Operator: Hello, and thank you for standing by, and welcome to the WisdomTree First Quarter Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]
I would now like to hand the conference over to your speaker today, Jessica Zaloom, Head of Corporate Communications. Please go ahead.

Jessica Zaloom: Good morning.

Before we begin, I would like to reference our legal disclaimer available in today's presentation. This presentation may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. A number of factors could cause actual results to differ 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 WisdomTree's annual report on Form 10-K for the year ended December 31, 2021. WisdomTree assumes no duty and does not undertake to update any forward-looking statements. Now it is my pleasure to turn the call over to WisdomTree's CFO, Bryan Edmiston.

Bryan Edmiston: Good morning, everyone, and welcome. I'm incredibly pleased to report another fantastic quarter with record AUM levels and strong organic growth in the wake of a volatile market environment. A successful quarter like this doesn't happen by accident. Jarrett and Jono will impact how we got here and the bright outlook ahead for us. But first, I'll walk you through our first quarter results.

Our AUM at March 31 was $79.4 billion, which represents our second consecutive record quarter. Our average AUM for the quarter was $77.8 million, our fifth consecutive record quarter. Our AUM has withstood a volatile market environment, and is positioned to continue capturing market share as we experience a rotation towards value, rising rates and inflation. We benefited from positive market movement, and we generated $1.3 billion of inflows during the quarter, representing a 7% annualized organic growth rate. Key contributors include $2.3 billion of flows from our U.S.

business and almost $600 million from our European UCITS platform. Our U.S. business has now generated positive inflows for 6 consecutive quarters, and this is the second consecutive quarter of U.S. flows of roughly $2 billion. Our UCITS platform has also generated positive flows for 8 consecutive quarters.

These flows, which mitigated outflows from certain commodity products, highlight the breadth of our product lineup and demonstrate sustainable momentum. Our AUM currently stands at $77.8 billion, down from the end of the quarter as our inflows were offset by negative market movement. In the month of April, we have generated an additional $1.7 billion of flows, continuing the positive trends witnessed over the course of the last 18 months. Taking these additional inflows into consideration increases our annualized organic growth rate from 7% to 12%. Next slide.

Revenues were $78.4 million, a decrease of 1% from the prior quarter. This decrease is largely a function of 2 fewer revenue days this quarter as our AUM was higher versus the prior quarter, and our fee rate was essentially unchanged. Adjusted net income was $14.1 million or $0.09 a share. This quarter, we recognized a noncash after-tax loss of $17 million for our future gold commitment payments and $5.2 million in other net nonoperating losses. Our adjusted net income also excludes $2.4 million of expenses incurred in response to an activist campaign by ETFS Capital and Lion Point.

Next slide. Our adjusted operating expenses were up 3% for the quarter. Compensation costs increased due to seasonally higher payroll taxes in connection with the payment of year-end bonuses. Our discretionary spending of $11.3 million is well controlled and 5% lower than the prior quarter. Next slide.

Now just a few brief comments on our forecasted expense guidance. Our compensation guidance, which contemplates hiring for our core business and digital assets, ranges from $92 million to $102 million and is unchanged from what was communicated last quarter. If our strong organic growth persists, we would anticipate full year compensation costs to be toward the high end of our guidance range. We continue to anticipate our discretionary spending ranging from $49 million to $57 million. This range is influenced by our digital asset spend, which includes professional fees, marketing, product development and other related expenses, and is dependent on the timing of the WisdomTree Prime rollout and additional products and features to be launched.

The range also considers the impact of the pandemic on our sales-related spending. Guidance related to gross margins, third-party distribution fees and our tax rate are also unchanged from what was communicated last quarter. Our contractual gold payments guidance is being adjusted upward to between $18 million and $19 million, given the recent increase in the price of gold. Next slide. Now I'd just like to comment on our capital management priorities.

Maintaining our dividend is our primary commitment. We are also prioritizing managing and ultimately reducing our debt. $175 million of our convertible notes are scheduled to mature in just over a year. While not committing to anything at this time, we anticipate reducing our debt levels and partially refinancing a portion of these notes sometime between the latter half of this year and early next year. The magnitude of any debt reduction will contemplate our capital needs and investment opportunities.

