Ladies and gentlemen, thank you for standing by. Welcome to the WisdomTree Q3 earnings call. At this time, all participants are in listen-only mode. After the speakers presentation, there will be a question and answer session. To ask a question during the session, you need to press star one on your telephone. If you require any further assistance, please press star zero. I would now like to start this conference with Mr. Jason Weyeneth, Director of Investor Relations, you may begin.
Thank you and good morning. Before we begin, I'd 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 WisdomTree's annual report on Form 10-K for the year ended December 31st, 2019. WisdomTree assumes no duty and does not undertake to update any forward-looking statements. Now it's my pleasure to turn the call over to WisdomTree's CFO, Amit Muni.
Thank you, Jason. Good morning, everyone. I'll walk through the highlights for the third quarter and turn the call over to our President, Jarrett Lilien, who will provide a deeper dive on our U.S. and European products, and then to Jono for closing remarks before we open the lines for Q&A. Beginning on slide three, we ended the quarter with assets under management of $60.7 billion, up 5% from the second quarter, primarily from positive market movement. We had $468 million of net outflows. However, I'd note so far this quarter, we are off to a strong start with net inflows of over $1 billion, and we have turned positive in net inflows on a year-to-date basis. Our U.S. products generated inflows each month of this quarter for a total of $575 million, representing 7% annualized organic growth.
Building upon the momentum from last quarter, our dividend growth, ex-State-Owned emerging market, cloud computing, and aggregate bond products generated approximately $1.7 billion of inflows in the quarter. We continue to face headwinds as nearly 40% of our AUM were in the worst 15 flowing categories for the industry. In Europe, we had outflows of $1 billion, primarily from our energy and gold products. We did generate inflows into our other precious metals, including silver, platinum, and palladium, and also our cloud computing UCITS product. Turning to the financial results on slide four. Revenues were $65 million for the quarter, up 11% due to higher average AUM and a slight increase in our fee capture due to mix change. On a GAAP basis, we had a net loss of $300,000. Excluding non-operating items, adjusted net income was $11 million or $0.07 a share.
This quarter, we took a non-cash after-tax charge of $9 million for our future gold commitment payments, reflecting the increase in gold prices during the quarter, as well as a non-cash write-off of $2 million for our remaining carrying value in Thesys Technologies. As a reminder, our investments in Thesys had no cost basis to us and was a holding from the prior legacy business of WisdomTree. During the quarter, we completed a $25 million add-on to our convertible offering and bought back approximately 1 million shares with part of the proceeds. The terms for the add-on were on the same terms as our previous transaction, bringing debt outstanding to the same level as our previous term loan. Turning to margins on the next slide. Our operating margin expanded to 22.8% in the quarter, reflecting controlled expenses and higher revenues.
Gross margins also expanded to 76.5% in the quarter due to higher average AUM. We still expect gross margins in the 75%-77% range, but on the higher end. On the next slide, you can see the changes in our expenses. Our operating expenses remain well controlled, up only 7% from the second quarter. Compensation expense increased as we have seen a rebound in our earnings from the significant decline we experienced earlier this year. Due to this improved forward revenue outlook, we anticipate fourth quarter compensation expense to be roughly in line with the third quarter, though it may trend a bit higher depending upon our results in the last two months of the quarter. Discretionary spending continued to remain well controlled, despite the fact we strategically increased spending for marketing activities to support our brand and products.
We are realizing efficiencies in this new operating environment, such as continued virtual client engagement, which greatly expands our reach. Because of these efficiencies and controlling costs, we now expect our full-year discretionary spending to be $41 million. As a reminder, our guidance at the beginning of the year was $51.5 million for discretionary spending, which we reduced to $47 million after the first quarter and $44 million after the second quarter. We don't believe these reductions will have any negative effect on our long-term growth outlook. Our adjusted tax rate was 16.7% in the quarter. Because of the change in mix between the earnings contribution of our U.S. and European businesses, we see our go-forward tax rate at approximately 19%, which is lower than our previous guidance. Thank you, and let me now turn the call over to our President, Jarrett Lilien.
Thank you, Amit, and good morning. I want to now drill deeper into the positive trends we are seeing in both the U.S. and Europe. Beginning with the U.S., the pandemic interrupted momentum that had begun in September of last year. If you remember, February marked our six consecutive month of net inflows, which was the best streak the company had experienced in over five years. March and the pandemic interrupted this momentum and brought elevated redemptions, but these have been subsiding each month since. Nonetheless, these outflows have clouded an otherwise positive story, which is that we have also been experiencing strong gross inflows with average monthly inflows up 27% this year versus last.
