News this week that WisdomTree is collaborating with Advisors Asset Management (AAM) to serve as the “external marketing agent for the WisdomTree ETFs in the Independent– Broker Dealer channel” was a mildly surprising development. Both firms are very different. Just check out the WisdomTree website versus the AAM website to visually illustrate this point. Scan the products being offered as well and you’ll see WisdomTree’s progressive streak on display versus the bread and butter approach of AAM. This all points to this partnership either being naive or genius. Let’s take a closer look.
WisdomTree has made a lot of progress in the ETF business without much distribution presence. Instead they have gained traction through marketing dollars and some brilliant product launch decisions in the last few years. They have taken the leadership away from Rydex in the currency ETF space launching a variety of products with BNY Mellon’s Dreyfus arm as a partner. Notable launches include BZF, the Brazilian Real Fund, CYB, the Chinese Yuan Fund, and CEW, the Emerging Currency Fund. Altogether WisdomTree has gathered over $1 billion in their currency income fund partnership with Dreyfus. Other top funds at WisdomTree include the $1 billion dollar plus India fund, EPI, the Emerging Markets Equity fund, DEM, and the Emerging Markets Small Cap fund, DGS. Currently close 55% of WisdomTree’s ETF assets are contained in currency and emerging market ETFs. These assets become even more interesting when you consider that they reside in only 32% (14 of 44) of the total funds in the complex. This is a remarkable departure from the focus on dividend investing (i.e. financials and utilities) that WisdomTree began with and points to the expectation for continued innovation from WisdomTree to fast forward its AUM.
On the other side of the coin, AAM is respected for its fixed income expertise and breadth. They are active in the structured product and the unit investment trust industry, two products that are transactional in nature. Transactional products require a much different sales approach and advisor profile when compared to the ETF space. AAM does offer SMAs however, and in my experience the SMA sale is most similar to ETFs. In terms of distribution, AAM has a decent national presence but less robust than ETF and UIT providers First Trust and Claymore. Finally, a quick review of AAM’s website lists a bread and butter UIT focused product line with an emphasis on — you guessed it — fixed income. WisdomTree, via their own product sheet, lists one fixed income ETF among 44 offerings. Hmmm…
So, clearly these are two very different companies but the question remains: will they complement each other? To get traction with independent advisors, WisdomTree will have to implement intensive training and monitoring of AAM’s sales force. ETFs require a unique distribution effort and may be one of the hardest distribution efforts to measure, especially if wholesalers carry more than one product. Many distribution savvy firms have tried to distribute ETFs alongside other products and have found too many obstacles in the way to be successful. Most have separated this group for better tracking and to produce more focused efforts. Thus forming a partnership with an outside firm with little to no experience in the ETF distribution space is a bold move.
Perhaps I’m looking at this backward though. Could the distribution partnership really be be paving the way for a more important partnership on the asset management side? Could AAM’s fixed income expertise be the real nugget here? Does this move foreshadow WisdomTree’s future growth into fixed income, of which it has only one ETF categorized currently? Might AAM be the new preferred partner over Dreyfus, especially now that Dreyfus has applied for its own ETF exemptive relief? This theory seems to have a lot more potential than the driver of the partnership being AAM’s distribution to independent broker dealers. Looking backwards I’m sure there were very few who believed WisdomTree’s partnership with Dreyfus would have yielded over $1 billion dollars in AUM when it was announced in January of 2008. Back then, it seemed as if the partnership might be more beneficial on the operational/infrastructure side than the asset gathering side. Could WisdomTree now view AAM as the next big product partnership opportunity? Perhaps even a successor to Dreyfus? AAM’s distribution force would certainly be more effective selling their own firm’s investment expertise.
The initial partnership announcement of WisdomTree and AAM is intriguing. This unlikely pairing could be another naive idea that ETF distribution should not be segmented from transactional products. Hopefully that is not the case, as many firms have paid a steep price to already learn this lesson. On the other hand, the partnership could very well be a genius move to create another billion dollar ETF suite. Time will tell, so let the collaboration begin!