And what we expect to see next ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ Letter from Ben Ben Reeves — Chief Investment Officer October 29, 2024 A look back at Q3, and what’s ahead Q3 portfolio performance (July 1 - Sept. 30) Q3 YTD SINCE INCEPTION Classic Balanced 6.7% 13.2% 5.3% (Jan 2016) Classic Growth 7.1% 16.0% 7.7% (Jan 2016) SRI Balanced 8.5% 10.7% 5.1% (Sept 2016) SRI Growth 9.8% 13.3% 7.2% (Sept 2016) Halal Balanced 8.0% 14.7% 7.9% (May 2021) Halal Growth 9.3% 16.9% 9.0% (May 2021) Note: Inception dates are as of the beginning of the performance composite for each fund As you can see in the chart above, all of our portfolios grew significantly in the third quarter thanks to strong asset-market returns. These high returns are normal, but are at the top end of what investors can expect in a quarter. The main cause for them, in my view, was the U.S. Federal Reserve surprising investors with a 0.5% interest rate cut. This led to sharp increases in the value of rate-sensitive stocks like utilities, real estate, industrials, and financial services, along with similar jumps in the value of long-term government bonds (+9%) and gold (+11%). The S&P 500, which had rallied on strong performance of large technology stocks previously, posted more modest but still strong returns of +4%. Managed Investing portfolio performance Our strategy is to offer diversified portfolios of assets that perform well at different times in order to maximize our clients’ chances of achieving their investing goals. We do this by adding assets like defensive stocks that offset the typical equity boom-bust cycle over the particular time periods that matter for our investors. We believe that having better returns when markets are weak matters more than having good returns when markets are strong, because extra income matters more to investors when they have less wealth. (We covered this in more detail in last month’s letter). Being diversified means that you have assets that perform well at different times. In this quarter, our defensive stocks performed best, while in recent years it's been our U.S. stocks. Having both and rebalancing between them offers the potential for a more resilient portfolio and better chances of a secure retirement. Here’s a look at the broader performance of our Classic Growth portfolio. SRI and Halal portfolios outperformed because they hold fewer of the large technology stocks than the general indices. Alternative investments These funds allow our clients to invest alongside institutional investors in strategies that offer higher expected returns or attractive returns and diversification. Both funds are managed by experienced, institutional-quality investors with track records of steady performance across economic cycles and aligned incentives. Wealthsimple Private Credit invests in senior-secured floating-rate loans (that means we’re first in line to get paid back, and payments go up or down with interest rates) to medium-size companies. It returned 2.3% in the third quarter and is distributing income at a 9% annualized rate.1 Annualized total returns since inception in June 2023 are 11.1%. Total annualized returns since inception in June 2023 are 11.1%. Wealthsimple Private Equity offers a globally diversified portfolio of private companies owned and operated by private equity managers who work aggressively to improve their value. It returned 0.3% in the third quarter, bringing total returns since inception in January 2024 to 28%, which is at the high end of our expectations. We believe both options provide an excellent way to build wealth and diversify portfolios, and we’re proud to be able to bring them to our clients. As I mentioned last month, we’re currently working to lower the requirement of $100,000 in total investable assets to $50,000. There are still other eligibility criteria to meet, but this will allow access to even more investors. If you’re interested, you can apply with a few taps in the app. (Click here for private equity and here for private credit.) How alternatives can help a portfolio Instead of just telling you that alternatives can be a great way to diversify portfolios and increase your overall returns, I wanted to show you that in theory in action. The chart below compares the historical returns of two different portfolios: 1. our Classic Growth portfolio, and 2. a hypothetical portfolio based on actual performance that includes allocations to Wealthsimple Private Equity and Private Credit. (The data begins this year, with the inception of our Private Equity fund.) Our outlook With inflation having declined significantly and unemployment rates ticking up modestly, global central banks are now more focused on stimulating growth than reducing inflation. Because of this, markets are forecasting an easing of monetary policy combined with strong earnings growth (about 9% globally, which is above long-run averages), short-term interest rates in the developed world of 2.5% - 3.5%, and moderating inflation. Asset pricing reflects a very optimistic view of the future. In order for the markets as a whole to continue delivering these high returns, the