had already become one of WisdomTree’s ten largest ETFs by total assets, a remarkable accomplishment considering that it had been trading for less than two months at the end of the third quarter. Overall, assets in WisdomTree’s ten largest ETFs totaled $5.6 billion at the end of the quarter, representing almost 68% of the company’s total. WisdomTree also debuted the Dreyfus Commodity Currency Fund (CCX) during the third quarter, bringing the total number of ETFs to 44.

The company could post a profit in the fourth quarter of the year, as ETF assets have continued to climb. Average ETF assets for the third quarter came in at nearly $7.1 billion, but climbed to almost $8.3 billion at the end of the quarter. With an average ETF advisory fee of 56 basis points, that additional $1.2 billion in assets translates into an additional $1.7 million in quarterly revenue–more than enough to turn the bottom line from red to black if all else stays equal. Those calculations don’t even take into account the fact that the firm’s AUM has continued to climb, and is now approaching $9 billion.

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Disclosure: No positions at time of writing.