The exchange-traded products industry has grown to include
nearly 1,500 ETFs and ETNs with almost $1.2 trillion in assets
under management (those are just the U.S. numbers), and investors
have understandably focused on which ETFs generate profitable
Said another way, many investors overlook the fact that some
of the ETF industry's biggest players are units of large,
publicly-traded financial services firms. It is possible for
investors to profit from the ETF industry's exponential growth
without actually owning a single ETF. This objective can be
accomplished by owning the stocks of ETF issuers.
There are several such stocks, but just one that can be
considered a pure-play ETF sponsor: WisdomTree Investments
). WisdomTree's ascent up the financial services food chain has
mirrored the growth of the ETF business at large. Later this
month, the company will
celebrate its first anniversary
as a Nasdaq-listed stock. Prior to that, New York-based
WisdomTree traded on the pink sheets.
With a market value of just over $827 million, WisdomTree is
by definition a small-cap stock. In the ETF universe, however,
WisdomTree is far from small. The company, which sponsors 48
ETFs, had $14.95 billion in assets under management at the end of
June, according to data from the ETF Industry Association. That
makes WisdomTree the seventh-largest U.S. ETF sponsor as ranked
Year-over-year, WisdomTree's ETF assets have jumped 16
percent, an increase that compares quite favorably to the two
percent and 12 percent increases posted by BlackRock's (NYSE:
) iShares and State Street's (NYSE:
), State Street Global Advisors. iShares and SSgA are the two
largest U.S. ETF sponsors.
The impact on shares of WisdomTree is palpable. Compare
WisdomTree against four other publicy traded ETF sponsors -
BlackRock, State Street, Invesco (NYSE:
) and Charles Schwab (NYSE:
) - and the results are impressive. Year-to-date, only Schwab has
delivered better returns than WisdomTree.
Shares of WisdomTree are up almost 13 percent this year, and
some analysts see more upside. The stock closed below $7 on
Monday, but last week
Goldman Sachs initiated coverage
of WisdomTree with a Buy rating and a $9 price target.
In the note, Goldman Sachs stated, "We view WETF as a rarity
in financials: A growth stock with ample runway for 30%+ revenue
and EBIT growth amid 20% annual industry growth in ETF assets. We
believe investors underappreciate and undervalue: (1) the firm's
sector-leading organic growth profile, driven by differentiated
"nontraditional" ETFs; (2) the scalability of WETF's model and
powerful margin expansion potential; and (3) the scarcity value
in owning the only public pure-play ETF manager ($15bn in AuM),
with a valuable asset in exemptive relief for active ETFs."
The Goldman Sachs note also points out that WisdomTree could
a takeover target
A bearish scenario for WisdomTree exists in the potential for
the ETF industry to see its growth stall and lose assets to rival
products. Another possible, though not likely, problem would be a
dramatic change in the company's highly-respected management
team. Former hedge fund manager Michael Steinhardt is the
company's chairman and Jonathan Steinberg is the CEO.
Investors seem to like what the pair are doing for the company
because the stock is up 5.6 percent since the days leading up to
WisdomTree's move to the Nasdaq in July 2011. All of the other
ETF sponsor stocks mentioned in this piece are in the red over
the same time period.
Neither a dramatic stall in ETF asset growth or management
changes at WisdomTree appear imminent, indicating that WisdomTree
may indeed have more near-term upside to offer investors. Some of
the firm's most popular ETFs inlcude the WisdomTree Emerging
Markets Equity Income Fund (NYSE:
), the WisdomTree India Earnings ETF (NYSE:
) and the WisdomTree Dividend ex-Financials Fund (NYSE:
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