Operator: Good day, ladies and gentlemen, and welcome to the WisdomTree first quarter earnings conference call. [Operator Instructions] As a reminder, today's conference is being recorded.

I would now like to turn the call over to WisdomTree. You may begin.

Stuart Bell: Thank you. Good morning. Before we begin, I would like to reference the legal disclaimer available on today's presentation. This presentation may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are generally identified by terms such as believe, expect, anticipate and similar expressions suggesting future outcomes or events. Forward-looking statements reflect our current expectations regarding future events and operating performance and speak only as of the date when made.

Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which may prove to be incorrect. Such statements should not be read as guarantees of future results and will not necessarily be accurate indications of whether or not or the times at/or by which results will be achieved.

A number of factors could cause the actual results to different 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 the company's annual report on Form 10-K for the year ended December 31, 2015.

Now it's my pleasure to turn the call over to WisdomTree's CFO, Amit Muni

Amit Muni: Thank you, Stu, and good morning, everyone. This was a challenging quarter due to market volatility and the negative sentiments towards our 2 largest ETF exposures. Yet despite the challenges, we generated solid financial results, reflecting the flexibility and efficiency of our business model. As a reflection of our strong financial position, we returned $46 million back to our shareholders through dividends and buybacks and, in addition, have increased our stock buyback authorization by $60 million to have $100 million available to repurchase shares in the market. And lastly, we are continuing to make the right investments in our business to help further diversify and stabilize our asset base as well as best position us the future growth as we continue to stay ahead of the competition and remain amongst the leaders in the ETF industry.

Now let's get into the results for the quarter, beginning by first reviewing the U.S. ETF industry statistics. U.S. ETF industry flows were muted at $31.9 billion in the quarter. On the right, you can see that fixed income and gold led the flows. Investors tends to favor these 2 categories during times of volatility. Also of note, emerging market equities, which have been out-of-favor historically, experienced inflows this quarter. Both hedged and unhedged international equities experienced industry outflows.

Turning to the next slide. We can review our results -- how our results align with these industry trends. As you already know, our U.S. AUM declined 14% to $44.3 billion in the quarter, primarily due to $5.4 billion of net outflows and $2 billion from negative marketing movement. We also closed on our acquisition of GreenHaven this quarter, which increased AUM by $200 million.

You can see in the middle charts, the majority of our outflows came from HEDJ and DXJ. Away from these 2 funds, we generated inflows in our other hedged and unhedged international equity ETFs.

There are several themes currently resonating with clients. The first is an interest in small cap strategies, both domestically and abroad. Second, because of the volatility in the markets, clients are focused on dividends and quality dividend growth strategies as well as volatility-reduction products, such as our recently launched PutWrite strategy. Clients are also interested in products that take advantage of interest rates potentially staying lower for longer periods, such as our AGI fixed income ETF. And lastly, we're having increasing conversations with clients on emerging markets. We have a strong product set, and we are well positioned to take advantage and build on these themes as well as continuing to educate clients on the benefits of currency hedging.

On the next few slides, we take a deeper dive into our 2 largest exposures. You can see in the first chart, the equity markets in Europe and Japan had been in negative territory, with Europe down 7% and Japan down 13% in local currency terms, and both markets are also down in U.S. dollar terms. That negative sentiment has led to outflows in Europe and Japan-focused ETFs for both us and our competitors' products, as you can see on the right. In fact, there is such a negative sentiment, both hedged and unhedged ETFs have seen outflows. Given that we are the largest in the hedged category for these 2 markets, we have experienced larger inflows and outflows than market sentiment shift. However, we remain the leader in the hedged category.

Turning to the next slide. You can see in the first chart, both HEDJ and DXJ are more than 4x larger by AUM than the next largest competitor. And as the chart on the right reflects, any change in our market share has been insignificant. Europe and Japan are important categories for investors, and we believe we will see the benefits and even -- when these markets come back in favor. Despite the outflows, we remain focused on executing on our strategic growth initiatives we discussed earlier this year.

Turning to slide -- next Slide 7. These objectives -- the objectives of these initiatives are to first increase our target market share of inflows to 5% to 7%; second, to take steps to diversify our asset base and stabilize our flows; and lastly, to best position us for the long-term growth of the ETF industry.

