WisdomTree, Inc. (WT) Q2 2019 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the WisdomTree 2Q Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Jason Weyeneth, Director of Investor Relations. You may begin.

Thank you. Good morning. Before we begin, I would like to reference our legal disclaimer available in today's presentation. This presentation may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. A number of factors could cause actual results to differ materially from the results discussed in forward-looking statements, including, but not limited to, the risks set forth in this presentation and in the Risk Factors section of WisdomTree's annual report on Form 10-K for the year ended December 31, 2018. WisdomTree assumes no duty and does not undertake to update any forward-looking statements. Now it's my pleasure to turn the call over to WisdomTree's CFO, Amit Muni.

Thank you, Jason, and good morning, everyone. I'll quickly walk through the important items for the quarter, and then turn the call over to Jono, before we open up the lines for Q&A. Beginning on Slide 3. Assets under management grew to over $60 billion, up 12% year-to-date. Net flows in the quarter were $337 million, our third consecutive quarter of positive flows. Excluding HEDJ and DXJ, we generated $919 million of inflows, which represents 7% annualized organic growth. While HEDJ and DXJ remained a headwind, their impact is diminishing and the second quarter represented the lowest level of attrition from those funds in the last 10 consecutive quarters. Flows were led by the strength of our European gold franchise, which generated inflows of $772 million, representing 26% market share of gold inflows in Europe. We remain the leader in Europe-listed gold ETPs, a category that can see significant demand in certain macro environments. While the U.S. ETF industry experienced nearly $4 billion of outflows in the emerging market category, we saw significant demand across our EM product suite. Inflows of $367 million, represents 26% organic growth. In particular, we saw strong flows in our India ETF surrounding the country's elections. In addition, our broad-based emerging market fund, DEM, and small-cap emerging market fund, DGS, both generated sizable inflows, leveraging their strong performance track records. As you can see in the chart on the bottom of the page, our absolute and relative organic growth trends are improving. As shown in the dark blue bars, our all-in organic growth has shown steady improvement over the past 18 months with 3% organic growth year-to-date. Excluding HEDJ and DXJ, we have also seen a pickup as our organic growth rate of 12% is considerably higher than the overall ETF industry. We believe this improvement, on an absolute and relative basis, is a direct result of the investments we have made to expand and diversify our product lineup, transform our distribution strategy and build an award-winning solutions program. Later in the presentation, Jono will discuss in more detail the impacts the investments in distribution are having on our organic growth. Now turning to the financials on Slide 4. Revenues were just over $66 million for the quarter driven by higher average AUM, partly offset by lower revenue capture due to AUM mix shift. On a GAAP basis, we had net income of $2.5 million or $0.01 a share. Excluding nonoperating items, adjusted net income was $8 million or $0.05 a share. During the quarter, we recorded an after-tax noncash charge of $4 million for our future gold commitment payments due to the increase in the price of gold as well as $1.2 million of after-tax severance charges. Our adjusted tax rate in the quarter was elevated due to the nondeductibility of certain expenses. Given our current earning levels, we expect the near-term adjusted tax rate to be in the 29% to 30% range. Turning to margins on the next slide. Our adjusted operating margin was 20% for the quarter, which is up slightly from the first quarter. Gross margins for our U.S. segment were 80.3%, little change sequentially. Gross margins for our international segment declined sequentially, reflecting the timing of certain expenses and costs associated with preparing some of our products for Brexit. Through vendor negotiations, we were able to secure $1.2 million of annual fund cost savings, beginning in Q3, split roughly evenly between our U.S. and international segments. The saving should drive a modest lift to gross margins, but we still expect the March gross margins to be within the existing guidance ranges of 80% to 81% in the U.S. and 70% to 72% internationally. On the next slide, you can see the changes in our expenses. For the U.S. segment, operating expenses declined slightly as discretionary spending remains well controlled. We expect discretionary spending for our U.S. segment on an annual basis to be approximately $40 million, $2 million less than our previous guidance of $42 million. Compensation is trending within the full year guidance range we gave at the beginning of the year. The decline in third-party distribution costs primarily reflect the onetime onboarding fees we incurred in the first quarter. On a go-forward basis, we anticipate third-party distribution cost to range between 3.5% and 4% of U.S. advisory fees. International segment expenses increased 2% excluding AUM-driven costs. Marketing and sales expenses normalized from the low spending levels during the first quarter, consistent with the expectations we shared on our April call. Thank you. I'd now like to turn the call over to Jono.