We have also bought back $68 million of stock over the last 2 years, representing over 13 million shares. And we have liquidity for further buybacks to consider opportunistically. Further stock buybacks may occur in connection with any convertible note refinancing. However, that will need to be balanced with optimizing our debt and investing strategically in our growth. That's all I have.

I will now turn the call over to Jono.

Jonathan Steinberg: Thank you, Bryan. A successful quarter like this doesn't just happen overnight. It is the result of many years of hard work behind the scenes to improve the diversification, resiliency and growth prospects of the company. If we were to go back in time 5 or 6 years to the height of DXJ and HEDJ, WisdomTree was a U.S.-only ticker-oriented ETF sponsor.

Though the sell-off of those 2 funds was painful, we deployed the excess earnings power from those funds into opportunities, which set the table for today's resilient AUM base and strong organic growth. These investments can be grouped into

3 areas: first, data and technology; second, solutions, including models and digital tools; and third, a vibrant complementary European business. The combination of these capabilities is driving more breadth and balance and consistency to our asset growth. First, we invested in our data and technology capabilities to improve operations and enhance distribution intelligence. Through CRM investments and strategic platform partnerships, we now have a robust user database to better identify and target investors and advisors.

We also modernized our technology platform, which enabled a seamless transition to a remote first environment for our employees while better serving our clients. Building off of our first investment in data and tech, we next built an advisor solutions program to support broader and deeper product adoption, including our best-in-class solutions for model creation and trading for RIA and independent broker-dealer clients. All of our efforts have resulted in excellent managed model franchise that's the centerpiece of our solution strategy and will be one of the key drivers of organic growth going forward. Lastly, on Europe, we acquired 2 companies and injected WisdomTree's innovative culture to create a European platform that is transformative, resilient and more than the sum of its parts. The Boost transaction gave us comfort in local market product and local business operations plus incredible talent that's still in place today.

And the ETF Securities acquisition brought AUM diversification and distribution pipelines into Europe's walled gardens. In the year since, we injected new life into the talent pool and new products through the distribution pipelines to generate organic growth. In terms of breadth and balance, the success of our strategy was on display in Q1. It was a very strong quarter as the U.S. had strong flows and the AUM diversity from the European acquisition, along with the strong organic growth in UCITS platform, were each major reasons that our global AUM was up quarter-over-quarter while so many indices were down.

The outlook for ETF industry growth remains incredibly robust, and WisdomTree has never been better positioned to capture it because the strategy we have executed against for years now is powering our growth of today and tomorrow. I'll pause here and turn the call over to Jarrett with some more thoughts on all we've accomplished.

Robert Lilien: Thanks, Jono. Starting with Q1, not only did we generate over $1.3 billion of net inflows across the firm with nearly 3x as many funds inflowing and outflowing, but our inflows outpaced negative markets and our AUM grew quarter-over-quarter to new record highs. And this strength has continued in April with net flows of nearly $1.7 billion, taking our global AUM over $80 billion for the first time.

And as Jono has already highlighted, a large part of today's success has been the work and investment that has taken place over the past several years. Starting with Europe, back in early 2018, we closed the ETF Securities transaction. With it, we acquired a commodities franchise and AUM diversity that even today remains largely uncorrelated to the rest of our global product suite. We also got distribution pipes into the relatively walled garden of European wealth management, which is a tough nut to crack from the outside. Post acquisition, with $19 billion of AUM in Europe, we got to work.

We invested in team. We improved product structures and pricing, and we purged over 200 subscale funds that were a drag on profitability. At the same time, we leveraged WisdomTree core competencies to launch new funds and to create new products like UCITS and crypto, which have accounted for all of the organic growth in the European franchise since. All told, we took what could have been merely an accretive deal and we grew it to the over $30 billion in AUM it is today and turn it into a launch pad for future European and global growth. And at the same time, we were transforming the U.S.

business into a broader and more diverse growth engine, making it stronger today than it has been at any other time in our history. We invested in our people to build a best-in-class team across sales, marketing, research, product, operations and corporate functions. We adopted a more robust product innovation process to better define product market fit and increase the odds of a successful traction from new launches. And we launched the WisdomTree managed models initiative that has grown to the point where roughly 12% of flows into U.S. ETFs today come from managed models.