On the product front, we continue to focus on staying ahead of the competition through innovation and diversifying our product set. So far this year, we've lost 11 ETFs in new categories, including liquid alts, a suite of smart data fixed income ETFs and dynamic currency-hedged ETFs. We are strengthening our position with our core client segments by increasing our marketing and digital initiatives to bring more awareness of our products in the most efficient way possible as well as leveraging data to better target client segments. We are also expanding our distribution capabilities and footprint. To capitalize on the ETF industry growth in Canada due to recent regulatory changes, we will plan to launch Canadian-listed ETFs in the coming months.

In the U.S., one of our primary focuses is the institutional space, and we recently hired a new head to lead this channel. We also added to our sales team covering new channels like private wealth and the independent broker dealers to capitalize on their continued ETF adoption. So far this year, we've added 8 people in sales and sales support functions. To date, we spent approximately $2 million of our target $12 million to $16 million on these important strategic growth investments. All these initiatives, including our expansion into Canada, is included in our $12 million to $16 million targeted spend.

The next slide reflects our industry rankings. Our largest exposures were impacted by -- the hardest by market sentiment, which had a negative effect on our overall industry rankings versus the other ETF sponsors and publicly traded asset managers. While we are not pleased with this ranking, we think it represents more near-term market conditions, not our long-term growth prospects, like our mutual fund competitors.

On the next slide, we show our fund performance according to the Morningstar peer groups. These comparisons take into account fees and transaction costs and reflect how our equity, fixed income and alternative ETFs performed against active and passive mutual funds and other ETFs. Since inception, 67% of our ETFs outperformed their peer group or 94% of the approximately $43 billion invested in our ETFs were in funds that beat their peers, a statistic we are proud of.

On the next slide, we can review our results in Europe. Our European AUM continues to grow and reached $885 million at the end of the quarter. Our hedged equity products as well as inverse and leveraged oil products gathered the flows this quarter. We are continuing to launch products and add to our team as we build out the business in a controlled manner.

Now let's get into the financials, beginning on Slide 9. We generated solid financial results this quarter despite the challenging environment. Total revenues were essentially flat from last year at $61 million as higher revenues from our European business offset declines in the U.S. Our net income was also flat at $12 million due to expense management and lower incentive compensation accruals given our results. Sequentially, revenues and net income were down due to lower average AUM.

Turning to the next slide. As you can see from both charts, the currency-hedged categories continues to make up more than 50% of our AUM and our revenues. However, it has been declining over sequential quarters. One of the goals of our strategic growth initiatives is to continue to innovate in differentiated products to help stabilize and diversify our asset base. Our average revenue capture remains at 52 basis points in the quarter.

Next, we can review our key margin metrics. Gross margin for our U.S.-listed ETF business was 82.9% in the first quarter. On our last call, we said we expected gross margins to be between 81% and 83% in the near term.

In the chart on the right, you can see the pretax margins on our U.S. business increased from the prior year to 40.7%. So despite having lower average AUM than the year-ago quarter and the spending increases, margins improved, reflecting the flexibility of our business model.

Next, we will review expenses on Slide 14. Third quarter total expenses were $40.8 million. Compensation costs decreased by a net $625,000 as higher seasonal payroll taxes, headcount-related expenses and stock-based compensation was offset by lower incentive compensation accruals given our operating results. Fund and third-party sharing costs declined as well due to lower average AUM. Professional fees decreased due to lower recruiting fees. Marketing expenses increased $407,000 due to higher advertising expenses to promote our ETFs. Our Europe buyout cost declined $747,000. As a reminder, in the last quarter, we updated the approach for recognizing the fair value of our buyout obligation. We've also incurred $418,000 in fees related to closing on our acquisition of GreenHaven. In total, expenses declined by 4%.

On the right, you can see compensation as a percent of revenue for our U.S. business was 23% for the quarter, below our annual target of 24% to 28%, reflecting our current level of operating performance. This percentage would have been lower if not for the higher seasonally adjusted payroll taxes due to bonus payments from last year.

Let's review our balance sheet on the next slide. We ended the quarter with total assets of $238 million and cash and investments of $182 million. On the right, you can see we generated $29.7 million of cash from our operating activities, and we used $23 million to pay bonuses for 2015 performance. We bought back $35.6 million of common stock during the quarter and distributed $10.9 million in dividends to return nearly $46 million back to our shareholders. We also used $11.8 million for our acquisition of GreenHaven to end with cash and investments of $182 million.

Also today, we announced that we have increased our share buyback authorization by $60 million, bringing the total available today to $100 million.

On the next slide, we can go through our taxes. We are continuing to utilize our remaining net operating losses. This quarter, we generated additional tax losses due to timing of cash bonus payments for 2015. At the end of the quarter, we had nearly $29 million of pretax income that could be sheltered from paying cash taxes. It is highly likely we'll use up the remaining NOL by the third quarter. However, we continue to generate tax losses due to employees exercising options and investing in restricted stock. The detailed information for that is on the right-hand side of this slide.