We are now on pace for our strongest annual sales in over five years. In the third quarter, we generated $2.4 billion of gross inflows, up nearly 100% from a year ago and up 25% sequentially from Q2. Gross inflows for the first three quarters this year have outpaced the first three quarters of each of the past four years. Overall, momentum is back. Our U.S.-listed ETFs have now generated four consecutive months of positive net flows through October. This is no accident. We are highly engaged with advisors in areas that matter most to them. We are investing in key platforms and partnerships. We continue to provide strong-performing products, including both individual funds and model portfolios. A few highlights. We have maintained the elevated client engagement levels we discussed on both our Q1 and Q2 earnings calls.
Driving our sales success this year, the number of high-quality client interactions have more than doubled from Q3 2019 levels. This is extremely encouraging and gives us confidence as we look out towards the end of 2020 and into 2021. Our focus on key partnerships continues to pay off. Net flows in our IBD channel are positive year- to- date. During Q3, one of our largest IBD partners put $42 million to work in XSOE. Another partner, a private wealth division of a major bank, put $250 million to work in DGRW, doubling their overall allocation. Along with strong flows in WCLD and AGGY, these are also examples of the diversity and broad appeal of our current product lineup. Separately, our models portfolios are resonating with investors, and our efforts are gaining traction. In September, we won a third-party model mandate from Merrill.
This makes us one of 12 asset managers that have third-party models on Merrill's advisory platform. We've launched the WisdomTree Siegel multi-asset income models to help Merrill advisors and their clients solve for income in a low-rate environment. This is a major endorsement for our model portfolio business. Earlier this month, we announced a collaboration with 55ip to help advisors more efficiently and easily transition clients into model portfolios with ongoing rebalancing and tax management. The combination of our diversified model portfolios and 55ip's technology, which is integrated with major RIA custodians, will help a broad range of advisors run their practices more efficiently while delivering better client outcomes. In Q1, we will launch an industry-leading Models Adoption Center, the MAC. The MAC helps advisors engage with their customers more effectively around models use.
It provides technology tools to understand how models will impact investor outcomes, and coupled with our leading behavioral finance work, it provides workflows to allow advisors to execute model trades in a tax-efficient manner. The combination of elevated advisor engagement, traction within our models initiative, strong partnerships, and momentum across a broad product lineup puts our U.S. business in a strong position to drive continued net inflows. Turning to Europe, there is a similar story. In February, we had record AUM. The pandemic brought disruptions across our product suite, driving extreme volatility in our energy products and logistics challenges within our gold suite. In Q3, our focus was on growth, and we worked to make our existing platform more competitive and innovative. Some highlights. In August, WisdomTree WTI Crude Oil ETC, CRUD, moved to a new index.
This was the result of extensive work between WisdomTree and Bloomberg to create an index resilient to extreme conditions in the WTI crude oil market. In September, the total expense ratio for WisdomTree Physical Swiss Gold, SGBS, was reduced from 19 to 15 basis points to match the lowest fee offering in the market. In October, we implemented enhancements to the swap parameters of our currency hedge physical gold ETPs. We believe they are now the most competitive products in the market. Also in October, we began applying ESG screens across WisdomTree's proprietary equity indices available to European investors. By the end of 2020, 12 WisdomTree proprietary equity indices will incorporate ESG principles. All of these enhancements have already generated positive returns. During Q3, net flows and our energy exposure stabilized. There has historically been a strong negative correlation between energy prices and energy product flows.
As you can see on the chart on slide eight, this trend played out again in 2020. March and April saw strong inflows as energy prices fell, then flows partially reversed in May through July as oil rebounded. The past three months have seen more stable trends in both energy prices and flows. Separately, our gold platform is positioned to participate in continued strong demand. We have been a beneficiary of increased demand with our gold AUM up $4 billion, or 28%, year- to- date. While our flow market share hasn't kept pace in 2020, we were hit unusually hard by the pandemic. Concerns surfaced around the ability to source gold and move it across borders, which negatively impacted the trading spreads of our low-fee Swiss vaulted gold product, SGBS, and drove heightened demand for London vaulted products.
We have worked hard and alleviated the technical trading pressure on SGBS, and the fund is now well-positioned. Our initiatives with SGBS and our currency hedge gold products are already having an impact, and we have taken in $728 million in gold flows in the month of October. This represents over 90% share of flows against our European competition. Also important to note is that we are succeeding more broadly within our commodity suite and now have six ETPs with over $1 billion in AUM, four gold ETPs, one energy, and one silver, with silver gathering over $500 million in 2020. Finally, our UCITS platform, at $1.2 billion of AUM, has reached run rate profitability following recent growth and some rationalization of the product set. This is an important milestone and will contribute earnings as the platform continues to scale.
All told, our Europe business is driving flows from all product suites and is once again approaching record AUM levels. Overall, we continue to execute against our strategic plans, momentum continues to build across both the U.S. and Europe platforms. With that, let me now turn the call over to Jono for closing remarks.
