I’ve been a fan of WisdomTree’s (WT) ETFs for years. It currently ranks 10th in terms of AUM (assets under management) with $79.33 billion, about $1.3 billion behind VanEck.
Of course, its AUM relative to iShares and Vanguard is peanuts, but there’s reason to think that its stock, which has spent a significant amount of time over the past five years trading as a penny stock.
Now mere pennies off its highest share price since 2018, I can see better days ahead for the New York-based asset manager. Yesterday’s unusually active call option is part of the reason.
How’s the Business?
As I said in the intro, it’s a player in the ETF industry, both in the U.S. and in Europe. It’s just not THE player.
The company's ETF business is a tale of two stories: On the one hand, its U.S. business continues to add AUM. However, its European business keeps losing assets to competitors.
Year to date, the U.S. business has added $2.89 billion in AUM, while the European business has lost $1.04 billion. On an annual basis, the European business has seen net outflows from 2021 onward, while the U.S. business last had an annual net outflow in 2020.
In May, WisdomTree’s net inflows were $577 million, with international developed market and emerging market equities along with fixed income investments getting a lion’s share of the gains offset by a $330 million outflow for commodity and currency investments.
On a year to date basis, six of eight asset categories have net inflows, with only commodity and currency assets (-$1.78 billion) and leveraged and inverse assets (-79 million) experiencing outflows. In late April, Wisdom Tree reported its Q1 2024 results. Its operating revenues were $96.8 million in the quarter, 18% higher than a year earlier. Further down the income statement, its operating income was $28.0 million, 69% higher than in Q1 2023. Its non-GAAP operating margin was 29.6% in the quarter, 90 basis points higher than in the fourth quarter, and 820 basis points higher than a year ago. On an adjusted basis, its earnings per share were $0.12, 71% higher than Q1 2023, and 9% higher than Q4 2023.
“Importantly, we expect that momentum to continue as we are executing on our key initiatives to drive the next $100 billion of assets under management: traction in our ETP lineup, an expanding models footprint, and leadership in the secular shift toward tokenization of financial assets,” stated CEO Jonathan Steinberg in Q1 2024 press release.
The business is doing just fine.
The Fly in the Ointment
ETFS Capital Chairman Graham Tuckwell is buzzing around the company like a bad odor.
In April 2018, he sold his ETF Securities’ European exchange-traded commodity, currency, and short-and-leveraged business for $523 million in cash and stock. Due to the stock portion of the sale, ETFS Capital is the second-largest shareholder of WisdomTree, with 10.4% of its stock.
In February, Tuckwell suggested the company should explore all strategic alternatives to generate greater value for shareholders. WisdomTree rejected his request. In a letter to the company, he said the intrinsic value of WT stock was $15.50, 57% higher than where it’s trading.
“As a referendum on the company's failed diversification strategy and its refusal to unlock value through a strategic review process, we intend to withhold our votes from members of the board at the upcoming shareholder meeting. We invite other shareholders to do the same,” Reuter’s reported Tuckwell’s comments from his February letter.
In 2023, Tuckwell managed to get one of his suggested candidates elected to the board. He continues to fight the company based on the premise that it’s poorly managed.
On May 31, independent proxy advisory firm Institutional Shareholder Services (ISS) recommended that shareholders vote for all nine of the company’s nominees for director. Another big proxy advisory firm, Glass Lewis also recommended the full slate be approved.
Tuckwell is concerned that the company’s move into DeFi (decentralized finance) distracts management from its core business.
In 2023, WisdomTree launched WisdomTree Prime, a mobile app for digital assets. It’s now available to users in 41 states; the most recent granting approval was in New York in May. In March, it launched the WisdomTree Prime Visa Debit Card to use their WisdomTree Prime balances wherever Visa is accepted.
In the end, WisdomTree is performing exceptionally well, despite the intense competition from much larger businesses.
The call option in question is the Sept. 20 $10 strike. With 93 days to expiration, its ask price at Wednesday’s close was $0.50, a down payment of 5%. Given a delta of 0.47605, you can double your money by selling the call before expiration with a $1.05 (11%) gain.
Up 50% in 2024, an 11% move is possible, but in the worst-case scenario, you’re out $50. I like the risk/reward proposition and WisdomTree stock.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
