WisdomTree, balance of the 1st year of European UCITS ETF platform launch

McNeil, Co-Ceo: “2015 was a breakthrough year for the company. We had an increase in AuM from about $170m to just under $800m by year end”

12 WisdomTree UCITS ETFs, some with multiple share classes, and a further 64 Boost ETPs listed across five different Exchanges. This is the balance of the first year of European UCITS ETF platform launched last years by WisdomTree Europe, the exchange-traded fund (ETF) and exchange-traded product (ETP) sponsor.
Lmf International interviewed Hector McNeil, Co-CEO of WisdomTree Europe, about the trend of the first year, the results achieved and the goals for the coming years.

McNeil, you have just celebrated the one-year anniversary of the launch of your European UCITS ETFs platform. Could you take a picture of 2015?
2015 was a breakthrough year for the firm. We grew faster than anyone else in Europe and our AuM went from about $170m to just under $800m by year end. Our main success was in the wealth management segments in Italy and Uk. We also saw some great success in Germany at year end and into 2016 as well as adding listings in Switzerland and Ireland that are starting to broaden our distribution footprint.
We expect 2016 to be a strong year for AuM growth across Europe and also listing new products both on the WisdomTree Europe UCITS platform and the Boost Short & Leverage platform.

What are the factors behind the success of ETFs? There are differences among the leading countries in Europe?
WisdomTree is unique for a number of factors. Since establishment in 2006 we have always believed in fundamental indexing as a way to give investors better risk adjusted returns versus market cap. ETFs in this space are more commonly referred to as ‘smart beta’. As one of the early pioneers in this space we have indices and funds that have nearly 10 years of track record. Most other ETF players who have entered the smart beta space tend to have newer products with limited track record.
WisdomTree is also one of the only ETF providers globally which self-indexes. This means we create our own methodology rather than rent an index from the many providers out there. As well as cost advantages to investors this also means we have a focus on making sure the index is fit for purpose and exactly as we require it to be. Because we created it in-house, it also means we understand it 100% Testimony to this is that last year WisdomTree had the most successful ETF in the world – HEDJ – that gathered just under $14bn in AUM over the year.

In an increasingly competitive and crowded market, with a lot of products often similar, how can an investor do to select the most suitable products for their needs?
I personally believe we haven’t even scratched the surface yet in terms of the number of products available. Yes, there are 1000s of ETFs globally, but there are many more mutual funds. The ETF is simply a wrapper and is better technology than a mutual fund. All the extra benefits of transparency, robustness and liquidity are inherent in the ETF wrapper. The comparison could be made that an ETF is the equivalent of a digital TV and a mutual fund is analogue.
Therefore it’s safe to say that in the long-run, there will be many more asset management pay-out structures in ETFs than exist today. Therefore, the domination of ETF AuM in standard beta market capitalisation index products is essentially the vast majority. Over time, we will see this change to have significant AuM in beta, smart beta and active strategies, as well as simple to complex and cheap to relatively high fee.

What are the most requested products by investors? Why?
Currently the WisdomTree Europe ETPs that are attracting the most interest are:

1. WisdomTree Europe Equity UCITS ETF-USD Hedged (HEDJ). This is a strategy that is a play on Eurozone QE policy. The Eurozone equities are tilted to export related, large cap equities with a dividend screen. The Euro is then hedged into USD on a monthly basis. The underlying index in Euros has outperformed the Eurostoxx50 on a 1, 3 & 5 year basis.
2. WisdomTree Europe SmallCap Dividend UCITS ETF (DFE). This strategy is European small cap stocks weighted by the total dividends paid (number of shares x dividend). It has outperformed all small cap European Equity ETFs. It’s also well diversified with over 400 equities in the index and a yield of 3.7%.
3. Boost WTI Oil 3x Leveraged Daily ETP (3OIL). This strategy tracks a total return on the WTI front month future, futures roll yield and collateral yield. The return is amplified by a leverage factor of 3. This is currently our most traded ETP and is Europe’s most traded OIL ETP by notional value. Investors are using this product to tactically trade the oil price volatility. They also use the short version 3OIS to hedge the falls in the market.

We have also had strong interest in our ETFs that track Germany (currency-hedged), UK Equity Income, European Equity Income and EM Asia Equity Income. On the Boost side, Boost FTSE MIB 3x Leverage Daily ETP (3ITL), Boost Long USD Short EUR 5x Daily ETP (5USE), Boost S&P 500 3x Leverage Daily ETP (3USL) & Boost Natural Gas 3x Leverage Daily ETP (3NGL) have also been very popular.

In a context of high market volatility and low interest rates, what strategy do you suggest to adopt?
I would suggest clients look at our range of Equity Income ETFs that tend to be more defensive in nature and we see investors also looking at these ETFs in order to harvest yield levels between 3.9% to 6.9% which are just not seen in other asset classes such as Bonds at the moment. We also see investors buying WisdomTree Europe Equity UCITS ETF-USD Hedged (HEDJ) and WisdomTree Japan Equity UCITS ETF-EUR Hedged (DXJF). These ETFs are QE focused and both tilt to exporters which should perform well when domestic currencies fall.

Looking to the future, how do you imagine the scenario in the coming years and what are the goals that you would like to achieve in 2016 and in the next years? Are you planning the launch of new products?
2016 should be a great year for the firm. We saw AuM increase well over 3-fold in 2015. I would hope that we will see significant growth this year. Many of our funds are growing well organically and we have the right range for the current economic environment i.e. low yield and high volatility.
We will continue to innovate and add more products in both the smart beta and the short & leverage spaces, as well as building out more coverage in core markets, like Italy and the UK. Currency hedged will continue to be a theme for us as well.
We are also in conversations with our clients who often suggest products themes, and then we work to provide them if we feel there will be wider demand. For example, the WisdomTree Germany Equity UCITS ETF-GBP Hedged (DXGP) was listed as a result of a UK wealth manager asking us to issue a German equities fund with the Euro hedged into GBP. This wealth manager also seeded the ETF to help us justify the costs of issuing it and has proved a popular product with other clients.
Our ethos is to either be first to market with a type of product or improve on what is out there currently. We will continue to innovate based on this and provide investors with great products to add value to their portfolios.