The First Four Billion Were The Easiest

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May 15, 2008 | SIN Picks | | Author Asif

ETF provider WisdomTree (WSDT.PK)  and Dreyfus Corporation announced the launch of four currency income ETFs yesterday based on the Chinese Yuan (CYB), Indian Rupee (ICN), Brazilian Real (BZF) and the Euro (EU), with a Japanese (JYF) one in the pipeline. Investing in these funds would be similar to investing in money market funds in these countries. As discussed in the recent Fortune article titled Is Your Money Fund Safe?, most money market funds maintain a constant share price like $1 and the firms running these funds go to great lengths to ensure that the share price does not drop.

Unlike money market funds, these WisdomTree funds may not maintain a constant value on account of the investment instruments they are using to simulate money market like returns.  With Brazil’s central bank raising its benchmark lending rate by 50 basis points in April, the Selic rate now stands at 11.75% and is probably very appealing to income investors despite the currency risk. Indian banks tend to offer higher interest rates to domestic accounts when compared to Non-Resident accounts. I wonder what the yield on the WisdomTree Dreyfus Indian Rupee Fund (ICN) is going to be as I could not find that information on the WisdomTree website or on ETFConnect.com.

As an investor in WisdomTree, the most interesting part of the press release was the fact that WisdomTree’s assets under management (AUM) grew to $4.7 billion from $4.3 billion last month. While this jump is noteworthy, growth in AUM has obviously slowed when compared to the rapid accumulation of assets that occurred last year as discussed in this blog entry about WisdomTree. Given below is an updated table of AUM growth at WisdomTree.

Date Assets Under Management
June 16, 2006 20 ETFs begin trading
October 13, 2006 $700 million
November 10, 2006 $1 billion
December 22, 2006 $1.5 billion
Late January, 2007 $1.9 billion
February 2007 $2.4 billion
March 2007 $3.1 billion
April 2007 $3.5 billion
May 2007 $4 billion
January 2008 > $4 billion
April 2008 $4.3 billion
May 2008 $4.7 billion

With the Dow and S&P 500 posting losses for the 12 month period since last May, it is encouraging to see WisdomTree’s assets grow (albeit at a slower rate) and the launch of innovative new products from the company. However market conditions have taken a toll on many investment management companies like U.S. Global Investors (GROW), Brookfield Asset Management (BAM) and WisdomTree (WSDT.PK), making this young start-up one of the worst performing stocks in the SINLetter model portfolio and has taken a small toll on my personal portfolio as well.

The market is obviously not happy with the first quarter 2008 earnings report (PDF) the company filed yesterday and the stock is down over 20% as I write this blog entry. With just $15.25 million in cash on hand and an operating loss of $10.27 million in Q1 2008, the company is being priced for bankruptcy or further dilution of existing shareholders through additional stock offerings. It is hard to imagine a company with legendary hedge fund manager Michael Steinhardt and Professor Jeremy J. Siegel at the helm going bankrupt but so was the meltdown at Long Term Capital Management.

Besides cash, the company does hold $26.65 million in investments and revenue more than doubled in Q1 2008 to $5.375 million. With strong trading volume in its recently launched WisdomTree India Earnings ETF (EPI), there is a just a chance that the company may survive and prosper or get acquired like PowerShares.

Voluntary Disclosure: I hold a long position in WisdomTree.




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Comments

  1. ND
    June 2nd, 2008

    I recently was asked about Investing in foreign currencies – good to know there are these options available.

    if the company does go bankrupt, how does this affect these ETFs?

  2. Asif
    June 2nd, 2008

    That is a very interesting question and while the possibility exists, I do not expect WisdomTree to go bankrupt. In case of a bankruptcy I would imagine that they would liquidate the funds that did not attract enough assets and probably find a suitor to acquire the rest of their funds/assets. AIG already owns 10% of WisdomTree and Bank of New York Mellon is WisdomTree’s sub-advisor and partner.

    Other potential suitors include the iShares division of Barclays (BCS)  and the 800 pound gorilla in this space State Street (STT).

    I got a chance to read your "$2,811 In Passive Income in April 2008" blog post and what you have managed to achieve is admirable. I might give Linkworth a try as an alternative to TLA on Mustfeed.com.

  3. Ryan
    July 19th, 2008

    Stock Investment Advisor Newsletter

    I can’t imagine WisdomTree would go under… That would be crazy! Good article – thanks for sharing.

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