WisdomTree strikes deal with Dreyfus

The minor-league status of WisdomTree Investments Inc. in the world of exchange traded funds could change following a deal struck last month with The Dreyfus Corp. In fact, the deal could be one of many between small ETF providers and larger asset managers that are looking to get into the ETF business, industry experts said. Under the arrangement announced by WisdomTree on Jan. 25, Dreyfus, a New-York-based subsidiary of BNY Mellon Asset Management, will co-brand and help market a line of WisdomTree ETFs in the international-cash and fixed-income areas. "This really allows us to leverage the resources of one of the oldest financial institutions in America," said Jonathan Steinberg, chief executive of WisdomTree of New York. Last year, five new ETF providers emerged, bringing the industry total to 19, according to State Street Global Advisors of Boston, which dominates the market with Barclays Global Investors of San Francisco. Together, the two held about 80% of the industry's assets at the end of last year, according to SSgA. WisdomTree manages 39 ETFs with assets that total $4.52 billion, or just 0.7% of the industry's assets. The deal with Dreyfus is likely to lure more assets to WisdomTree, said Matt Hougan, editor of New York-based IndexUniverse.com. As part of BNY Mellon, Dreyfus has sales and marketing resources bigger than anything WisdomTree could draw on by itself, he said. Dreyfus also has a reputation as a solid cash manager, which WisdomTree can leverage to its advantage when its new ETFs are launched.

IN REGISTRATION

WisdomTree already has 15 in-ternational cash and fixed-income products in registration, including an exchange-traded U.S. cash fund, a South African rand fund, an Indian rupee fund and a Chinese yuan fund. WisdomTree's deal with Dreyfus makes so much sense for the smaller company that it is only natural that other ETF managers will look to make similar arrangements, Mr. Hougan said. "I think every ETF company would love to partner with someone with a giant sales force," he said. And for the most part, asset managers would be interested as well. For Dreyfus, the deal with WisdomTree makes sense because it gives the asset manager a way to enter the ETF market without taking too much risk, Mr. Hougan said. The arrangement is much less risky for Dreyfus than an outright purchase of an ETF provider, something the fund giant might do if its relationship with WisdomTree proves fruitful, said Charles "Chip" Roame, managing principal of Tiburon (Calif.) Strategic Advisors LLC. "It's a savvy move from Dreyfus," he said. Actively managed ETFs — which appear increasingly likely to be-come a reality given the number of filings pending at the Securities and Exchange Commission — could threaten mutual funds, Mr. Roame said.

TAKING STEPS

Mutual fund companies can't take that chance, and they have taken steps to join the ETF world, he said. The TDAX Funds, a series of lifecycle ETFs that debuted last year, were borne out of a joint venture between TD Ameritrade Holding Corp. of Omaha, Neb., and XShares Advisors LLC of New York. In 2006, Amvescap PLC of London bought ETF provider PowerShares Capital Management LLC of Wheaton, Ill., which allied with Frankfurt, Germany-based Deutsche Bank AG to launch a line of commodities-based exchange traded products. Considering the risk of staying out of the ETF market, Mr. Roame said he is sure that other partnerships soon will be forged. David Hoffman can be reached at dhoffman@crain.com.