Like our experience in Europe, hard work and investment are paying off, with momentum increasing in 21 of the past 22 months generating inflows. Taken all together, actions we have taken over the last several years have diversified the business and positioned us for long-term organic growth in both the U.S. and Europe. Six straight quarters of firm-wide organic growth and nearly $3 billion of inflows year-to-date would not have been possible without this concerted effort to innovate and improve. So where do we go from here? I fully expect a continuation of organic growth trends and think we will see accelerated growth for 3 key reasons.

First, our product positioning and performance have never been better. Current AUM is levered to investment themes that are flowing and products that are performing. Second, our managed models franchise is entering its third year and its impact on flows is growing. And third, we are first mover in digital assets, which is a natural extension of our core business and has a massive addressable market. Digging a little further into each.

First, our product positioning and performance is outstanding. Over 2/3 of our AUM is currently levered to themes like inflation hedging, rising rates and the rotation from growth to value. Add to that, nearly 80% of our U.S. AUM is in the top 2 quartiles of performance relative to Morningstar benchmarks. With broad and deep inflows and solid momentum, we feel our flows are sustainable and that 2022 could show even better growth than last year.

Second, our managed models franchise continues to gain significant traction. We built this business from scratch with near 0 assets in 2020. Today and very early into our third year, we have over $2 billion in managed model AUM with roughly 12% of our U.S. ETF flows being driven by managed model strategies, which is up from the 10% we reported last year. Here, we have momentum with big partners like Merrill Lynch and Morgan Stanley, and we have won 2 material mandates already this year with others in the pipeline.

On the other end of the spectrum, we also launched WisdomTree Portfolio and Growth Solutions on April 18, which includes customized model construction services in addition to model trading services that will help us grow model flows in the mid- and small RIA market. Overall, we are very excited about the trajectory of our models franchise and we see a long and lucrative growth runway ahead, with the beauty of the models business being that once you win advisor mind share, flows are recurring in nature and stackable on top of our current inflow profile. Finally, and before I turn it back to Jono, I want to discuss our digital assets opportunity. Jargon like blockchain, crypto, neobank and digital wallets can sometimes be confusing, but our strategy is simple. First, it is to bring crypto exposures into the mainstream financial ecosystem through ETPs and separate accounts.

And second, it is to bring mainstream financial assets onto the blockchain and into the digital ecosystem through blockchain-enabled funds and tokenized assets. Looked at this way, digital assets are a natural extension of what we do, delivering to our clients best structured access to various asset classes. On the first part of our digital asset strategy, bringing crypto exposures to clients in the mainstream wealth ecosystem, we've launched several new crypto ETPs in Europe, including both single exposures as well as baskets. Despite the challenging crypto market, we've continued to see very strong 40% annualized organic growth year-to-date. While the outlook for a Bitcoin ETF in the U.S.

remains muted, even though Bloomberg did recently call WisdomTree the dark horse candidate to gain first approval in 2022, we've also successfully launched a separate account strategy for the U.S. wealth channel. How big is that opportunity? Consider that there are $30 trillion in assets in just the U.S. wealth channel alone. So even a 1% allocation to crypto in just the U.S.

would yield a $300 billion market opportunity for crypto exposures, and the realistic opportunity could be multiples of that. With strong client and advisor demand, we have a clear line of sight towards revenue growth in 2022 that will be even more meaningful in 2023. All in all, our product positioning and performance have never been better. Our models business is gaining traction, and we have first mover advantage and opportunity in digital assets. I'm incredibly excited about the quarters and years ahead, but I've only scratched the surface of the future opportunity.

So let me now turn it back to Jono to discuss the second part of the digital strategy in more detail.

Jonathan Steinberg: Thank you, Jarrett. It's easy to miss significant change. CBS Radio, way back in the day, before the invention of television. CBS had a brilliant engineer who had the imagination to see the potential of TV.

CBS was first to market. They executed well. And even to this day, CBS is a leader in broadcast television. Newspapers. Universally, all newspaper organizations missed the significance of the Internet.

They all saw their relationship with both information and the consumer too narrowly. Today, not one newspaper group is relatively stronger since the development of the Internet. Active mutual fund shops missed the significance of ETFs until BlackRock bought iShares. It's hard to see the future, and significant change doesn't happen very often. But significant change is happening right now in financial services, and WisdomTree is in the right place at the right time to see it and to execute against this massive opportunity.

