And when it could be useful to you ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ Letter from Ben Ben Reeves — Chief Investment Officer February 13, 2025 This month: our new bond portfolio, wind, and the Loonie’s wild ride Starting next month, we’ll be making some changes to this newsletter. We have a talented group of experts here at Wealthsimple and we want to get them — and their wisdom — in front of you. Because of this, it’s the perfect time to ask all of you to let us know how we’re doing. If there’s anything you’d like to see more of (or less of — we can take it!), we’re listening now more than ever. Please tap the feedback button at the bottom of this letter to let us know. WINNERS, LOSERS, AND DRAWERS Investors in gold The astonishing returns continue, due to geopolitical risks and central bank purchases. CAD The Loonie went on a wild ride, thanks to the proposed tariffs, only to end up right about where it started the year. Wind energy investing The sector had been on a tear, but U.S. policy change may reduce investment. How our new bond portfolio can earn you more Last month, we formally introduced a bond portfolio that I’m very excited about — and not just because I’m relieved to finally open up the fund to clients after all of the work that went into it. I think the new portfolio can be very useful to a lot of people, so I want to take a moment to talk about why we’re offering it and how clients might use it. This fund was inspired by a problem we’ve seen a lot of clients face: they want an option that limits investment risk while still earning a return above what they’d get from traditional and high-interest savings accounts. The risk target for our new fund is less than half of the risk of our lowest-risk stock/bond portfolio, and the fund has a current yield of 4.2%, or about 1% over cash.1 It’s important to note that, while the risk is limited, it’s not gone. Unlike a savings account, returns from the fund are not guaranteed, and it will lose value sometimes. But taking on risk is why you are able to earn more than cash returns. How the bond portfolio works Bond investors receive returns from two sources of risk: Duration risk is the opportunity cost of lending your money for a fixed period of time. Credit risk is the risk of not getting paid back the full amount you invested. In most cases, in order to outperform cash returns, investors want to be exposed to both types, since they diversify each other. That’s because duration is tied to the value of government bonds. When economic growth declines, duration goes up. Credit, on the other hand, performs well when the economy is doing well because companies’ ability to repay increases. The chart below shows the often-complementary returns of a credit index and a treasury index since the financial crisis. In constructing the bond portfolio, we target explicit levels of both types of risk. We use a model to set risk parameters, then evaluate a wide range of potential investments — including government bonds, short-term investment-grade corporate credit, floating-rate corporate credit, and collateralized loan obligations — against them. Our model includes stress scenarios, like the 2008 financial crisis and the post-COVID spike in interest rates. We’ve also evaluated the performance of similar portfolios as far back as the surprise interest rate increases of the 1980s. We combine those risk parameters with simple indicators — like the slope of the yield curve or amount of credit spread at different risk levels, and construct a portfolio — which we then implement with ETFs. As market conditions change, we trade in and out of exposures. What kind of opportunities we look for Managing risk prudently means you look to avoid scenarios where the return-to-risk scenario is skewed out of your favor. For example, as of last year, interest rates were high, but the market was expecting central banks to cut interest rates six times over the course of 2024. We didn’t need a crystal ball to see that there were safer ways to earn a return than by taking on duration risk, which would give you a low return if all the rate cuts happened, and an even lower one if they didn’t. There are also pockets of the fixed-income market, often in the structured-credit market, that, despite being riskier, offer attractive risk-adjusted returns. We only invest some of the portfolio in these products because we want to keep the overall portfolio at lower risk. While the new bond portfolio is not for everyone, we think it will be attractive to the right investors, especially those looking for somewhere low risk to park cash they’re holding on a shorter time horizon (i.e., short-term income, or saving for a medium-term purchase). As with any new product, we’re curious to know what you think. Please tap the feedback form at the end of this newsletter to let us know. All the best, Ben Reeves Ben Reeves Chief Investment Officer Interested in the bond portfolio? Investing is simple, and the current yield on your money is 4.2%.2 Get started Want to learn more about bonds? Here’s a look at how they work and why you might want them in the first place. Read our bond guide 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. 1Target comparison is based on current yield, which is based on annualizing the most recent dividend payments and the latest available ETF prices at the time of the calculation, and the central bank rate as of January 31, 2025. The yield presented represents a weighted average of the individual ETF yields, with each ETF's yield weighted according to its proportion within the portfolio, taking into account the management expense ratio (MER) fees of the ETFs but excluding Wealthsimple's standard management fees for its advisory services. Yield is subject to change due to fluctuations in dividend payments, ETF prices, and portfolio composition. Comparison is for informational purposes and does not constitute investment advice. All investments involve risk. 2The current yield for the Bond ETF portfolio is calculated based on annualizing the most recent dividend payments and the latest available ETF prices at the time of the calculation. The yield presented represents a weighted average of the individual ETF yields, with each ETF's yield weighted according to its proportion within the portfolio, taking into account the management expense ratio (MER) fees of the ETFs but excluding Wealthsimple's standard management fees for its advisory services. This yield information is updated on a monthly basis, and the current data is as of January 31, 2025. Please note that the yield is subject to change due to fluctuations in dividend payments, ETF prices, and portfolio composition. Past performance is not indicative of future results. 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. Managed accounts are offered by Wealthsimple Inc., a registered portfolio manager in each province and territory of Canada. Self-directed investing is offered by Wealthsimple Investments Inc. (WSII). WSII is a member of the Canadian Investment Regulatory Organization (CIRO). Customer accounts held at WSII are protected by Canadian Investor Protection Fund (CIPF) within specified limits in the event WSII becomes insolvent. A brochure describing the nature and limits of coverage is available upon request or at CIPF. © 2025 Wealthsimple Technologies Inc.