Thank you, Amit, and good morning, everyone. We've talked a lot about the deliberate changes we've made to our distribution approach that has transformed how we engage with clients over the past few years. The foundation or background of this transformation was the building of our industry-leading data intelligence function, powered by IBM Watson. In addition to providing us with much more information on our clients and prospects, the insights from our data intelligence enabled us to better prioritize our distribution and marketing while driving operational efficiencies. We were literally blind to adviser holdings and activities before we built this function. It then continued with the signing of strategic distribution agreements that remove friction and make it easier than ever to do business with WisdomTree. Then we added our award-winning solutions program that makes us a more value-added partner and allows us to go deeper with our clients. Finally, we've revamped our client coverage model and fully integrated our distribution and marketing teams into one cohesive client coverage process. We voiced our excitement and indicated early success over the past few quarters, but I will dive deeper into the impacts the distribution transformation is achieving that isn't evident from our consolidated results, mostly masked by the continued outflows in European and Japanese exposures. Looking at Slide 7. Simply put, there are undeniable signs our distribution strategy is working. Over the past 12 months, organic growth on the commission-free platforms has been over 20%, more than 4x faster than non-platform-related assets. And organic growth from our clients utilizing our solutions program is 18%, roughly 2.5x faster than nonsolution clients. Beginning with TD Ameritrade in October of 2017, we have signed numerous distribution agreements that allow our funds to trade commission free as well as providing us with valuable data. In addition to Ameritrade, key commission-free platform agreements we've signed or expanded over the past 18 months include Schwab, E*TRADE, Cetera, Pershing and others. As you might imagine, removing the friction of trading costs, and in many cases, benefiting from some level of exclusivity drives stronger net flows. Another benefit of the platform is the data we now have access to, which feeds into our data-intelligence capability that I mentioned earlier. In addition to helping us drive increased distribution productivity on this platform, it aids our broader marketing efforts and better informs our strategic decisions. In late 2017, we formally launched our solutions program with the objective of building better and deeper client relationships to drive our wallet share and more consistent and diversified flows. Client feedback on the program has been excellent, and we are seeing the results of our net flows as evidenced by the nearly 20% organic growth rate of solutions clients. Importantly, our penetration in wallet share of solutions clients is more than 2x that of nonsolutions clients. There's a growing number of clients that have meaningfully embraced our solutions program. They view WisdomTree as a highly valuable partner to their firms and have allocated between 30% to 50% of the book of business to WisdomTree products. These 2 segments we've highlighted, platform clients and solution clients, are symbiotic. They reinforce each other. In fact, most of our best clients and prospects are firms that custody where we have platform relationships as well as embrace our solutions programs. These results are still early days, but very encouraging. We have worked tirelessly over the past few years to remain at the forefront of product innovation, to diversify our business, to reduce volatility and to transform our distribution. This has positioned WisdomTree to generate strong diversified organic growth. As the chart Amit presented on Slide 3 shows, we are moving in the right direction. Overall organic growth has been positive for the last 3 quarters despite continued outflows from DXJ and HEDJ. Excluding those funds, our organic growth has exceeded the ETF industry and outpaced all public peers. While there will always be some volatility, the platform we have built should be capable of generating double-digit organic growth on a fairly consistent basis without excluding the impact of any of our funds. The pieces are in place, and I believe we're on the cusp of delivering. Our goal remains to generate strong, diversified and profitable growth, which should translate into very attractive returns for our shareholders. Thank you for your interest in WisdomTree, and we'd be happy take your questions now.

[Operator Instructions] And our first question is from Craig Siegenthaler from Crédit Suisse.