Thank you, Jarrett, and good morning, everyone. As Jarrett highlighted, we are seeing strong momentum in our business, and the team is executing at a high level to drive results. For example, I'm proud of the way we performed to win the third-party model mandate at Merrill. It was a long RFP process that involved team members from across nearly the entire organization, and we beat out roughly 2 dozen firms to be one of four providers of multi-asset income models. Merrill is the industry leader in home office-directed model portfolios, and we're excited to be a part of their investment manager model program, which provides their advisors access to third-party models for the first time. The momentum we are seeing in our business and the wins we are producing, like at Merrill, are further evidence that we are operating at the highest levels remotely.
Client engagement has been at record levels. Technology has brought our teams in various locations closer and driven productivity gains, and our funds continue to operate flawlessly with coordination with our third-party service providers. After eight months' experience of working 100% remotely, we have decided to take a remote-first philosophy. While we will maintain a physical presence, we plan to significantly reduce our office footprint in New York and London, which we anticipate will drive $3 million-$4 million of annual cost savings beginning in late 2021 or early 2022. I want to emphasize that we are taking this action because we believe it is the right decision for the business, not purely to realize cost savings. Simply put, we are working better as a firm remotely, with better transparency into the business and more inclusion, which is driving better decisions.
We have conviction that this is the right long-term operating structure for WisdomTree. Before turning to your questions, I'd like to spend a minute updating you on our tokenization initiative, where we are driving industry innovation. Recall on Q4 last year, we announced our pursuit to launch tokenized versions of core assets such as gold and treasuries to improve the investor experience and unlock the power of blockchain technology. We approached the initiative recognizing that compliance and regulation at the highest standards would be required to gain the necessary approvals and differentiate our offering from current digital assets in the market. We have found the SEC happy to engage as we approach tokenization, fully embracing their foundational principles of investor protection and maintaining fair and efficient markets.
Earlier this month, I participated on a panel at a conference focusing on the innovation and regulation of digital assets. SEC Chairman Clayton also participated in the event where he made clear the door is open for tokenized ETFs that add efficiency, and we believe we can unlock the power of blockchain to achieve that. While there's no specific timeframe for regulatory approvals or product launches, we are confident we are at the forefront of the industry and have the right approach to gain regulatory approvals and deliver a best-in-class product to the market. We look forward to sharing our progress on these important initiatives in the coming quarters. We have restored the momentum built prior to the pandemic through steadfast focus on what we can control and strong execution amid a highly volatile and unusual year.
Year-to-date, net flows have turned positive with the strength of our U.S. and European-listed products in October. Important elements across our global franchise are starting to align, and I am excited about our growth outlooks for the remainder of the year and into 2021. With that, we thank you for your interest in WisdomTree, and we will now take your questions.
Ladies and gentlemen, if you have a question or a comment at this time, please press the star then the one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question comes from Craig Siegenthaler with Credit Suisse.
Thanks. Good morning, everyone.
Good morning.
Following the Morgan Stanley-Eaton Vance merger announcement, we were looking for an update on your thoughts around asset manager M&A and if you think a financial services firm with a large wealth manager could help accelerate WisdomTree's AUM growth.
Thanks, Craig. First, as we've discussed on the call, momentum is returning to the core business. We have higher earnings in 2020 versus 2021, and we have what we believe is an incredibly valuable franchise and doing things to create more value to the franchise. There's no question that the outlook for M&A seems to have improved with more firms participating and obviously encouragement from certain investors for transactions. It's clear that the environment has improved. We do recognize our fiduciary responsibility to our shareholders and the need to maximize shareholder value. As always, and this is not a change, we would consider things if things emerged. That said, we believe that we're doing everything to grow faster and that we have the right strategic vision to grow as an independent company.
Thanks, Jono.
Craig.
This is a follow-up on the macro one here. Given the robust efforts of global central banks to stimulate economic activity and indirectly potentially higher inflation, can you comment on if you're seeing different investor groups raise their long-term allocations to gold, which could benefit your flagship European products like PHAU and GBS?
For sure, we have a very strong internal outlook for gold. Jeremy, why don't you take this question?
We started talking about this actually maybe two quarters ago on the call, that we do have a view, and our team has been talking about the increased importance of gold with all the fiscal spending, even more than the central banks, is that you have big fiscal packages. That's one thing. I've worked with Professor Siegel for 20 years. Just to showing the skeptics coming to gold, he had not been a big fan of gold, and in our model portfolios that we run with him, we added gold allocation as just an example that there are people who didn't allocate to gold before coming along, and we do believe there's going to be higher inflation. We've been talking about maybe 3%-5% for the next few years when we've been trying to get to 2% inflation.
