WisdomTree Investments (NASDAQ: WETF) came to prominence because of its willingness to offer investors innovative new ways to invest in markets that they had largely ignored. However, various investments move in and out of favor on Wall Street and around the world, and lately, some of the funds that delivered such strong performance for WisdomTree haven't been as strong.
Coming into Friday's first-quarter financial report, WisdomTree investors were ready for a continued drop in revenue and net income, and the ETF provider unfortunately suffered that anticipated fate. However, the company has acknowledged the problems that it faces, and it believes innovation can once again help it rebound and move forward with renewed growth. Let's take a closer look at WisdomTree with an eye toward deciding whether it can mount a full recovery.
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WisdomTree can't catch a break
WisdomTree's first-quarter results were frustrating for those who had hoped that a solid stock market environment might help the ETF provider. Total revenue was down 10% to $54.6 million, and the only consolation was that the consensus forecast among those following the stock had anticipated a steeper 12.5% decline. Similarly, net income of $6.9 million dropped more than 40% from year-ago levels, but the resulting earnings of $0.05 per share was still slightly better than most investors had expected.
Taking a closer look at the report, WisdomTree hasn't yet seen a marked shift in the market environment for its most important funds. The ETF provider had $41.9 billion in assets under management for its U.S. ETFs at the end of the quarter, which was down 5% from a year ago. WisdomTree suffered fund outflows of $100 million. Moreover, the fees the company charged on its assets fell, with the current average advisory fee of 0.50% down by 0.02 percentage points from where it was 12 months ago.
One area where WisdomTree has sought to expand is internationally, and the company saw signs of life there. In Europe, assets of $1.35 billion were up by more than half from year-ago levels. But although the relatively new Canadian fund business kept seeing modest growth, the $72.9 million in assets under management was up just 6% over the past three months. More importantly, the size of WisdomTree's international portfolio is small enough to have only an incremental impact, and growth hasn't come as quickly as many investors had hoped.
Unfortunately, WisdomTree has seen expenses climb slightly despite its falling revenue. Compensation and benefits were once again the biggest culprit, rising 17% and accounting for much of the 1.5% rise in overall costs for the company. In response, WisdomTree cut its marketing and advertising costs, but it did increase its business development and sales spending to seek growth opportunities.
What's coming down the road for WisdomTree?
CEO Jonathan Steinberg acknowledged that the current asset management environment is changing rapidly, but he thinks WisdomTree can capitalize on that environment. "We are currently undertaking a number of initiatives to remain ahead of our competition," Steinberg said, "and to benefit from the increasing inflows we expect to continue into the ETF market in the coming years."
The shape of that change involves working more closely with professionals. In particular, investments in technology have WisdomTree hoping it can make better relationships with financial advisors, and moves like its AdvisorEngine platform seem designed to build loyalty among financial professionals who can influence investment decisions. By looking at ways to encourage a broader-portfolio approach rather than simply meeting a tactical investing need, WisdomTree hopes that its ETFs will gain more widespread popularity and greater penetration within customers' accounts.
WisdomTree stock remains close to its lowest levels in years, and today's report likely won't do much to push shares too much higher. What investors need to see is clearer evidence of the success of WisdomTree's long-term strategy. If signs of that success start appearing, then greater optimism about WisdomTree's fundamental prospects should encourage shareholders about its future.
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