Think about Eastman Kodak, one of the truly great companies of early corporate America. It's not that people are taking less pictures today. In fact, just the opposite. People are taking more pictures than ever. Unfortunately, for Kodak, they're taking those pictures with their mobile phone.

Kodak has been disintermediated out of significance. It's WisdomTree's belief that this is about to happen in financial services. Why is WisdomTree well positioned to see this opportunity? What's WisdomTree's edge? Before I answer those very important questions, let me say this about WisdomTree's ETF business. We've never had higher AUM. Our AUM has never been more diversified, and we have really strong momentum over the last 21 months.

The core business is very exciting. ETFs will see trillions and trillions and trillions of growth for decades to come. And WisdomTree has never been stronger, more competitive or better positioned to grow within ETFs. Now shifting gears. Why WisdomTree? What's our edge? First, let me say, we ask ourselves the right questions.

We aren't afraid to ask ourselves the hard questions. We do not hide from the truth. When I was launching WisdomTree 20 years ago, the question I was asking back then, how to thrive in a Vanguard world? 20 years later, WisdomTree has $80 billion in AUM, 40 basis points of revenue capture, $300-plus million of revenue, $50 million to $60 million in net profits. It was the right question then, and we executed beautifully. But why WisdomTree now? Again, we are asking the right questions.

In my opinion, today, the hardest questions in asset

management are: one, what could do to ETFs what ETFs did to mutual funds? And two, what is our competitive response to 0 fee beta, which exists today. That's the truth that we are willing to face. Who is in a better position to answer the question? What could do to ETFs what ETFs did to mutual funds? The answer is nobody. Literally, nobody is in a better position to answer that question than WisdomTree. That's our edge.

Our culture, our creativity, that's our edge. Today, WisdomTree's 250 people worldwide, 230 people in ETFs and 20 people in digital assets. What's so beautiful is everything that the 230 people do day to day is of relevance and is transferable to bringing asset management onto the blockchain. Our edge is our efficiency. And why the blockchain? The technology is simply better than what exists today, and the efficiencies are simply too large an opportunity to pass up.

We see financial services, not just asset management migrating towards blockchain tech. You're seeing the Fed and other central banks explore or commit to Central Bank digital currencies. On blockchain, we see virtually all financial assets through tokenization eventually coming to the blockchain. Liquid and illiquid assets, it's all coming. And there will be spectacular winners and many who get disrupted and disintermediated out.

It is easy to envision a world where many of today's leading financial service companies look like yesterday's newspaper groups. WisdomTree sees an opportunity to be a disruptor in asset management and an innovator more broadly in financial services, being one of the rare companies that sees clearly the next big innovation, being early and executing against that vision. Everyone who follows asset management understands the importance and advantages that come from being the first mover. Vanguard was first in passive investing in the mutual fund wrapper. iShares was first with a comprehensive passive suite of ETFs, and everyone recognizes how valuable that franchise has become.

As I said, WisdomTree will be first in bringing passive onto the blockchain. We see this as a once-in-a-lifetime opportunity, significantly expanding our addressable market and aligning WisdomTree to the fastest-growing segments within asset management, something that we could not do in ETFs because we simply got there too late. Last quarter, we announced WisdomTree Prime. WisdomTree Prime is a financial services mobile app. It is a distribution channel.

In the late 1990s, when I first discovered ETFs, when the wrapper only had $40 billion in AUM worldwide, there were 2 observations or characteristics that gave me the conviction that ETFs were the future. First was the convenience of ETFs. And the second was the recognition of the better functionality that ETFs delivered. Simply, convenience and functionality matter. Regarding the first point, convenience.

Anyone with a brokerage account could buy an ETF without any paperwork. That convinced me that ETFs and WisdomTree could quickly scale. Do you know what is more convenient than a person with a brokerage account? A person with a smartphone. Nothing can potentially scale faster than a successful mobile app. Almost 80% of the world have smartphones.

Regarding the second point, functionality. WisdomTree Prime will be one of the easier and most approachable places for a user to hold crypto but also a place where crypto and traditional passive exposures will sit alongside each other, a first, all with additional utility and functionality like payments. To be launching WisdomTree Prime in beta testing this quarter and rolling out nationally by year-end is very exciting and very timely. In my opinion, having a robust mobile financial app strategy is simply table stakes in 2023. Some people may use WisdomTree Prime as a neobank.