Before turning the call over to Jono, let me give you an update on where we are so far this quarter. As of yesterday, our AUM is essentially flat as outflows are offset by positive market movement. And on the right, you can see our flows by category.

So in summary, despite the challenging quarter, we generated solid financial results, reflecting the flexibility of our business model, and we will continue to balance expense management with investments for growth.

Thank you. And let me turn the call over to Jono.

Jonathan Steinberg: Thank you. Good morning, everyone. As Amit discussed, our overweights in Japan and more broadly the U.S. dollar led to outflows in our largest ETFs. It was simply a very difficult market environment for WisdomTree. Looking ahead, we were pleased to see the final fiduciary rule from the Department of Labor earlier this month. This rule is widely credited as being constructive for fee-based advisory models, ETFs and passive investing. People can debate the precise amounts of affected assets under management and revenue, but no one can debate the ultimate trends. WisdomTree's ETF-focused business model stands to benefit, perhaps the most, among publicly traded asset managers. I say that because WisdomTree has the highest percentage of AUM and revenue tied directly to ETFs and transparent product. These are the characteristics that are clearly benefiting from recent flow trend and new regulation. The fiduciary rule will reverberate well beyond the U.S. retirement market, and it reinforces the transformation of the asset management industry that is already well underway, and it is only the latest in an ongoing trend of transparency around fees and advice. For example, Canada's CRM2 is amongst the most progressive laws of this nature, which is one of the main reasons why we are so excited to enter Canada at such an opportune time.

Recent headwinds for WisdomTree are not pleasant, but they do not change the long-term reality of ETF dominance. As a market leader, WisdomTree is well positioned to participate in future industry growth. Our solid financial results and strong operating margin, combined with our strong balance sheet, underscores the inherent strength of our business, which allows us to stay the course on important strategic investments, which are geared towards diversifying our business and growing our long-term market share. We feel confident that we have the right balance between margin, investment and capital management.

Thank you for that. Now let's open up the call to questions.

Operator: [Operator Instructions] Our first question comes from Craig Siegenthaler with Crédit Suisse.

Craig Siegenthaler: I just wanted to circle back on the buyback authorization. It was nice to see that, but I'm just looking where the dividend is today versus your earnings run rate? And I'm wondering how will that impact the buyback.

Amit Muni: Well, when we think about how we return capital back to our shareholders, right, we do it through dividends, and we do it through buyback, and we will do it based on what's going on at the time, where we see the industry, where we see our growth prospects, where we see we need to put in capital into the business. Whichever way we'll do it, whether it's through specials, whether it's dividend, through buyback, it just will depend at the time.

Jonathan Steinberg: I mean, Craig, this is Jono. Last year, we delivered something like 100 -- over $100 million in capital, and more of that was in dividends than buybacks. And as the stock weakened this first quarter, you saw us shift a little bit more on buybacks versus dividends. And so I think, to Amit's point, we just have to be flexible to where we are at any given moment.

Craig Siegenthaler: Got it. And then just as my follow-up, I want to understand how you structure your European business? And I'm wondering if the Brexit would impact how you structure the use of business?

Amit Muni: I'm sorry, Craig, the --

Jonathan Steinberg: The exits of potential from the EU.

Amit Muni: Our lawyers and our regulatory folks are monitoring that to see. We do have Dublin-based UCITS, and our regulatory folks are monitoring what would happen in case there would be an exit. So it's something that's ongoing, and we'll make adjustments as the rest of the industry since Luxembourg and Dublin are the 2 major European domicile areas for use of funds for Europe.

Operator: The next question comes from Michael Cyprys with Morgan Stanley.

Michael Cyprys: I just wanted to ask about some of the low-volatility products. It's been a very strong category this year, don't quite necessarily see it per se coming through in your flows. But if you could just talk about your positioning in that category, how you're thinking about it, your positioning, thoughts around product development with respect to low-volatility products?