With positive flows again so far in July, WisdomTree is on track to hit its fourth consecutive positive organic growth quarter in a row. But EPS is really struggling to grow due to a declining fee rate and lower margin. First, just on the fee rate. Given recent cuts to physical gold and also EPS, plus the larger impact from organic mix shift, what is your outlook on the fee rate?

One, it's volatile in the sense that market sentiment is really driving the vast majority of the declining fee rate. As you know or you might know, the fee cut in EPS was about a $350,000 investment, de minimis, to say the least. There are some very positive signs particularly around gold, which much of the flows that we've seen year-to-date -- or all of the flows we've seen year-to-date happened prior to any fee reduction. We have 3 gold products: one, where you can redeem in for gold; others where you have different custody, which to some investors is important; and lastly, the new Swiss gold, where the fee was reduced a little bit. It makes us probably the strongest and best positioned for gold if market sentiment remains. In terms of that being able to shift though, you saw or Amit highlighted that we did very well in emerging markets. And just to highlight that, the -- really, it was the original vintage of emerging market funds, the EPI, DGS and DEM, whose fee rates are between 82 and 63 basis points that drove our flows. And I might just turn it over to Jeremy to talk about maybe the potential for something like HEDJ, whose fee rate is 58 basis points from a sentiment standpoint.

Yes. I mean you saw some of the commentary yesterday from the ECB about taking a little bit more aggressive actions on interest rates and potential purchases and different things to help the banks, with this tier-deposit system. I mean with HEDJ, there's been fears about global growth slowing. Interestingly, HEDJ is up more than the S&P 500 year-to-date through today. It's up over 21%. So we really see attractive performance on a lot of our European exposures. If the ECB is getting more accommodative, if we get more trade resolution, global growth-oriented stock like Europe and Japan can really come back in favor as a result of that. So we really like how we're positioned in those big exposures as well.

Yes. I feel very strong, very confident about our pricing strategy overall, Craig.

And just the second part of my question on the margin. Should we only forecast positive operating leverage with revenue growth at this point, but flat or even lower margins if we see flattish revenue trends?

Well, I mean, you can see from our expenses, Craig, that we're able to manage our cost base. Discretionary spending has been coming down. So I'd say, yes, a lot of what we're seeing in revenue growth is going to flow down to the bottom line because we are able to manage that discretionary spending.

Our next question is from Michael Cyprys from Morgan Stanley.

I know in prior quarters you guys benefited from addition to Model Portfolios of your ETFs, I think such as the floating rate product. Just curious if you experienced any sort of benefit in the most recent quarter. And if broadly, you could talk about some of the trends that you're seeing on the Model Portfolio side, any sort of sensing on the sizing. How much of AUM today is included in models?

Sure. So it's Kurt MacAlpine here. So there's really 2 parts to our Model Portfolio initiative. The first part which I'll answer was the first part of your question, which is one of our objectives is to prominently place our ETFs in other people's Model Portfolios; as you mentioned, the USFR strategy, which was placed into a model in the previous quarter. And we've seen a number of our strategies placed into models across the industry, whether it's individual models constructed by advisers, whether it's IBD platforms or whether it is RA clients themselves. So we've had a number of firms, smaller in nature than what we saw from the USFR trade, but come into our portfolios. With -- and we're ultimately targeting, for our best clients, 30% to 50% allocation in their overall portfolios. The second piece from a Model Portfolio perspective is where we act in essentially an outsourced CIO capacity where we are running Model Portfolios for our clients. We feel we're uniquely positioned in the marketplace to capture this opportunity for a few different reasons. First, we build our portfolio as completely open architecture, which is how we feel that the advisers and the end clients ultimately want those portfolios to be constructed. We are blending active and passive strategies into one integrated portfolio, which, surprisingly, is unique in the marketplace today. And we're willing to customize the design to deliver the best execution possible for our clients. And by that, I mean we may be altering the building blocks depending on the custodian platform to make sure that the execution is the best and most efficient for end clients. So that business has also been growing nicely for us as well. We don't and haven't disclosed specific flows, but we are continuing to see growth on a month-over-month and quarter-over-quarter basis.