We do believe gold has an increasing importance, and that franchise is a really important part of that.
Let me just add before we move off of gold. We spoke in the prepared comments about our tokenization efforts. We see a new technology to come out for an enhanced wrapper, a blockchain smart contract, regulatory-approved wrapper, and that this new wrapper not only will affect asset management, but we think it has the ability to transform financial services. That's being anchored by a belief in and conviction that we will see a central bank digital dollar that's based on the blockchain. We can see gold emerging. Right now, at the height of innovation for gold are ETPs. We can see gold emerging as a global currency using this new technology, and that the outlook with inflation and all of the stimulus worldwide, the debasing of fiat currency is really adding value to gold as an exposure through the new technology. Thanks, Craig, for the question.
Thank you, Jono and Jeremy.
Our next question comes from Brennan Hawken with UBS.
Hey, good morning. Thanks for taking my question. Jono, I just wanted to probe a little bit on the working the remote-first plan. Could you maybe give a little context of how you came to the decision? I think you're actually the first company that I cover that has come out with this. Obviously this disruption has shown us how much we can all achieve from our living rooms. What were the major considerations that you weighed? How did you counterbalance the benefit of efficiency, smaller footprint, less cost with maybe some challenges in collaboration between teams? What processes are you going to put in place to ensure that that collaboration continues? WisdomTree is such an innovative firm that I would think collaboration and the need to sustain that creative energy is an important part of your culture.
I'm curious about how you are going to try to ensure that that's maintained.
Thank you for that question. Jarrett, do you mind starting giving your thoughts, and I'll add on at the end?
Sure. Well, starting out, necessity is the mother of all invention. This was sort of forced upon everybody, as we all know. We went remote in March. Our transition was flawless. We adapted really quickly. One of the really important things we did right away was amping up communication in all areas, and that was not only internally but also externally with our clients, and that was also partially responsible for the elevated client engagement that we're seeing. What we found through our experience is that we operate better remotely. We spend more quality time on a broader set of topics with more people. We feel actually closer to the business and closer to our employees and closer to our clients. It made us rethink what's an office good for. As you pointed out, certainly there are things that being physically together is very important for.
Collaboration, socializing, onboarding new employees, and some cultural parts that are very important to us. When you identify those, you solve for them, which is what we've been doing. Our overall conclusion is that we found a better way to operate, which gives more flexibility to our employees. It will still call for a physical footprint, but a much smaller one. Again, this is probably something, definitely something, without a pandemic, we would never have had the experience. With the experience, there's so many benefits that we found that we will definitely carry forward into the future.
I guess the way I would nuance it a little bit, you asked about sort of the creativity and the collaboration. I feel great conviction that the actual meeting will not ever go back to physical, that it'll remain virtual. We're finding that we're not missing anything from a collaborative or creative standpoint. Where we want to really keep our eye on things, and I think it's really where physically getting together will matter, will be just to maintain our culture over time. I think maybe we answered your question, but if there's a follow-on, let us know.
Yeah. You did, certainly, I mean, to the extent that any of this stuff is known at this point. It's such an unknown, and I just was kind of curious about how you're doing with it. Maybe, and this might be something that you might not want to discuss or what have you, but I guess, have you all developed or created alternative brainstorming sessions or meeting places where? Because the thing about the office that at least, and maybe I'm just projecting a little of my own frustration sitting in my living room for 6 months, you don't have that frictional bump into people at the water cooler phenomenon that can sometimes lead to opportunities getting explored. That sort of natural friction can sometimes create good things in an office environment. Is there a specific attempt to try to recreate that?
Have you found that you can create a similar sort of proxy via online chat rooms or Zoom meetings or what have you? Just curious about balancing that. Maybe I'm just putting way too much emphasis on that, and it's really not that important.
Well, first, I would say that at WisdomTree, we've all embraced it, we're all getting together more frequently. We've certainly tried to break out opportunities for sort of water cooler-like experiences, where we are hosting one-on-ones with people who don't usually get together. We're bringing certain groups together to highlight, like recently, new employees that have been onboarded since we went virtual for the rest of the company to see. First of all, physically getting together feels like it's delayed because of where COVID is, it's not coming back very quickly, we think. I don't think we're suffering in any way from the just sort of communicating and spurring things on. At least I'm not finding it in any way.
From the way we have been working on things like product development. Not only are we finding that we're creative, but we're also making it better in the globalizing of product development. One of the great things for us has been how inclusive for sort of the U.S., New York leadership team can interact with non-New York employees. The European team and the non-New York, U.S. team have never been more closely aligned. Again, we will create opportunities when we are allowed to get together to socialize and hopefully have creativity. I really don't think it's hurting us in any way. Let me just say that one, and if we want to change our mind, space always is available, and we can always change our mind. Again, I have great conviction that the physical meeting will be replaced by the virtual meeting on a going-forward basis.