Luciano Siracusano: Hi, this is Luciano. So we, as you know, created, 10 years ago, dividend-weighted funds around the world. So in some instances, they do exhibit some of the characteristics of low volatility or certainly lower beta relative to the market. We had a very strong first quarter in terms of the performance of those funds in part because of how well they did when a market was declining. So certainly, we have some existing product, I think, that can fit into that mold. Obviously, we're always looking for new ideas. The research we do is ongoing. The test, at this point, would be to create better low-vols and what's serving in the market. I would note that the market has noted that some of these low-vol strategies are starting to get a little bit stretched in valuations. And so some of the excitement about them may have been backwards-looking, but now you're look at current PE ratios, some of the expected alpha going forward might be called into question. So we will continue to innovate. We launched the putwriting strategy recently, which we think can be used in the portfolio to help lower volatility. We also launched a little short portfolio that can also be applied that way. So there's a lot of tools we think investors can use to lower overall vol, and we'll continue to innovate in the space.

Michael Cyprys: Great. And could you also talk a little bit about the fixed income products that you launched? I know you mentioned AGI and I think you launched some other ones just the other week. Who the target customer is, the rationale for using the product? And maybe you could just also talk to an update on distribution around those products.

Luciano Siracusano: So AGI, we launched almost a year ago and we've been able to attract upwards close to $100 million in it. That's starting to get traction in the wire houses, we're starting to get more approvals there. That's just basically gives investors a way to enhance the yield on the existing ag, and we think it has a lot of application in an environment where the Fed may be doveish longer than people expected. With respect to the recent product launch, that was a smart beta fixed income launch, and that was really WisdomTree's foray into fundamental fixed income ETFs. We think it's a very interesting strategy in U.S. credit space to screen for quality and tilt towards income. And that's really designed for advisers and clients who are getting concerned where we are in the credit cycle, where we are in the market cycle, and they want have a higher qualitative screen applied to their credit exposure. So we'll be educating clients about that, and that'll be a big push for us this year.

Operator: The next question comes from Jason Weyeneth from Piper Jaffray.

Jason Weyeneth: I guess, the first one for Amit. When we're thinking about sort of the comp ratio and the guidance range that you've given, so what type of revenue growth or net flows or metrics should we kind of be thinking about that would land you in that range rather than maybe a little bit below like we saw this quarter?

Amit Muni: So we have a pay-for-performance model, right? And so when the performance is not there, the AUM is not there and the revenue is not there, compensation will be reflected, and you can see that in the first quarter. And if you go back historically, you can see when we've had outflows or inflows, how that comp ratio will change. So we're driving towards an annual target based on where operating results are today. We would expect to see something towards the lower end of that range and if that trend sort of continues for the rest of the year. There may be a little bit of offsets based upon headcount growth that we think that we're going to do during the year that we think are very important for our long-term growth positioning. But as of right now, we're sort of still thinking about the low end of the range.

Jason Weyeneth: And then just following up on the themes that you highlighted on Slide 4. If you had to sort of rank those or maybe just highlight 1 or 2 where you think your product suite is currently best positioned, which would those be?

Luciano Siracusano: Hi, this is Luciano, again. So obviously, when we're thinking about themes in the small caps space, WisdomTree was one of the first to launch international small caps around the world. We saw inflows there into European small caps in the first quarter. That's an unhedged exposure. So it's a good complement to the hedged exposures we have. Obviously, there's a great deal of interest in dividends now in this low-yield environment. We're also coming up on 10-year anniversary on our main dividend fund. So we have -- when you look through the assets under management and you look at where our assets are in terms of billion-dollar-plus funds, several of them are dividend-weighted funds that were launched about 10 years ago. And they're coming up upon a 10-year anniversary. Once that screen hits, people will be able to compare that, to strategies that have been around a decade. And I think at that point, you start to get a potential catalyst for these longer-term funds. Obviously, quality dividend growth is a big theme for WisdomTree. We've seen some inflows there internationally as well as domestically. And we've spoken about what we think we can add in terms of volatility reduction. I think the key thing to keep in mind is that we believe we have competitive products in every single category that's out there. So it's really a function of the market environment and where we focus and then where we can execute as the wind starts to blow back in our favor.

Operator: The next question comes from Bill Katz of Citigroup.

William Katz: So nice to see the repurchase authorization. So can you frame that out relative to how you think the share count proceeds as you go through this year? I would have expected a little bit more of a deeper decline just given the big buyback in the quarter. Is this sort of a good run rate or do you expect to have a net reduction of shares? How are you thinking about that?

Amit Muni: Sure. So we took out -- our share count reduced by about a little over 2 million shares this quarter. To the extent we do increased buybacks through the remainder of the year. You should see that share count continue to decline, but we don't disclose the amount of share repurchases that we're going to do during the year. But philosophically, we're trying to keep share count somewhat flat. Remember, when -- our buyback covers 2 things: one is to eliminate share count creep when we issue stock to employees, that part will remain flat. And when -- and it'll be optimistic when we think the time is right.