And Michael, let me just add a little bit color. Much of the DGS flows was being added to one of our models from a strategic partner, so very, very constructive there. And on a going-forward basis, there is some optimism around our approach to products, meaning Modern Alpha, if best interest were to be adopted. We think that there would be -- I've expressed to many of the analysts and investors in the past my frustration with how slow the adoption rate has been for Modern Alpha, particularly in taxable accounts in certain channels. And I think that best interest will make it exceedingly hard and problematic for certain CIOs or platforms to continue to allocate to active mutual funds and taxable accounts. So I think that it's growing and strong, but maybe could accelerate.

Great. And just as a follow-up on that. With the Model Portfolios you're bringing to market, blending active and passive, open architecture, it just seems you're getting closer and closer to wealth management. So I guess, strategically, how are you thinking about even further moving into wealth management? What's sort of the appetite? And how would you think about any sort of actions there?

So I would say -- it's Kurt here again. I would say that if you look across our commission-free platforms, our solutions clients and our Model Portfolios, our primary objective from a distribution standpoint is to be the best partner possible for the financial adviser or the financial intermediary, which also includes our investment in AdvisorEngine. So everything we are doing from a distribution and marketing standpoint is looking -- is geared towards helping advisers succeed with their clients, and we believe by doing that in the most effective manner, we will benefit disproportionately from the flows associated with partnering with that adviser. And that's what we're seeing. So when you hear us talk about a lot of these different initiatives, the real objective is getting closer to the clients that we're serving, ultimately making them more effective in front of their clients and benefiting from the success associated with it.

I guess in what sense could it make sense to have your own group of advisers to further accelerate that is, I guess, what I'm asking?

It's certainly something that we've discussed internally. Obviously, everyone is aware of what Goldman did recently, and it's something that we have considered. So I don't think it's an unreasonable question, but I've nothing to add to it at the moment.

Our next question is from Mac Sykes from Gabelli.

Can you talk a little bit about the outlook for fixed income and WisdomTree's strengths and then potential product innovation going forward? It seems like the industry is on the cusp of really starting to see significant growth in that part of products.

Mac, this is Jeremy Schwartz, Global Head of Research. We, for sure, agree with exactly what you said. There's a lot of potential in fixed income. There's been some commentary about how fixed income ETFs only represent 1% of the global bond market when equities are 4 to 5x higher, and so we think there is a potential for fixed income ETFs to really capture share. Now WisdomTree is positioned in really a great spot. We have USFR now is our leading beta ETF and it's really a good strategic anchor to U.S. Treasury anchors of fixing a portfolio. But we're pairing it with a Modern Alpha and a yield-enhanced approach to go after that active, where a lot of people still have active funds there. We have A-G-G-Y, AGGY, our yield-enhanced Modern Alpha, it adds extra yield, constraining risks, and it's in the top 1% of all active or passive funds ETFs since it launched 4 years ago. And that fund had doubled AUM this year. Started the year at $370 million, it's up to $740 million. And we're talking a lot about pairing -- we call it the WisdomTree barbell of AGGY and USFR together. But it's even going beyond that. We're applying fundamental credit strategies to investment grade, high yield, and those are in very early days, but showing strong performance. So we're as strong as we've been. We've see AUM grow from about $1 billion 5 quarters ago to $4.3 billion today, and we think we're poised for continued growth in that platform.

Our next question is from Mike Carrier from Bank of America.

This is actually Shaun Calnan on for Mike. So you guys are clearly focused on growing assets on the commission-free platforms. And we're just wondering what the incremental margin associated with these assets is versus other distribution channels, just given the distribution fees associated with them.

Shaun, it's Amit. So we pay a revenue share with these platforms. We don't disclose the individual margins that we get from that. But just generally speaking, it's a -- we share a percentage of the expense ratio depending upon our level of priority or exclusivity on the various platforms. It can range from anywhere from 20% to 25% of the expense ratio. So it's been very additive for us. As you can see from the presentation, it helped us drive growth and revenues for us.