Others may use WisdomTree Prime as an RIA. Regardless of how different consumers use it, one thing is crystal clear. By being first in tokenizing the underlying exposures and by being native to the blockchain in our design, WisdomTree will deliver unique and better functionality. And by being a first mover, generate faster organic growth in 2023 and better economics for all WisdomTree shareholders. These are exciting times and WisdomTree's future is now.

Thank you. Operator, please turn the call over to Jeremy Campbell, our Head of Investor Relations so we can start answering questions.

Jeremy Campbell: Thank you, Jono, and good morning, everybody. We're going to start off the Q&A, just like we have over the past couple of quarters, using some questions directly from investors through the Say Technologies platform. So the first question we're going to ask is to Jeremy Schwartz.

The question is, do you expect to see inflows into non-beta equity strategies as we move through this phase of the cycle?

Jeremy Schwartz: Well, first, WisdomTree's stance on beta is pretty well known. You have to be first to market, as Jono was just talking about there. Yes, there's still a lot of opportunities for beta. And I know the question was on equities, but I want to highlight a few topics here. First is one of the beta products that we were first on, floating rate treasuries, ticker is USFR, we were able to be first in line.

We were able to issue that ETF the day the Treasury issued floaters. And that was an amazing accomplishment to be first there. And this is still a vehicle that we have to educate clients on that they even exist and what they are. But this has been one of the most exciting stories this year. And to the point on equities and having alpha, this is an ETF that with $2 billion of flows year-to-date, now our second largest ETF.

And it's really providing alpha for the bond market. You've got 500 fixed income ETFs here in the U.S. And if you look at them, basically, all are showing negative returns, some very negative returns, with the aggregate bond market down 9% on the year. If you look at USFR, it's got small positive gains. So it's really one of the best fixed income ETFs for this market regime.

And if you think about the Fed cycle, we've had a single Fed hike at 25 basis points. Next week, we're likely to get 2 hikes, 50 basis point hike next week and maybe a string of 50 basis point hikes. So the momentum in that could accelerate over the coming 18, 24 months with this Fed cycle. But in equities, I think what you see is gross stocks were in favor for much of the last decade. This has been the year of dividend stocks.

The S&P 500 has been down about 10% on the year. And you have high dividend baskets like DHS, one of our original funds from 2006, up 7% on the year. DLN, our $3 billion large-cap dividend strategy, is only down 1% on the year. And so investors are responding to this relative performance. We've seen about $1.5 billion coming to net inflows across 30 separate dividend strategies.

Approximately 6 of those dividend strategies have seen more than $100 million net on the year. 11 of those approximately 30 ETFs have taken more than $50 million on the year. So I think you're seeing dividends shine, and you're seeing performance follow. So for this market regime of higher rates, inflation, the Fed, we like value quality, as Jarrett and Bryan were talking about. And the dividend orientation has been particularly well suited for this macro regime.

Robert Lilien: And Jeremy, maybe I can pile on there as well. As Jarrett was saying, our product suite is incredibly well positioned. Its performance is great. Anything that is good for our individual products is also good for our managed models initiative, which is essentially a collection of our individual products. And so basically another important growth initiative, what's good for individual products, also very good for our managed models business.

Jeremy Campbell: Great. And then the second question is, how is the company preparing for an upcoming recession? So first let me ask Jeremy to put his global CIO hat on and look at it from our product lens. And then maybe Bryan can chime in about our business itself.

Jeremy Schwartz: That's great. We've been working to diversify our product offerings for really any market regime.

We started off in 2006, really with equities and value-based equities. I just talked about USFR, the floating rate treasury for ultra short duration and this new rising rate cycle. If you go into a recession, I think you would want longer duration assets and further quality screens. And I'd say, 7 years ago, you saw us launch an enhanced core bond strategy that we also now have launched in Europe. That is, again, systematic, modern alpha tilts on core bonds.

We have $1 billion in the U.S. strategy, ticker A-G-G-Y, AGGY. And in Europe, it's been a 5-star performer for the European version. So if you were to have a declining rate cycle with a recession, I think we're very well positioned for that rotation to longer-duration assets. We also have quality screened fixed income credit strategies.

