A recurring question for clients relates to the monthly performance of our Canadian money-market fund, otherwise known as PSA (Purpose High-Interest Savings ETF). How can a low-risk cash savings ETF drop in value at the end of each month?

The answer to this question relates to how PSA pays interest to Wealthsimple clients each month. PSA can be held in any client account that is not a Wealthsimple Cash account. At the end of the month, the PSA fund declares a dividend. This is a fancy way of saying that PSA intends to pay its shareholders (you) the monthly interest that owed for owning a portion of the fund. 

We'll get slightly more technical here but the moment the dividend is declared, PSA begins to trade in a state that reflects the dividend declaration.

Understanding this simply, if PSA is trading at $50.08 when it declares its dividend of $0.08, the price of the ETF will immediately drop to $50 to reflect its ex-dividend state ($50.08 - $0.08). PSA's price will then rise to ~$50.08 over the new month until the declaration of the following month's dividend occurs. Investors will receive a cash payment a week or so after PSA enters its ex-dividend state. This is known as the dividend payment date.

The reason why the account balance appears negative has to do with the price at which clients buy PSA. The price in which many of our clients are filled is higher than the $50 that PSA reverts to after paying the dividend due to the fact that many clients buy the ETF in the middle or end of the month.

We’ve included a chart here to visualize this better. Hovering over the chart, you are able to see that a dividend is declared when there is a sharp drop in the chart’s monthly value. This drop accounts for the fact that interest is about to be paid out. It does not reflect a permanent drop in one’s account value.

In conclusion, the slight dip in client accounts is not permanent! It will be offset with an interest payment once the dividend arrives in any PSA owner’s account. The result is the slow and steady appreciation of client account value over time.