WisdomTree Investments, the only pure publicly traded exchange-traded fund sponsor, posted a nearly sixfold increase in fourth-quarter net income, fueled by solid inflows into both new and existing ETF strategies, such as its now hugely popular WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ).
Net income in the final quarter of 2012 rose to $5.3 million from $900,000 in the same year-earlier period, New York-based WisdomTree said today in a press release. Revenues rose by almost 46 percent to $23.6 million.
“The ETF industry continues to demonstrate dynamic growth, posting a record ($188 billion) in net inflows for the year,” WisdomTree Chief Executive Officer and President Jonathan Steinberg said in the press release. “We are continuing to invest in our business and position WisdomTree to take part in the fast-growing ETF market.”
Fourth-quarter ETF inflows for WisdomTree totaled $1.1 billion, the company said, and, according to data compiled by IndexUniverse, $573.3 million poured into DXJ, a Japan-focused equities fund that neutralizes the dollar-yen currency cross, making it the go-to choice for investors looking to insulate returns from Japan’s aim to weaken its currency to help its deflation-plagued economy.
"DXJ is responsible for the lion's share of that (asset gathering) number," Steinberg said in an earnings-related conference call. In response to an analyst question, he said his company began to aggressively spread the word about Japan's policy and how DXJ was a "truly differentiated fund" that could help investors. He acknowledged that the ETF has taken on a life of its own.
WisdomTree, a firm known for its active funds and fundamentally focused indexing methodologies that screen securities for variables such as earnings and dividends, is gaining traction among investors. WisdomTree's market share of industry net inflows was 1.9 percent in the fourth quarter of 2012 as compared with 1.7 percent in the fourth quarter of 2011 and 2.0 percent in the third quarter of 2012.
Its inflows in all of 2012 totaled $4.7 billion—more than a fifth higher than the 2011 annual inflows figure of $3.9 billion. Those inflows last year amounted to about 2.5 percent of total assets that moved into U.S.-listed ETFs last year. WisdomTree’s almost $21 billion in assets make it the seventh-largest U.S. ETF sponsor.
One exceedingly positive development in the 2012 fourth quarter was the legal settlement the company reached with Rob Arnott’s fundamental indexing firm Research Affiliates. Arnott’s firm sued WisdomTree in late 2011, charging Steinberg’s firm with patent infringement related to both firms’ focus on choosing securities based on financial metrics such as attractiveness of dividends.
That settlement, based on Arnott’s conclusion that both companies had independently arrived at their insights surrounding fundamental indexing, included Research Affiliates paying $700,000. That sum was a line item that showed up on WisdomTree’s discussion of expenses in the final quarter of 2012.
WisdomTree said that excluding all special items, including legal expenses, and costs linked to a secondary stock offering, shareholder proxies as well as insurance reimbursements, the company’s fourth-quarter “pro forma operating income” was $5.1 million compared with pro forma earnings of $1.0 million in the 2011 fourth quarter.
WisdomTree’s currency-hedged Japan equities fund now has more than $2 billion in assets, or about 10 percent of the company’s nearly $21 billion in assets. The fund has pulled in more than $1 billion in fresh assets so far in 2013, according to data compiled by IndexUniverse.
Among the company’s popular active funds is the WisdomTree Emerging Markets Local Debt Fund (NYSEArca: ELD). It now has more than $1.7 billion in assets, and it gathered $121.6 million in assets in the 2012 fourth quarter, according to IndexUniverse’s ETF Fund Flows tool.
"2012 was a year of terrific execution and accomplishments for WisdomTree, with continued momentum into the new year,” Steinberg said. “We have expanded our product set with additional equity and fixed income strategies, while hitting record asset milestones in several of our flagship funds.”
If CalPERS is taking hedgies out, ETFs may be coming back in.
‘Smart beta’ almost surely means loss of more market share for active managers.
Be careful of your assumptions (and headlines!) about volatility ETFs.
WBIG hedges in some areas and bets big in others.