And so under the stress of a recession, you would think we're also well positioned for a shift to higher quality in the fixed income market. And again, in equities, we don't decide value. 7 -- really, 9 years ago, we launched a quality tilt on top of dividends. And now it's our largest ETF, DGRW, in the U.S., that screening for quality holds up particularly well during recession. So I think across equities and bonds, you see our full product positioning has enhanced.

But I guess one final point is we've been launching more in the megatrend and thematic area. You think about declining growth rates for the economy, things that have secular long-term growth behind it would be priced. And that's why we've been trying to diversify in this megatrend lineup. Even just this week, a very exciting launch out of Europe. They launched an ESG megatrend for a recycling and decarbonization, which is one of these things that you think have long-term secular growth despite a recession.

And so I think you could look at things like that for growth-oriented strategies during such that our megatrend family is perfect for that.

Bryan Edmiston: Yes. And I would just add on to that. As it relates to our expenses, just keep in mind that our fund management costs and third-party distribution fees are highly variable. So if our AUM were to decline, these costs would decline as well.

Now I'd say we have a number of levers at our disposal to manage our expenses. Incentive compensation would be something to look at as well as our hiring plan. Our marketing and sales expenses are also discretionary in nature. That said, our AUM and organic growth have been resilient in the wake of recent market volatility. And as we previously noted, it is more diversified than it ever has been in the past.

So even in the wake of a future recession, we may not need to pull these levers.

Jeremy Campbell: Great. Thanks. And operator, I'll turn it back over to you, and let's answer some questions from the analyst community.

Operator: [Operator Instructions] Our first question comes from [indiscernible] with KBW.

Unknown Analyst: I'm calling in on behalf of Rob Lee. I just wanted to ask about expense guidance. No change from last quarter, but any areas you see inflation having the most impact?

Jonathan Steinberg: Bryan?

Bryan Edmiston: Yes. Let me talk about that. So compensation is one area.

And I'd say operating as a remote-first company really has been an advantage for us. we've been able to make hires at levels that we previously budgeted at. So that's something that we would be looking at and considering. On the non-compensation side, I would say that's a mixed bag. We're under contract with many of our providers.

And others, we're not. And you may see rates go up at that point in time as well -- or I'm sorry, fees. But that's -- we've contemplated that when giving our guidance, and it's something that we continue to keep our eye on.

Unknown Analyst: And then one quick follow-up. Can you give any other updates on the model portfolio launches with broker-dealers and any more you're trying to sign up and it could begin to ramp soon?

Jonathan Steinberg: Jarrett, maybe you could start.

And Jeremy, if he doesn't get everything, maybe you want to add to it, but at least, Jarrett, you start.

Robert Lilien: Sure. Yes, the managed models initiative is one of our priorities, and it's one of the real success stories over the last couple of years as we've built it and grown it. When you're looking to grow the business, there are really 2 victories you need to score. One is -- the first victory is partnering with some of the major platforms.

So as we've discussed in past quarters, we're on the platform with Merrill Lynch and Morgan Stanley and others. And so once you win that first victory, the second victory is now you've got to go out and win advisor mind share, which takes time. But once you do, those flows become recurring in nature as you'll see us adding more advisors for each platform. And then within each advisor, you see them adding more of their clients to our models. So it's just something that starts to build upon itself with a high quality of flows.

Directly to your question, we've got others in the pipeline. We've won 2 other major mandates already this year and have a strong pipeline. And that's only half the story that's going after the upper end of the market. On the other side of the market, this is one of the biggest trends in wealth management right now is centralized managed models. If you're big, you have the resource to do it.

If you're smaller, it can be hard. How do you organize, how do you build a model, how do you run a model? Because you might not want one off the shelf, you want to customize it and add your firm's sort of view to it. And then once you construct a model, how do you execute the model? How do you rebalance the model? So I referred to that in the prepared remarks. Earlier this month, we launched a new service, WisdomTree Portfolio and Growth Solutions, where we're providing that kind of an easy button for managed models where we will help our clients customize their models, but then run the models. And so we really have a two-pronged attack here going on the large end with major platforms.

