WisdomTree Investments is an innovative company with some serious star power. Chief Executive Jonathan Steinberg is the husband of broadcaster Maria Bartiromo and son of Saul Steinberg, a once-notorious corporate raider. Chairman Michael Steinhardt was one of the first to make a fortune in hedge funds, and adviser Jeremy Siegel authored Stocks for the Long Run just before the market took off in the mid-1990s.
All that Wall Street celebrity was put in the service of selling ETFs, or exchange-traded funds, which allow investors to buy or sell indexes as if they were individual stocks. Over the past decade they’ve been one of the financial world’s hottest products. Nearly $3 trillion is currently invested in ETFs, according to research firm ETFGI, up from $500 billion in 2007. That represents a compounded annual growth rate of nearly 20%, vastly better than the 3.4% growth rate for hedge funds over the same period.
WisdomTree launched its first ETF in 2006 because its founders recognized the opportunity before competitors did. But unfortunately the firm has missed out on most of the action. Its stock price has lost more than half its value over the past two years and now trades for less than $10 a share. This week a Keefe, Bruyette & Woods analyst warned of “meaningful outflows” because investors are yanking a lot of money out of the firm’s funds.
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WisdomTree’s problems can be summed up in two words: BlackRock and Vanguard. Since the financial crisis, the mutual fund giants have set their sights on ETFs and come to dominate the field. BlackRock has $1.2 trillion in ETF assets under management, and Vanguard has nearly $800 billion.
WisdomTree has $45 billion under management, with nearly 40% in two funds—one that offers exposure to stocks in Europe and another for Japan.
Foreign stocks have been a great place to be lately. The Nikkei 225 Index has gained 18% over the past 12 months in dollar terms, while the Stoxx Europe 600 has gained more than 10%. Nevertheless, people continue to abandon WisdomTree’s top funds, and the reason has a lot to do with President Donald Trump.
As concern grows over the combustible president, U.S. dollars have declined in value relative to other currencies. For instance, at the start of the year it cost $1.05 to buy 1 euro, but it now costs about $1.18. The declining dollar has boosted the value of foreign stocks.
That should be good news for WisdomTree and its foreign ETFs. Unfortunately these ETFs are “hedged,” which means they’re designed to neutralize the effect of currency fluctuations on the funds’ value. If you’re the sort of investor who cares about capitalizing on the falling dollar, a hedged ETF is exactly the sort of asset you’d be selling right about now. As a result, WisdomTree finds itself missing out on the very party it helped get started.
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