William Katz: Okay. And then just going back to Jon's discussion about striking that balance between volume versus margins, how do you think about the long-term margin of the company these days given your sort of aspirational goal that 7% or so market share of incremental growth? Is there any willingness to give up profitability for growth? Or can you still sort of sustain that historical margin target of that 50% plus?

Jonathan Steinberg: Hi, Bill, it's Jono. So when we look at margins, investments and return of capital, you've got to look at all 3 of them. So when we start from the margin perspective, last year, we top-ticked at about $60 billion in AUM, and we achieved a 50% margin. So from a margin standpoint, I feel like we really have accomplished tremendous things. Now our assets are down, so we're averaging about $44 billion right now, and we showed something more like a 36% consolidated margin this quarter, a very strong number relative to the other public peers at such a small AUM. Now you know that while we're showing you the 36% margin, we're making pretty significant investments. We're in Europe. We're launching in Canada. We have Japan. We're hiring people in the U.S. and launching a lot of fronts. So we're making investments. We are doing that because the opportunity we see, it's so huge, so tremendous that we want to make sure that we maintain our leadership position. And then from the standpoint of capital return, last year, we returned more than $100 million. This year, $46 million, some pretty significant capital return. All -- in general, we're trying to be a tremendously efficient organization. The investments are geared towards really scaling in the future, and it's our full expectation that we can achieve the highest margins of any of the publicly traded asset managers as we scale. But I feel no pressure to do that at $44 billion.

William Katz: Okay. And then just one last one. I'm sort of intrigued with your entrée into Canada. Just sort of looking around the actual market size there. It seems to be somewhat small with some somewhat entrenched players there. Can you talk a little about strategically how you plan to attack that market? I certainly appreciate the regulatory backdrop opportunity, but just specifically how you sort of build a little market share there?

Amit Muni: Sure, Bill. So I think when we think about foreign markets, there's 4 things that we look at. Generally, what's the rate of ETF adoption in those markets? Second, are there regulatory changes that are happening there that we think will be conducive for ETF industry growth? Third, we look at how do our products and strategies, will they be accepted in that marketplace? And lastly, from a business standpoint, do we think we can make money there? And I think Canada, when we look there, it sort of fits that sort of guideline. The regulatory changes with CRM2 that's happening there to bring more transparency on fees, we think, will be good for ETF industry growth there. And then, so when we look at our product set, with our smart beta products, our innovation, our differentiated product set, we think that we can be very -- we can be successful over there. Now look, it's a competitive market, just like here in the U.S. You have the big players here that are there as well as some of the big local players. So it's not going to be explosive growth on day 1, but we think this is all incremental growth for us to help increase our targeted market share. Remember, about 14% of our assets today come from non-U.S. investors. So this is not just about locally listed products in Canada, but it's also the ability for Canadian institutions to buy U.S.-listed ETFs.

Jonathan Steinberg: And Bill, let me just add a couple of things. So we probably have close to $700 million in assets from the Canadian market now. So investors there have already bought all products. So that's sort of proof of concept. Also because of their proximity to the U.S., they see our commercial so we have brand awareness in Canada. And because -- again, because of the proximity, a lot of the launch will be coming out of the U.S., the infrastructures in the U.S. Canada was always one of the most logical first markets. Europe was our first market, and Europe is second largest, so incredibly strategically important to the firm. But it's a much heavier lift. We had to do more because we had no supporting infrastructure nearby to support it. So Canada really makes a total perfect sense. It was either going to be first or second in our launch scheme. So anyway -- and now it's in CRM2. It's just the perfect time.

Operator: The next question comes from Chris Shutler with William Blair.

Christopher Shutler: Maybe just a follow-up on compensation expense. If flows and AUM are flat for the rest of the year, would you be at the low end of the U.S. comp ratio?

Amit Muni: Yes. And under that scenario, if we think we're going to be flattish then, yes. I would think low end of the range is kind of the way to think about it.

Christopher Shutler: Okay. And then in Europe, AUM there continues to increase nicely. Why did the fund management and admin line dip down from the prior 2 quarters? And what should we look at as the trend there?

Amit Muni: Yes. So we incurred some onetime costs when we launched some of our UCITS funds out in Europe. So -- we launched the series of different share classes through our UCITS funds. So that's what drove off some of these onetime costs out there that you saw over the last couple of quarters, which didn't reoccur this quarter.