And then on the smaller end and the midsize end, with RIAs, with this Portfolio and Growth Solutions initiative. So more to come. You're seeing building momentum, and we expect it to keep going.

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

Michael Cyprys: Just hoping you can expand a little bit on some of the commentary around the bringing passive to the blockchain.

Maybe you could just give us an update on where that stands. Talk about some of the action steps that you're taking here over the next 12 months. What sort of time frame could we see? And what sort of regulatory hurdles do you guys face? And how do you think about overcoming any of those?

Jonathan Steinberg: Sure. Thanks, Mike. Will, do you mind -- Will Peck, Head of Digital Assets.

Will, do you mind taking the first crack at this?

William Peck: Yes, certainly. So the next step is really what we've disclosed in terms of our guidance for the year on the progress here. We're going into a beta for WisdomTree Prime in Q2. And that will be really the beta for some initial of these tokenized assets as well. And we've got our blockchain-enabled fund that we've filed with the SEC.

No specific guidance on when that might get approved, but kind of overall guidance for the second half of this year. So those are really the 2 next big steps on that. There are some regulatory conversations in the background. Nothing that we could kind of disclose further on. And we think we're well on our way in accordance with what we talked about at the beginning of the year.

Michael Cyprys: Maybe if I could just follow up on the WisdomTree Prime. Maybe you could just talk a little bit about the customer acquisition strategy. It would seem like this is a direct-to-consumer approach, if I'm not mistaken, in terms of how you're thinking about it. Maybe you could just talk a little bit about that go-to-market strategy, how you're thinking about building brand and marketing around this particular offering to drive adoption.

Jonathan Steinberg: Sure.

Will, why don't you again begin?

William Peck: Yes. You talked about lean marketing principles. I mean as Jono has said on the last call, we're not having that game and do a commercial on Super Bowl anytime soon. But just using very cost-effective, getting a lot of learnings from our digital marketing and growing from there. Certainly, there will be business development deals as part of this over time, that and scaled distribution quickly.

But we've been doing marketing for a long time, Jono has. And we've got a great kind of strategy there to do it in a cost-effective way going forward.

Operator: Our next question comes from Brennan Hawken with UBS.

Brennan Hawken: Sorry about that. The old mute got me.

So first question is on commodity flows. A little surprising to see the weakness in the first quarter, just given what we saw in some of those commodity markets. So could -- obviously, it's improved here quarter-to-date. But do you have any additional color around what drove some of that and why we wouldn't have seen more demand?

Jonathan Steinberg: Jarrett -- not, Jarrett. Jeremy, maybe you would start? Jeremy Schwartz.

Jeremy Schwartz: Yes. And certainly, what you're seeing is performance has been very, very strong across commodities. And so some of the flow that you see out of Europe can be counterbalancing and cyclical there where people are sort of taking some of the gains, given that commodities have been the strongest performers. One of our broad commodity funds, W-C-O-A, WCOA, sort of enhanced broad commodities up 25% on the year. You're seeing positive flows there as a representation of a modern alpha approach trying to provide some outperformance.

Some of the things like oil beta, where it spiked in large ways, you did see people cash in on some of those gains. But I think in a lot of ways, we are believers in the longer-term trends. There's been a lack of investment in commodities, and this could be very early innings on part of the sort of shift to this inflation narrative and commodities generally. And so I think we're extremely well positioned, both with beta and these active approaches on top of that for the future there.

Brennan Hawken: Okay.

And then second question is more on the digital asset strategy. So you laid out the spend here on this effort for 2022, which is certainly contained and very moderate. But when we think about going beyond 2022 and your aspirations for this venture, how should we think about what that kind of investment would look like going forward? Is this just the beginning? Or is this really the large part of the investment we're going to see? And what do you think that J curve is going to look like?

Jonathan Steinberg: So I'm not sure who -- let me just first start. So this is the hardest year to show because we show -- in our guidance, we ramped up expenses from the prior year without yet really seeing any revenue. Next year, it will at least have the revenue contribution.

But there's certainly some -- as we spoke about from an earlier question about marketing and Lean marketing principles, there are 2 elements to marketing. It's going to be around your cost of acquisition, and you'll have learnings from users and understand better or a little bit over time what is the lifetime value of that user. And you'll find your price point that you're willing to invest against a lifetime value user. But again, all of this is we feel very manageable at so much of our expenses of our core business where the historical ETF business is of relevance to what we're doing. That's why I tried to make that comment in the opening statements about the efficiencies of what we're doing.