Just adding a couple of things, too, on the internal side, again, as Jono said, we've recreated a lot of social situations and have again enhanced those communications. On the customer side, it's also been really fascinating, and I think, in a way, helped level the playing field a little bit. Previous to this, the size of your distribution team was an advantage, and so ours being relatively smaller was a greater disadvantage than it is today. As our salespeople and as our clients have adapted to this and started using more video, and then where Jono was saying, will the physical meeting really ever come back to what it was? Previously, it was expected that you visit people. Now it's not. Now you can cover so many more people so much better with a video call, video content, and we're excelling in those areas.
I think it's directly leading to an improvement in the tone of our flows.
If I could add, this is Jeremy. I'd say, I have a lot of client-facing. The research team also really aids in a lot of the sales process. I'd say my events and how many people I've been able to personally speak to over the course of the year has gone up, even though we're not traveling. That's, to Jarrett's point on the pandemic boosting things you might not have done otherwise, we're doing so many more, what we call office hour series, where we invite a broad group to come listen. I'm doing more client events for our clients' clients, where maybe we wouldn't have hosted a dinner for a broad group. You can only do so many of those. I could host three Zoom calls in a day and get to people's clients.
I think we are hitting more people in an efficient way, and I think it's been very productive in addition to the outward-facing turn of the internal collaboration has gone seamlessly as well.
I'd want to add maybe one final comment is, what we found is we're operating better. We found all these benefits. Again, the driver was really safety first. We really wanted to make sure that our employees were as safe as possible. We've been very conservative in making sure that people are not put in harm's way. Safety first, and then we found that there are all these benefits.
Those are all really fair points, and look, you guys have always been innovative, so I'm sure if there's a way to figure it out, you guys will do it.
One last thing on this. We have less legacy infrastructure, sort of like as we approached asset management, we had less legacy infrastructure, so we could go where the world was going. Lots of asset managers and financial service companies have really a heavy investment to their physical presence, much more than we do. That probably isn't so easy to give up. It's less easy. My guess is, though, over the next decade, you will see others follow in our path.
Great. Thanks for that.
Our next question comes from Robert Lee with KBW.
Hi, good morning. This is Jeff Drezner on for Rob Lee. Hope everybody's doing well. Just had a quick question, and I apologize if you had mentioned this earlier, but in terms of pricing on the gold ETFs, it seems that the prices on some of the gold ETFs are a bit higher than peers, and I was just wondering if there was some sort of issue, if you think of some sort of price change or how you think about that.
Jarrett, you want to start and then I'll jump in?
Sure. It's an important question, and we look at the quality and positioning of our products every day. When it comes to gold in Europe, we think we're in a good position. We have a suite of different gold products serving different clients at different price points. Really what we saw that happened to us this year that I think was the real cause for us not taking in as much share as we normally would have was the pandemic. All of these concerns surfaced during the pandemic around the ability to source gold and move it around across borders, and that had a negative impact on trading spreads, most specifically on our low-fee Swiss vaulted product. We spent a lot of time working on those sort of technical issues, we got spread back to more than competitive rates.
We also made enhancements to our other hedged physical gold products, and all that got put in place during the quarter. You've already seen the impact, and I think it's sort of the proof point is that by getting the spreads back to a good place on Swiss Gold and then making some other enhancements that made our other gold products, we think, the most competitive in the market, it had an immediate impact. We saw, we took in the majority of gold flows, in October, went to WisdomTree.
I would just add, we bought ETF Securities. They had the earliest and broadest gold platform in Europe. What I always say about beta, the economics lie with first-to-market beta, which is what we bought. We have a number of early gold products that have sort of vested in economics, in Europe, not dissimilar from what State Street has in gold in the U.S. Similar to State Street in the U.S., we've also launched lower-fee gold. I'm quite pleased with the way the historical funds have maintained their AUM, so that we are trying to balance strong cash flows with fast organic growth. Last year, our Swiss gold, which we launched under WisdomTree's ownership, was very quickly growing. Again, what an unusual interruption COVID provided, where there was a concern that you couldn't move gold bars from London to Zurich.
That has subsided, we feel very good with our low-fee offerings as well, our low-fee fund, it's a $3.5 billion , almost $4 billion fund also, incredibly competitive. We have the differentiated gold with the currency hedge gold, which is a hallmark of WisdomTree, as well as ETF Securities historically. Net-net, we have the most knowledgeable team in the marketplace, I think we're really very well-positioned to participate now that the markets have normalized for gold going forward.
Great. Thanks. If I could just have a quick follow-up. Just a kind of a broad overview of maybe in terms of non-transparent ETFs and how you guys think about that and how that's shaping up.