Kurt, you wanted to add something?

Sure. So just the way I would thinking about it is, looking at it as part of the total cost of distribution, and one of the things you've heard from Amit and Jono is that while we are leaning into these strategic partnerships, we're seeing a lot of productivity gains from our internal distribution and marketing efforts. So while, in one hand, the cost might be increasing for the overall strategic partnership, we are seeing the productivity gains or cost reductions in our internal business as a result of it. The second thing to mention is we've been in the partnership space for the last number of years. And a lot of the newer deals that we are striking and the relationships that we're building going forward are coming on at a lower rate than what we've seen historically. So in addition to adding and expanding, we're also realizing some gains and some synergies from the partners that we work with who we're onboarding with currently.

Our next question is from Alex Blostein from Goldman Sachs.

This is actually Ryan Bailey filling in for Alex. Maybe hitting on one of the points you made from the last question. In terms of some of the prior partnerships that you've had that were established a couple of years ago, are you seeing any pricing changes or shifting dynamics there, with those existing partners where you've actually been able to build assets?

It's Kurt here, again. So yes, we are. We're seeing -- I mean, similar to our space in the market, this segment of the market in wealth management, particularly around commission free, has been growing quite rapidly. And when that growth happens, a lot of the firms where we're really well positioned are rethinking how they think about their pricing strategy, their product placement of the ETFs, the Model Portfolios and things like that. So the answer to your question, yes, the productivity gains in the platforms in the pricing is coming both from new partners, but also from existing historical partners.

Okay. Got it. And then maybe just one question on marketing expense. When you do have a product like AGGY, where you're showing very good returns across both active and passive, how do you think about the ROI on driving better marketing or spending more on marketing for trying to get a product like that out there in front of retail investors?

Sure. So it's Kurt here, again. When we think about marketing a strategy, I mean, there's really 2 parts to it. There's the distribution, which is our wholesale sales efforts and then there's the marketing. If you're talking about the retail investors specifically, there's a couple of different ways -- 3 different ways primarily that we touch them. One, through our product placement, and AGGY is prominently featured on a lot of the commission-free partnerships that we have in place today. So there's awareness of the ticker from the commission free. The friction of doing business or buying that strategy is then removed. And most of those partners give us a platform to educate the marketplace and the end consumer on our strategies and what we're specifically looking to do. So that's the first piece around just -- that's why this access to commission free is so important. The second piece is around the advertising. So WisdomTree pioneered a number of years ago the 15-second ticker ad that you see on a lot of the financial television channels today. So a lot of -- what we've found and what we've heard from our platform relationships, there are a lot of the individuals that are do-it-yourself investors using these execution platforms, really tap into these financial news sources as a means of gathering their information. So in the context of AGGY, as an example, we would make sure that AGGY is prominently featured from a marketing perspective. So in addition to seeing it on the platforms, they can then also recognize it on television, so that acts as an additional contributor. Then the third piece is, we have a very aggressive digital marketing strategy, where we are engaging with financial advisers but also end clients through a lot of different mediums, whether that's our blog, our social media accounts, whether that's through our website, our paid-search efforts, online tracking and things like that. So it's really this three-pronged approach, building the platform relationships and providing the accessibility, making sure we're prominently featured from an advertising perspective and then really going hard after it from a digital marketing perspective to making sure that, that message continues to get reinforced with those investors. And what I mentioned, while I answered it in context of an end investor, that approach is very similar to how we would target the financial adviser as well. We would just be adding wholesale sales distribution to that overall equation.

Our next question is from Chris Shutler from William Blair.

Could we get an update on AdvisorEngine and Junxure? And just remind us of your ownership stake in each of those?

Chris, so AdvisorEngine, just as a reminder, remember, we had an option to buy AdvisorEngine late last year. We decided to let that option expire. We just didn't think it was prudent at that time given market conditions. We have a good relationship. We're the majority -- largest minority owner of AdvisorEngine, about 42%. To the extent we may want to do something with them to buy the remaining interest, we will announce something when we do. But where we sit today, we're very happy with where we are.