So though we're not prepared to give guidance on 2023, we're highly confident that it will be well managed.

Bryan Edmiston: Let me just add to that. I mean I would just say if we're going to see meaningful expense growth going forward, it's going to be coupled with revenue growth that you'll also be able to see. So let's just not ignore the fact that we have a baseline expense growth in 2022. So if we're building off that, it's due to the success of the platform.

Brennan Hawken: Fair enough. When you think about just -- Jono, your response sort of like fired up another question, so forgive me. But when you think about like what you would expect, based on your current expectations for this platform, are there any parallels you can draw to other established firms that are out there and how they think about the value of the customer and how that's evolved as they've continued to add on different products or capabilities or whatnot. Is there a case study that you could point to that you think might be particularly relevant or you serve as a decent parallel for what you're looking to do here?

Jonathan Steinberg: Yes, let's talk case study. So I saw you on your UBS Digital Asset Day.

And one of the things some of the companies were just -- one of the things that we noticed or I noticed when you were speaking was the frustration and siloed nature of crypto assets versus traditional all other services that these firms were following. So I do not want it to be missed by you. We are actually going to be first where crypto and traditional assets will sit seamlessly together. And that -- so being native to the blockchain, in our design, will give us functionality that is the others do not yet have and will not be easy to replicate. So you -- many of the firms that you had on your Digital Asset Day, so much of their investment is on the old rails, all of the neobanks, many of the mobile app firms.

They are just playing up really on yesterday's technology, and it will impact them going forward. I think we have a truly exciting use case that will -- that we can build off of before the end of the year and really drive users into next year.

Brennan Hawken: Okay. Well, I look forward to continuing to hear more details about these efforts.

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

Keith Housum: Just following up on the standard line of questioning. And I guess you can probably count me with one of those guys that have concerns about the investment in WisdomTree Prime. Based on, I guess, our knowledge and what we see in the world in terms of security and the hacking of digital walls that are out there, with the $9 million to $14 million, you guys are adjusting in terms of expenses this year. What are the efforts around security? Are you guys using your own internal sources for security and testing? Or are you guys outsourcing some of that? I mean how can you ensure that this digital wallet will be able to withstand hacking efforts that are sure to come?

Jonathan Steinberg: Will, why don't you start there?

William Peck: Yes. I mean I think one of the recent hacks that you're seeing are for things that are totally unrelated to what we're doing for like smart contract bridges and things like that where people see crypto hack in a headline and think it is something to do close to what we do or like a Coinbase does, and it's just not accurate.

It's totally different things. I mean in terms of how we're securing WisdomTree Prime, we've got our own security team in-house. We've got great outside relationships, one with currency, one which we have not announced yet, that are the best in the business in terms of securing digital assets and the private keys associated with them. So we feel very comfortable on the security front. I mean you always need to be vigilant.

But I think that is something that we are going into eyes wide open and are very, very well set up to do that.

Keith Housum: Great. I wish you guys luck there. In terms of this follow-up question, in terms of the marketing expense, I know this was lower in the quarter. Is it safe to assume that as the year ramps up, especially with your WisdomTree Prime efforts, we should expect like marketing and some of the other discretionary costs will probably ramp up quite a bit here in the second half of the year?

Bryan Edmiston: Yes, I would.

Jonathan Steinberg: Sorry, go ahead, Bryan.

Bryan Edmiston: Correct. And look, our guidance is a fairly wide range. It's about $49 million to $57 million. And a lot of that is -- depends on the timing of the rollout.

So if the rollout happens toward the end of the year, then the expenses may be a bit lower. If it happens sooner or sooner than we're anticipating, then the expenses may be a bit higher. Putting aside digital, we also are mindful of our sales-related spending. There's a range there as well, and that all has to do with whether or not the pandemic cooperates with us or not.

Operator: Thank you.

And I'm not showing any further questions at this time. I would now like to turn the call back over to Jonathan Steinberg for any further remarks.

Jonathan Steinberg: No, I think that's all we have. I just want to thank all of you for your time and attention, and we'll speak to you next quarter. Have a good day.

Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.