Sure. I've been pretty clear that this was not what I believe to be an investor-requested, quote, "innovation." I think that there's been about $650 million raised in non-transparent active. I think much of that comes from sponsor seed. I think it's still very early days. I don't particularly think it's a big category. I certainly don't think it's going to challenge ETFs for investor interest. I think what we're doing on digital assets and tokenization is much more relevant as a going-forward exposure. We believe in active, whether it's index-based or truly transparent active, but not particularly excited about what has been launched for the outlook for non-transparent active.
Great. Thanks for taking my question.
Thank you.
Our next question comes from Michael Cyprys with Morgan Stanley.
Hey, good morning. Thanks for taking the question. I was just hoping if we could dig in a little bit more on the distribution initiatives. Certainly, congratulations on the Merrill platform win there. I was just hoping maybe we could dig into maybe more on the IBDs and the RIAs, what that pipeline's looking like, and how you're thinking about that opportunity set here.
Jarrett, you want to start?
Sure. That's a pretty broad question. I think when it comes to channels, yeah, I still think there's quite a lot of opportunity in all of the channels. What I look at is still, at this point, which is amazing to me, is what's the mix between mutual funds and ETFs. In the wires, you still have a lot of mutual fund holdings. In the RIAs, though, it's skewed even a little more to mutual funds, and the IBDs, again, even more to mutual funds. That's all opportunity for ETFs, and that's one reason that we focus and spend a lot of time on all the channels, but specifically on the RIA and IBD channel. As we said in some of the prepared remarks, the IBD channel has been net positive year- to- date.
We actually saw in terms of channels turning positive, again, we've now in the U.S. had four consecutive months of net inflows. The IBDs led that, then followed by the RIAs and then the wires. We continue to focus on all. In terms of models, which I think is a big part of the question too, and it ties into all of this distribution, a key part of model success is a number of things. You've got to have good models, good IP, which we have, but you need good partners. Partnering with the, again, the IBDs, the RIAs, the Merrill win was a great example and is super helpful. So are things like other partners. 55ip is something that makes it easier and more efficient for advisors to transition to models in a tax-efficient way.
We're also adding things, and this is content that is available for all of our partners. We do a bunch of proprietary research. We've done some really good proprietary research on ESG, helping clients understand, both advisors understand what their own clients are thinking and kind of addressing any disconnect. When it comes to models, we did some proprietary research interviewing thousands of advisors and their end clients, and again, helping to dispel myths and misunderstandings, and help really bring advisors, their end clients, and models together. It's a real holistic approach. Hopefully, it was a long answer addressing a lot of things. We're applying all of these things to all of the channels, and again, I guess to your question, seeing a lot of success with the IBDs as well.
Great. Maybe just to follow up.
And let me just-
Oh, go ahead.
Before you do that, let me just add one thing about Merrill. Our interactions, which included multiple team members, including Professor Siegel, was done flawlessly. I think many of you, I think you, Michael, understand how much frustration I've had with what we call Modern Alpha penetrating the wires. Obviously, WisdomTree models are open architecture, but there's a significant amount of WisdomTree proprietary, what people call smart beta, what we call Modern Alpha exposures in our models. Really it's mainstreaming WisdomTree's approach to ETFs in the wires. Because now that we are a preferred partner in a very important initiative for Merrill, we expect this cascading effect within Merrill's beyond models because of all of the greater activity that we have on their platform. I was sorry to interrupt you. You had a second question.
Yes. Thanks for the added color. I just wanted to dig in a little bit more on the ESG enhancements that you were referencing to the European product set. I was hoping you could elaborate on that, maybe just talk a little bit the opportunity set there, and what's the appetite, if any, for launching a full suite of U.S.-based ESG ETFs here in the U.S.?
Jeremy, our Director of Research, do you mind answering this to start?
Yeah. I think from the ESG investor standpoint, you've seen a lot more leadership out of Europe in looking for this, and really even a requirement to be really competitive. Really across our equity family there, we've now embraced ESG screening as part of basically the next set of rebalances. Some of the funds have just rebalanced within the last few weeks. They are now incorporating ESG screens in addition to our traditional Modern Alpha index methodology. That's going to continue to make sure, as we go throughout the rest of the year, the whole family will be that way. Really, in the U.S., we also did transition three funds to be ESG forward, ESG fully integrated. They actually transitioned basically the day everything shut down in the U.S. This is one that hasn't been a number one sort of focus at the moment.
We do have three from U.S. international emerging markets that are run actively. It incorporates our newest thinking on multi-factor strategies. That also incorporates this ESG factor in selection and weighting. We are making more of an emphasis on this, both in Europe and in the U.S..
Jarrett, do you have anything you want to add, or was Jeremy complete?