Jonathan Steinberg: And Chris, thanks for the shout out on the success that the European team has shown. They really have grown quicker than many of their larger peers on really less resources. That's been a very successful year-to-date start for them.

Christopher Shutler: Got you. And then maybe lastly, could you give us the AUM by channel if you have it? And I'm curious in the institutional space, I know you just made the recent hire there. The asset owners there, I think, have historically been pretty tied to benchmarks, which has led the asset managers to be pretty tied to benchmarks in name brand indices as well. So I'm just curious in your conversations with institutional investors, do you see much evidence that they're getting comfortable with, I guess, self-indexed providers?

Jonathan Steinberg: Hi. It's me, again. WisdomTree, for now a decade, has been taking on the traditional indexes. And when we started, there wasn't even a conversation of smart beta or factors of fundamental weighting. There's no question that the institutional investors have a historical legacy to the traditional benchmarks, but there's also no question that they're getting much more comfortable with a lot of the new innovation that has taken place in investing and including WisdomTree's offerings.

Christopher Shutler: Can you give us the percentages by channel if you have them?

Amit Muni: Chris, it's Amit. It really hasn't changed as much from what we've seen historically. So roughly 1/3 of our assets with the RIA, 1/3 with NSS, about 14% non-U.S, about 14% with institutional, the balance to retail.

Operator: And next question comes from Alex Blostein with Goldman Sachs.

Alexander Blostein: I was hoping you could spend a couple minutes on pricing. It just looks like some of the newer strategies that you launched have a little bit of lower management fee than what we've kind of seen in the installed book of business? And also competitive landscape on the smart beta front has intensified with a lot of more traditional players coming in, obviously, a bit behind the curve, but more competitors. How do you expect to, I guess, pricing to evolve in some of your newer products?

Jonathan Steinberg: So -- you're right, we have launched recent funds at lower price points if they were within a suite of product that we had launched years ago. So -- but we knew that. That's one of the reasons why we moved so quickly in general. There's no question that future product launches will probably be at lower prices than things that were done yesterday or 10 years ago. So we're -- we knew that and it's part of the strategy, and it's one of the reasons why we really try to push very aggressively. In terms of -- so -- from that standpoint, since January 1, 2015, we've launched 29 new funds. We've really put down some important -- very important markers, liquid alts, which, I think, will play a very large role in WisdomTree's success over the next 10 years. The fixed income suite that we were asked about earlier on the call, that's been something that we have been working towards for 3 or 4 years. I mean, we started with emerging markets where we could really be first in some of the executions. But you've seen that how we've attacked the U.S. fixed income market, first with 0 negative duration funds. And Luciano spoke about the enhanced ag. And then what we did today or actually on Wednesday with the smart beta fixed income, it really is a very exciting development in the fixed income arena. There hasn't been -- you have traditional beta indexes, you have a few successful active managers. There has been very little innovation on the indexing side, and we are now a leader in that. It's very, very early days, but it's something that the team here in New York, the WisdomTree team, fixed income team, has been working on for 3 or 4 years. So we're really trying to put those markers down as quickly as we can, knowing that it makes all the sense in the world that we're going to see more competition over time.

Alexander Blostein: Got you. Another kind of strategic distribution question for you guys. The importance of sort of automatic advice, the robo-advisor, has obviously picked up over the last 12 months. And with the DOL rule, it feels like that part of the distribution mosaic will become more critical. Can you talk to us, I guess, a little bit about how do you try to distribute through those channels and whether or not you're thinking anything on the more proprietary kind of innovative fronts, starting your own to help facilitate some of the shelf space for your ETFs lineup?

Jonathan Steinberg: So we're watching very closely the evolution of robo. We've been looking at it for quite some time. The -- they have tended to be the most vanilla executions in their fund selections to date, but they'll need to differentiate just as the industry in general has to differentiate. And we think that there are lots of opportunities in the future for us. I'm not sure how big robo will be. I mean, there's certainly been some incredible short-term projections for asset growth. I think that that's -- I think a bit optimistic, but there's no question that technology can be very constructive in delivering advice. We also have models right now on our website that Luciano and his team have been creating for a couple of years. So we are providing a lot of advice to our clients. But stepping back, robo just tends to be constructive to ETF. So from that standpoint, we're very happy with the development.

Operator: Our next question comes from Adam Beatty with Bank of America.

Adam Beatty: Couple of follow-ups. First, on comp and incentives. Appreciate all the detail there. Just wanted to disaggregate. You mentioned AUM revenue and flows in terms of driving incentive comp. Which are those in a scenario where, let's say, you got some market benefit in key products and they bounce back pretty well, but flows were still somewhat challenged. What should we expect in terms of the movement of incentive comp?