And Chris, just to clarify, this is Jono. Our ownership of Junxure is through AdvisorEngine, so 42%.

Okay. Got it.

Thanks, Jono. I appreciate the clarification.

My pleasure.

And then, Amit, just one for you. The U.S. compensation, I think you said it's going to be -- it's trending in line with your $53 million to $63 million guidance. If I strip out the, I think, roughly $3 million of severance so far this year, it looks like you're trending near the high end of that. Is that a fair way of looking at it?

Yes. It's -- I'd say it's a little bit above the midpoint of the range that we had given from the beginning of the year. I'd say we feel comfortable with that range, ex HEDJ and DXJ in the U.S. As you can see, the flows have been very strong. So I'd say, barring any unusual items in the second half of the year, I think the trends that you're seeing now, we should be in line with that for the second half.

Okay. And then lastly, just a quick one. The Swiss gold ETF, it's been seeing some good flows. The -- remind me of the fee rate on that? I think it was 25 basis points. Is that right?

Yes. And it's now 19 basis points.

And when did that get lower, Jono?

Just recently, actually. Post the flows low -- post almost all the flows.

And was that competitive driven? Or what was the driver of that?

Some competition driven, but some just positioning it for the long term and being that it's a very commodity, metals, gold-oriented marketplace. We [ have ] different funds at different price points.

Our next question is from Brennan Hawken from UBS.

This is Adam Beatty in for Brennan. First on the distribution initiatives, just if you could give us a sense of where you are in terms of getting on different platforms. I know sometimes the expense can spike a little bit as you get onto the new platforms. So as you think about your profile, the number of platforms that you're on right now and sort of growing organically on those versus getting onto more additional platforms, where do you think you stand with that?

It's Kurt here, again. I think it's really a two-pronged approach for us. So one is it's making sure that we are prominently featured on essentially all, if not most, of the distribution platforms that matter. And then your second point is really making sure that we're driving and maximizing the execution across those different platforms. So I would say, if you look at the custodian landscape today, so these are typically the platforms that most RIAs are using from an execution standpoint, we are on, in a preferred status way, at TD Ameritrade, at Schwab. We've significantly increased our presence, entered the Pershing platform and significantly increased our presence this quarter. We're on TCA and a number for other platforms. So I would say from a RIA custodian standpoint, we are on the platforms that control the vast majority of the assets as well as the flows going forward. I think where you'll continue to see us expand is in the IBD space. So we were the first firm to ever partner in an ETF capacity with an IBD sponsor last year, when we partnered with Cetera. So we're about a year into that initiative and partnership. And since then, we've been expanding into the space via strategic relationship with HD Vest, another one with a firm called Kestra. We've been added to one of the RBC platforms as well. So I think you'll see a lot of our new growth specifically coming in the IBD space, given how prominently featured we are in the RIA space today, plus the fact that these IBDs are moving considerably away from mutual funds into ETF strategies and we're trying to make sure we're the best positioned. The other thing to note, just as we think about partnerships, there's the positive, which is the opportunity associated with it. There's also -- there are serious implications for ETF sponsors that have not been able to negotiate a preferred status and it's really reflected in their flows on these particular platforms. So there's the benefits of doing it, but also the opportunity cost associated with not doing it in many cases.

That's great. Kurt, I appreciate the competitive angle at the end there and that's good. Turning to kind of more of a, like, shareholder-broader perspective. It looks like you've got some positive operational momentum, but the stock is down considerably. And you've built a franchise that's attractive in many ways. You've got a broad product line of international distribution. Just wondering if there have been any discussions with the Board around maybe a strategic review or other -- looking at broader options for the company? Any color you could give on that would be great.