economic outlook needs to stay extremely strong. Other factors to watch in the next quarter include: The U.S. presidential election. There can be a lot of volatility around the election, and some short-term moves in the market. There's usually a boost after the election as policy uncertainty is resolved. As we go through it, it’s worth remembering that which party is in power generally has very little to do with market outcomes. Stimulus in China. In the last week of the 3rd quarter, the Shanghai composite rallied 25% on announcements of monetary and fiscal stimulus. Historically, large-scale stimulus in China has resulted in returns of more than 100%, but the size of this stimulus is not yet clear. What’s been officially announced to this point is not nearly big enough to adequately improve demand, and markets have declined recently as a result. Inflation. Markets are betting that inflation is under control, but cutting rates is stimulative, and the economy is strong, so it’s not guaranteed. Higher-than-expected inflation combined with lots of expected interest rate cuts is a recipe for a challenging period of returns. At times like these, it’s worth remembering that stock market investors generally receive high returns for taking risk. And risk generally means losses of a magnitude and length that are painful. In my view, the best approach continues to be to manage your emotions, have exposure to assets that perform well at different times, and invest through the inevitable market cycles. ONE GOOD READ In a new article, Greg Jensen at Bridgewater suggests that the AI Bubble may be ahead of us, and that an investment boom much greater than what we have seen so far may be coming. It’s a great mixture of historical analysis of how markets work and a practitioner’s view of the promise of AI. All the best, Ben Reeves Chief Investment Officer Curious about what’s going on in the markets? On Thursday, October 31, at 12 p.m. ET, portfolio manager Dan Tersigni and I will host a webinar covering recent market movement, the U.S. election, and an outlook for the stock market. Register now What did you think? Choosing one of the following ratings will shape the content you see from us in the future. You'll also get the chance to share more detailed feedback after clicking. Interested Not Interested Wealthsimple, 80 Spadina Ave Suite 400 Toronto, ON, M5V 2J4 Refer a Friend Privacy Policy Unsubscribe Replies to this email address are not monitored. Have questions? Visit our Help Centre or submit a request to our Client Support team. All information and commentary provided is for illustration purposes only and is not investment advice or recommendations. All investments involve risk. To get more info on our products, investment decisions, fee schedules, user testimonials, promos & more visit wsim.co/disclaimers. Indicated performance data are historical for the period indicated. Rates of return do not take into account any fees or tax payable. Past performance may not be repeated. Returns shown for Private Credit and Private Equity funds include all applicable fund management fees and performance fees, but excludes Wealthsimple’s standard management fees for its advisory services. Past performance does not guarantee future results. 1 - Annualized distribution yield based on $0.077/share, divided by NAV of $10.216 (as of August 28, 2024), and multiplied by 12. To calculate this rate, we take a partial year distribution and convert it to a full-year amount as if it were paid in each period. We then divide this annualized amount by the fund’s value at the start of the period. Distributions are not guaranteed. Past performance does not guarantee future results. Chart disclosure (“What alternatives can do for a portfolio”): The total returns shown for Classic Growth portfolio are calculated using the asset-weighted average of time-weighted returns of clients invested within the portfolio on a given month. The blended returns for Classic Growth portfolio that includes the performance of alternative investments, are based on actual returns of the underlying portfolios. However, Wealthsimple currently does not offer a portfolio with blended investment types. The presented information is for illustrative and information purposes only. The hypothetical portfolio includes a performance composite of 20% Wealthsimple Private Equity fund, 20% Wealthsimple Private Credit, and 60% risk level 8 Classical Growth ETF Portfolio. Actual allocation of alternative investments will vary depending on actual recommended risk level and other circumstances. All returns shown include Wealthsimple’s standard management fees for its advisory services, ETF fees, alternative fund management fees (as applicable), and FX fees, but excludes taxes payable by clients that would have reduced returns. Dividends, if any, were reinvested. Past performance is not indicative of future results and future performance may materially differ from expectations. The content of this message is confidential. If you have received it by mistake, please inform us by email reply and then delete the message. 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