Just a couple of things, too. It's sort of like a lot of the initiatives. Models is another one where you can't just put together a few models and sort of hope for the best. You've got to come at it with your partners, with content, with education, and research, and so on. It's the same thing for ESG. I don't think you can just launch product. You've actually sort of got to mean it. So, a few things that we've been working on this for well over a year. Back in early 2019, we became a PRI signatory. Earlier this year, we released our first corporate social responsibility report. We've done a lot of things internally. We've got what we call WIN. It's Women's Initiative Network at WisdomTree. We've got ESG-friendly proxy voting that Mellon helps us with, that's across all the equity funds.
We've got a number of community service activities. We've got board policies focused on diversity, equity, and inclusion. We're currently internally doing a more broad diversity, equity, and inclusion review for the whole firm. Basically, all of these are important. I think we've always been a good corporate citizen, but we're always striving to be better, and that's really the backdrop. Then against that, you have what Jeremy mentioned. We do have a suite of three ESG products in the U.S.. I'd like to see us even have more sort of that proprietary research I mentioned, more content that's helpful to advisors in embracing this, and then the things that we're doing to enhance our screens in Europe. It's a holistic approach that we've been working on for quite some time.
Just another one. Oh, sorry, go ahead.
I was going to say, Jeremy, you might want to just, our original sort of ESG, the one that focused on the G, on the governance, our ex-State-Owned. Maybe you want to just touch on that as part of the broader suite as well.
Sure. No, this has been one of the award winners in the ESG category in the U.S. We have three ex-State-Owned strategies. One, XSOE is our broad emerging market, China ex-State-Owned, CXSE, more recently in India. That has been a flow leader for us this year. Ex-State-Owned in the broad sense, when the broad emerging market categories has been tough and seeing a lot of outflows from the biggest funds. It's raised over around $1 billion, now our second largest fund in the U.S. This is a fund that has really strong performance, that's why when people are going towards ESG, there's this question, are you forced to sacrifice performance? We don't think you are. This one exemplifies that, having a live six-year track record.
It does get there in the E also because it tends to be underweight energy in the broad emerging market sense. We're excited about that family as part of this ESG effort.
Do these ESG funds have ESG in the fund name, or is that something you consider adding to enhance the appeal and to ensure folks are aware that these are ESG funds?
The three I referenced earlier do have ESG there. The ex-State-Owned, we are emphasizing the governance element being the ex-State-Owned. Then in additional support, we talk about it there as well.
Okay. Thank you.
Our next question comes from Ryan Bailey with Goldman Sachs.
Good morning, thank you for taking our questions. I was wondering if I could start, or if you could start with a little bit more detail around how MAC will work. Ultimately, how we think about economics, either fees on ETFs or other revenues, and if there would be any sort of incremental expenses.
Jarrett, I think could you start with the MAC?
Sure. The MAC is something, again, we're going to launch in the first quarter. That stands for, just in case everyone didn't get it, the Models Adoption Center. That really sums up what it's about. Right now, and our research shows this, there's still a little bit of a disconnect. A lot of advisors believe that they need to show their clients their value by being portfolio managers. Actually, our research shows that clients don't necessarily agree with that. If positioned that you're getting access to the best in portfolio management and asset allocation, and the best in models, clients actually think that's a better choice for their advisors to be participating in. That kind of disconnect is really important to solve for in getting advisors and clients to adopt models.
The MAC has a lot of the content there, but it also brings together all the other elements. As I was saying before, being successful in models is about that kind of research and education. It's also about the models themselves. It's also about things like workflows. Not so much for the wires that have those kind of workflows, but again, for some of the RIAs and IBDs where those workflows are really important, access to the custodians, access to rebalancing, and access to doing that all in a tax-efficient way. Really, the MAC, we don't see anything like it out there. We believe ours will be the first and therefore the best. It brings together everything that an advisor needs to be successful with models.
Got it. I guess maybe kind of following on from that, the Merrill win was definitely very encouraging. I suppose when you think about the competitive dynamics in the model portfolio space, are competitors competing with you mostly on price, or are they also competitive on quality, track record, and all the services? I guess, we sort of know where you stand out on the education and the quality and track records. Are they trying to compete as an offset on price, I guess is the question?
Let me start. This is all in packaging. You're competing on net expense ratios for the portfolio for sure. Open architecture is of big importance to most advisors. The ease of use is crucial to win. This is supposed to be a capacity enhancer for the intermediary, the financial intermediary. Ease of use, whether it's the MAC or 55ip, it's incredibly important. Obviously, performance of the funds themselves or the portfolios are an element that also goes into it. It's an all-in competitive package that we don't sacrifice on any of those elements.