Obviously, we're disappointed that in the stock -- and we'd obviously like to see even faster returns on our strategic investments, but we firmly believe that we are amongst the best-positioned firms in all of asset management, and we are also, at the Board and every level, very aware of how the outflows to DXJ and HEDJ have masked lots of [indiscernible]. And interestingly, those funds have held or grew their market share. I mean you heard Jeremy talk just recently about how HEDJ is up 21% year-to-date and with maybe more aggressive ECB action, sentiment around European exposures could turn positive. So we're acutely aware of our fiduciary possibilities, but we are very committed at the moment to pursuing what we've been doing.

Our next question is from Keith Housum from Northcoast Research.

This is Brendan Popson on for Keith. I just want to ask a quick question about the -- more on the commission-free platforms. I guess how do you guys think about the return on investment for doing deals like that? And then are you looking to turn a majority of your business into that kind of business model? Or are you kind of comfortable where it sits now? Or is it just kind of a case-by-case basis with the company that you're working with?

It's Kurt MacAlpine here, again. If you think about the ROI from the platforms, there's really first about onboarding and then about ongoing business relationship. The vast majority of these commission-free partnerships relationships that we've entered into do not come with onboarding costs. So I think part of it might be, what is the cost of getting on to the platforms? There's been a couple of unique instances where platforms require some operational investments to make this functionality available, and they are looking for some onboarding fees associated with it. But I would say the majority of deals that we've done in this space do not come with onboarding costs associated with them. So then if you think about it on a go-forward basis, it's essentially a shared-success model because we are paying them proportionally to the flows and assets that we've generated from their platforms overall. So our success is tied to their success, and we are paying as we're growing proportionately. As we think about it going forward in terms of our overall kind of mix shift, our asset mix, there's a lot of different segments of the marketplace and clients that we're serving and working with, with our strategies. So a lot of these ideals and platform relationships are struck with RIAs and with independent broker-dealer platforms. Sometimes with the RIAs themselves, other times with the custodians. There's still a very large segment of the marketplace, be it the U.S. institutional marketplace, the international institutional marketplace, where a lot of them are using our strategies and the U.S. wire house channel, where commission-free programs and things like that don't exist. So I would say, given the success that you've seen and heard about from Jono in his prepared remarks, you will continue to see us take share in those platform because of how well positioned we are, but I don't see it as a total shift from where we're at today.

Our next question is from Craig Siegenthaler from Crédit Suisse.

So with the markets looking for a couple of rate hikes over the next 6 months, I just want to follow-up and see if you're seeing investor sentiment and demand shift to AGGY from USFR? And do you have other bond ETFs that you could think could step up in this sort of lower rate backdrop? And I know -- I don't think you have a very long-duration credit strategy, so any thoughts on the product innovation front there?

Craig, this is Jeremy Schwartz. Thanks for the question. So I think you mean the -- with expectations of cuts in rates and what was interesting is, also just given the market dynamics and the term structure, the inversion of the curve, USFR is higher yield than things like the 1- to 3-year segment of the bond space. So in a way, it's like this high-yielding treasury in some interesting models there. AGGY is longer duration. It's got 1 year more duration than the agg. And so in just the recent quarter and through last few months, you have seen a lot of interest in AGGY. We are talking about pairing the 2 of them, in that WisdomTree barbell of USFR and AGGY together, and that pair has a very nice yield pickup and cutting duration in half, so you don't have to take some of that duration. But we've got others, I mean, the short-term yield-enhanced agg, SHAG, S-H-A-G, also has been -- you've see that. AUM double from the beginning of the year to where it is today and that's also building a very nice track record. So we do think we're at a very good position, very robust flows, even more options as those fundamental credit strategies get better track record. And if we really think about how we're positioned, as expectations for more Central Bank action cutting rate, what's really benefiting is things like gold and silver, commodities, as you get more negative-yielding bonds around the world, having things that protect purchasing power, like gold and silver, things like that, people are looking at those as options, too.

At this time, I am showing no further questions. I would like to turn the call back over to Jonathan Steinberg, WisdomTree's CEO, for closing remarks.

I just want to thank all of you for your continued interest in WisdomTree, and we will speak to you next quarter. Have a good day.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.