Westwood's Q1 2025 Earnings Call: Contradictions in ETF Growth, Acquisition Strategy, and Small Cap Mandates

MDST ETF growth and platform access strategy, acquisition strategy and product offerings, expansion into ETF market strategy, and small cap mandate strategy are the key contradictions discussed in Westwood's latest 2025Q1 earnings call.



ETF Business Momentum:
- Westwood's ETF business gained momentum, with the launch of the Westwood Liberte Global Equity ETF (BFRE) at the end of the quarter.
- The Westwood Salient Enhanced Midstream Income ETF (MDST) reached its one-year anniversary, achieving an annualized distribution rate of 10.5% as of March 28, 2025.
- Growth was driven by the distinctive approach of global equity investing that limits exposure to authoritarian regimes while maintaining broad market exposure, appealing to risk management-focused investors.

Institutional Channel Success:
- The institutional channel delivered exceptional results in Q1, with gross sales of $960.5 million and net inflows of $758.8 million.
- The company won a significant sub-advisory mandate with nearly $1 billion in small cap value, which funded on the second to last day of the quarter.
- Success was attributed to the firm's focus on high-quality businesses and strong performance in U.S. value and small cap strategies.

Wealth Management Business Challenges:
- Inflows in the Wealth Management business were $56 million in Q1, with net flows of minus $157 million.
- The company reduced costs and improved efficiency with a new CRM system, leading to increased advisor and client service team efficiency.
- The challenges were due to market volatility and concerns about potential policy changes, despite efforts to enhance workflow capabilities and reduce costs.

Energy Strategies and Market Volatility:
- Westwood's energy strategies, including Enhanced Midstream Income (MDST) and Enhanced Energy Income (WEEI), continued to perform well among peers.
- The U.S. stock market experienced a decline of 8.5% for the S&P 500 and 12% for the small cap Russell 2000 in the latter part of the quarter.
- The company's focus on energy products, amid volatility and market losses, expanded its offerings to intermediary clients, particularly in the family office and RIA space.

Regulatory and Corporate Developments:
- The Texas Stock Exchange (TXSE), in which Westwood is an investor, forwarded its Form One application for registration as a National Securities Exchange.
- Westwood welcomed two new board members, Hale Hoak and Katherine Murray, bringing extensive experience in finance and investment management.
- These developments reflect the firm's commitment to strategic growth and innovation, such as the expansion of its ETF platform and strategic investments in emerging exchanges.