Jono, if I could add-
Jarrett, do you want to add on that? Or Jeremy, go ahead
I was going to say, a lot of the time, some of the model providers are charging fees, and we are really offering many of our models really with no fee on the strategist side. We are open architecture and really just collecting fees from the underlying economics on the fund. To that point, I think we are in the Merrill income models that we're running. I think we are the most competitive on a fee standpoint with the lowest type fees on that platform, both not charging the fee on the model, but also just the selection that we put in there is the most competitive. I think we're excited about that.
Yeah. I guess I'd just add, one of the advantages I think we have is that this is a top priority for us. We're really focused on this from the top throughout the firm. We've got our sales team focused on it. We've done extensive training on the product with our team, so we're really well-versed in it. Then simple things like what Jeremy just mentioned, we don't charge generally any kind of strategist fee on top. Funny enough, that can be a differentiator. The thing Jono mentioned, open architecture, where WisdomTree funds make up a big part of the allocations within the fund, but there are competitors' funds in our models. To me, that sounds like that should be standard. With us, that is standard, but that's not necessarily standard for the industry. Just a real all-encompassing solution that we have here that we're all very excited about.
Thank you. That's really interesting, and thank you for taking our questions.
Our next question comes from Keith Housum with Northcoast Research.
Good morning, guys. Just a follow-up question on the Merrill Lynch deal. In terms of you guys obviously joining several other players in that space, can you provide a little bit color in terms of how long you think it will last? In terms of when do you hope to see some impact from the models you have out there then, of course, because you have a number of different competitors in the same place as Merrill Lynch, how do you differentiate your models in there versus everybody else's?
Jeremy, do you want to start on this?
Yeah. Just to add on, I think it relates to the last question as well. One of the data points we find, there was a study of 4,000 model portfolios, the average expense ratio was 64 basis points in those models. Our models are really half of that. I think just to keep emphasizing this open architecture nature, we are building across passive-active. We're using our Modern Alpha approach as many of the exposures. I think we're trying to compete on selection, weighting, how we're putting these asset allocation strategies together.
What I would add is Merrill themselves have a very strong proprietary home office model business, meaning Merrill models. They actually do not have a multi-asset income model. We're not actually competing with Merrill themselves, but with the other three asset managers who were also included in this third-party mandate. We're under the impression that this was, if not the most requested hold in the Merrill model opportunity asset, multi-asset income was, if it's not the most, it's one of the most requested. We're very bullish on it, and it's nice to only be competing with third-party model managers than Merrill Lynch themselves.
Another thing, too, we could probably go on and on about models, but we work with our partners to customize. There's some level of customization with the Merrill models. We also have some partners in the RIA and IBD space where they're leaning on what we've developed, which is real models IP, and utilizing our models IP, we've developed custom models. We're having great success with those as well.
I noticed it was announced in September, but is it already on their website and ready to run, or is this going to be put up there through the rest of the year?
They launched it September first. It's up and running. It's early days, but it's up and running.
Got you. Just a follow-up question. I know you guys have talked a little before about the preferences to save the cash to pay off the debt in a few years from now. With the share price where it's at now and perhaps the opportunity for rates to be low for a while here, is there any consideration to buy back more shares now and perhaps try to refinance the debt when it comes due?
We've already bought back about $30 million worth of stock. I'd say, right now, when we think about capital priorities, it's to support the dividend, invest in the business, and just to build that cash to eventually refinance the debt. The debt is not callable early. It's got a three-year term, so we do have to wait for that. That's why we did the buyback earlier this year.
All right. Thanks.
Our next question comes from Mike Carrier with Bank of America.
Hi, guys. This is actually Shaun Calnan on for Mike. Just a quick one from us. Earlier in the year, you mentioned that capital gains in mutual funds this year would create an opportunity for a shift from mutual fund assets into ETFs towards the end of the year. We just wanted to see if you still expect that here in the fourth quarter.
Jarrett or Jeremy, would you like to start with that?
Jeremy, why don't you start, and I'll add on.
Yeah. I mentioned we were doing these office hour series. That was actually the topic of one of our office hours just this week, and we do have a tool on our website to help advisors find capital gains that are expected to be paid across the industry. There was outflows across traditional funds, and you can see funds that potentially had capital gains exposure built in, and we're starting to see some of those come out. Yeah, we would expect this fee to be a season where there was turnover and outflows that could then put more pressure on capital gains. I think that is something we'll see. The question, will investors then react to that? We do think it highlights the benefit of ETFs, and it continues to be a great talking and education point for us.
Okay. Thank you.
I'm not showing any further questions at this time. I'd like to turn the call back to Jono Steinberg for closing remarks.
Thank you all for your interest and participation on today's call. We'll speak to you next quarter. Thank you, everybody. Have a good and safe day.
Ladies and gentlemen, this has been today's presentation. You may now disconnect and have a wonderful day.