Amit Muni: Sure. So look, there's 4 things that we look at when we think about incentive comp. First is and foremost is net inflow levels. That's a very important factor that we look at. Second is our market share of inflows. Third is our pretax margins that we had targeted versus the beginning of the year. And lastly, is how our stock has performed against the publicly traded asset manager. So of that, I would say the biggest driver of all those will be net inflow. So that's sort of what you should look at.

Adam Beatty: Great. And then on distribution, you mentioned potential incremental opportunity from DOL. And I'm thinking in terms of allocation models with brokers and large retirement plans, what have you. Right now, which of your products are gaining kind of the most traction there? What areas seem to be of interest in the, if you will, intermediated retail channel?

Luciano Siracusano: Hi. This is Luciano. We continue to see interest in this theme of solving for income. And so we think one of the areas where we're uniquely positioned is giving people a way to give broad equity exposure around the world, but in a way that squeeze out as much dividend income as possible from the market while still continuing to correlate with the market and in some instances, generate returns that can exceed the market. So we're certainly going to continue to maintain and try to improve the dividend-weighted portfolios we have on our website. And to the extent there is interest in those models across brokers and distribution, potential partnerships and partners, we're interested with speaking to people about different ways to make them more available to our clients and our advisors.

Operator: Our next question comes from Ann Dai with KBW.

Anne Dai: Just a quick question on the European business. You'd previously given guidance of $8 million to $11 million or so of pretax losses in Europe. Is the that still about in line?

Amit Muni: Yes. That's the target and the way that business is running, we're in line with that.

Anne Dai: Okay. A great. And you've talked a lot about getting the market quickly in different geographies and spending to kind of run ahead. And so when you think about the European business there and thinking about the new product launches, the continued investments then and then the growth of the business, internally, how do you think about a breakeven point in that business? Either -- do you target certain asset levels internally or -- and when you think about it, is it a couple year kind of thing? Is it longer than that? What are your goals?

Amit Muni: Sure. So a lot of the profitability or breakeven will be dependent upon where we see the flows coming in and which product set. Our inverse and leveraged Boost funds are higher priced and higher margin versus the UCITS funds, which are more traditional and priced competitively in the marketplace. So that will have a factor on sort of breakeven. So remember -- and just put that in context, when we did the investment in Boost, we put a $20 million investment. We think that's how much cash it needs to roughly get to breakeven by somewhere at the end of 2017. And we're sort of still kind of roughly going on that track. It's a very -- it's a controlled buildout that we're doing and everything is going as we had planned.

Anne Dai: [indiscernible] color. And just a quick [indiscernible] on the $2 million [indiscernible] has most of those fallen in the marketing [indiscernible] is there anything else to pull out?

Amit Muni: I'm sorry, Ann, you were breaking up there. Can you repeat the question?

Anne Dai: Sure. On the $2 million that you've spent on the [indiscernible] strategic business this year, where has that fallen? Is that mostly in the marketing line item?

Amit Muni: It's really been across the board. We've hired about 10 people so far this year, predominantly, in sales and sales support. We've launched 11 funds. And you can see from our income statement, we picked up the marketing and sales-related spending. So really it's been across all those 3 categories.

Operator: Our next question comes from Keith Housum with Northcoast Research.

Keith Housum: I was hoping you could provide a little bit more color on the investments in Canada and Japan. I appreciate the comments in Canada that they can leverage the U.S. infrastructure. But as you think you guys build out those practices over the next several years, do you think it will take the trajectory close to how you're doing it in Europe? Or I guess, how do you see those expenditures coming through for the next several years? And corollary to that, how do you think [indiscernible] revenue growth in terms of where it can be 2 or 3 years from now?

Amit Muni: Sure. On the expense side, what we did in Europe was we built a stand-alone operations there. What we're doing in Canada is not that. Because of its proximity, the English language spoken there, we will be able to leverage a lot of what we're doing here in the U.S. up into Canada. So it won't have the sort of same expense base that you see there. In Japan, what we have is basically a -- we've built out a sales office and our sales staff there are selling our U.S.-listed ETFs and UCITS funds to Japanese institutions there. And so I guess, not as big of a build as we did in Europe. So expense-wise, they're going to be a lot less. But I would say from a revenue growth potential, it's going to be dependent upon the market size and how our products and the ETF growth are growing in those markets.

