A slumping stock market and a drop in assets under management led exchange-traded funds provider WisdomTree Investments Inc. to report third-quarter net losses of $5.6 million, or 6 cents per share, on Thursday. That represented a 3% drop from the same period a year ago.

Last quarter, the firm had a 17% net loss. (See story here.) WisdomTree is the only pure-play publicly traded ETF sponsor. As such, its earnings provide a rare glimpse into the financial underpinnings of the industry.

"We had minimal net losses but significant depreciation in assets for our funds in the third quarter compared to the second quarter," said WisdomTree Chief Financial Officer Amit Muni.

He added: "We held up very well in the third quarter considering net outflows of about $13 million from our funds."

Sequentially, the third quarter showed a stark contrast from past quarters in terms of money flows. In the second quarter of 2008, WisdomTree had inflow of $746 million; in the third quarter of 2007, inflow was at $401 million.

"About 68% of our ETF assets are in international-based ETFs," said Muni. "The U.S. dollar rallied in this third quarter, which caused a decline in the value of our non-U.S. securities. On top of that, we have all of this volatility starting in the middle of September with the global decline in stock markets."

That market depreciation in values along with outflows resulted in WisdomTree's total assets declining to $4.1 billion. That compared with $4.7 billion at the end of the second quarter, or 14% greater than through Q3.

"It wasn't the outflows that caused the majority of the reduction in assets under management, it was the significance of the market's downturn," said Muni.

Revenues were $6.2 million in Q3, which was up from $5.2 million a year ago. Sequentially, revenues were flat.

In Q3 2008, the company reported operating expenses at $10 million, down from $11 million the previous quarter. By contrast, the third quarter of 2007 wound up with operating expenses of $8.8 million.

The firm's operating losses stood at $3.9 million in the third quarter, down 20% sequentially. "Management has been determined to reduce our operating losses," said Muni. "We made good on those goals in the third quarter."

WisdomTree ended the quarter with about $35 million of cash on hand and liquid investments.

"It's very difficult for us to estimate breakeven numbers since there are a number of different factors involved," Muni added. "Our fee structures are higher for international ETFs, for example, than U.S. ETFs. So it's a combination of looking at the mix of assets in determining how much we have on hand to cover expenses."

WisdomTree, which announced its earnings after markets closed, has scheduled a conference call with investors and analysts before markets open Friday morning to discuss its plans to move toward profitability and other financial issues arising out of the latest quarter.

At the second-quarter earnings call in August, Muni estimated that WisdomTree would need $4.3 billion in additional assets to be at the breakeven level at the time.

Analysts are also expected to ask about ongoing speculation the company could be a takeover target given its unique position in the marketplace. WisdomTree offers ETFs that screen for stocks with high dividend streams and other fundamental factors.

The company's stock trades as a NASDAQ Pink Sheet (WSDT.PK). WisdomTree officials have said they're interested in pursuing a regular listing, but probably not until it meets the minimum $4-per-share requirement.