Keith Housum: Got you. So right now, you guys break out Europe as a separate income statement. So is Japan and Canada going to be continued to be broken out including the U.S. numbers, or are you guys are going to do international income statement at some point in the future?

Amit Muni: Yes. I think we're going to probably -- once the Canada numbers get to be larger, they're very small right now, but once they start to get to be larger, I think, we'll probably just sort of have a U.S. segment, which is part of Japan is in our U.S. segment. And then we'll have probably a non-U.S. to look at as well.

Operator: The next question comes from Bill Katz of Citigroup.

William Katz: Just a couple of follow-ups. So you mentioned $2 million into your $10 million to $12 million range for this year, and you, obviously, have a lot of things going on now. What kind of flexibility do you have if the revenue backdrop with AUM backdrop were to get a bit weaker from here?

Amit Muni: Sure. So these are all discretionary spending that we have. So can we ramp them back if we had to? Yes. But -- let me just reiterate what Jono said at the beginning from your other questions to help put our spending in some context, right? The mutual fund industry has been in decline. When you look at our competitors in the mutual fund space, right, they're doing restructurings, they're doing cost reductions because their industry is in decline. Our industry, the ETF industry, is actually growing. And so when we think about the investments that we're making, they're very important for us. They're targeting 3 things: continue to grow our market share 5% to 7%, continue to diversify and stabilize our asset base and position ourselves for the long-term growth of the industry. And so we think it's very important for us to continue to make those investments. And, again, as Jono said, put our margins in perspective, right? We were the top 3, so far the companies that have reported so far. So we feel very confident in our ability to continue to make these investments. But we'll always manage that with cost discipline.

William Katz: Okay. And just one last follow-up for me, just sort of looking through my numbers versus you're dividend. I know you touched on it a little bit earlier. But when you initially set your dividend, I think your earnings would have been at a higher level. How do you think about strategically the right target payout rate of earnings just so we try to think about the dividend a little bit more closely?

Amit Muni: So the way we think about it, we don't necessarily think as far as payout rates. When we first put out the dividend, we look more at sort of the dollar value of what we were going to put into a dividend. We felt very comfortable then, and we feel very comfortable now with the level of our dividends. And that's why we feel so confident, we're able to even increase the stock buyback authorization. So we have no issues in the level of our dividend payments.

Operator: Our next question comes from Michael Cyprys of Morgan Stanley.

Michael Cyprys: Just following up here. You mentioned that you're seeing interest in the theme of solving for income. So just curious, what's the opportunity stack [ph] for creating a multi-asset solution that you uses both just equity and fixed income within the same ETF? And then could you also speak to some of the challenges of creating such a product, what that might be?

Luciano Siracusano: Hi. This is Luciano, again. So I would just say that the category that you mentioned, the so-called balanced funds that use both equity and fixed income, obviously, there's a very large amount of assets in the mutual fund industry in those types of funds. So that's a natural target to look at. We don't comment on any specific funds that we may launch in the future or strategies, but I would just say that WisdomTree has shown an ability to execute in terms of building products that are both innovative and in some times -- in some instances, very complex. So I would just say I think we have a track record of being able to innovate. And if we think clients are interested in categories that really haven't been equitized yet in ETF structure, we'll continue to take a look at that.

Michael Cyprys: Great. And just if I could add just another follow-up. You mentioned digital investments. I assume that's probably referring to something maybe on the robo front. Just in terms of conversations you're having, we're thinking about robo partnership or distribution. What products you think would make the most sense as you think about broadening distribution, partnering with robos? Would it be more of liquid alts as they try and differentiate on their end? What are some of your thoughts there?

Luciano Siracusano: Well, again, this is Luciano speaking. So Jono was right. A lot of the first iteration were plain vanilla beta exposures. But one of the big themes over the last few years has been the importance of managing volatility internationally by hedging our currency risk. So I would say that the currency-hedged category is still a big opportunity out there, and obviously, WisdomTree's a leader in that space. So I think as the robo-advisors and some of these platforms expand beyond just unhedged international equity, WisdomTree products are a natural consideration given the scale and the size and the volumes and the assets and the track record. So I would hope that these people are starting to look at hedging on international currency as that's obviously been something that's resonating with clients.

Operator: And I'm not showing any further questions at this time. I'd like to turn the call back to Jonathan Steinberg.

Jonathan Steinberg: So I just want to thank all of you for your time and attention, and we'll speak to you in another 90 days. Thanks, everybody, have a good day.

Operator: Ladies and gentlemen, that does conclude today's presentation. You may not disconnect, and have a wonderful day.