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Children in a classroom responding to the teacher's question.

Nancy Louie/iStockphoto

With the kids now back at school, CIBC analysts Ian de Verteuil and Shaz Merwat took a look at what subjects investors need to brush up on as they look ahead over the next few months.

Their 'checklist' of things investors need to think about includes the dismal performance of the S&P/TSX composite index so far this year.

"So far, it has been a difficult year for dedicated Canadian investors, with the S&P/TSX lagging most global markets and particularly U.S. benchmarks. The 'problem child' has been the heavy-weight energy sector which is down 15 per cent on the year, with the E&Ps [exploration and production companies] down a painful 24 per cent," they wrote in a note.

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One subject investors should study is Canada's banks, they noted. "Few investors need additional education on the strength of the Canadian bank business models. After producing virtually no alpha in the first eight months of the year, this is a good time to add to bank stocks. Canadian short rates are likely to head higher and the Canadian economy is doing well - both benefit the banks. Furthermore, banks are a great defensive trade into the year end. As such, we are adding another bank to our Recommended List -- Scotiabank. Removing our Air Canada holding is another sign of our more defensive tilt," they wrote.

Knowing what you don't know is also key, they added, and two macro issues fit the "don't know" category – interest rates and energy prices. "There is sound economic support for higher interest rates (possibly much higher) but the geopolitical and trade risks seem to continually stymie additional upside. On the energy front, moves by OPEC have been mitigated by U.S. supply, which as [Hurricane] Harvey shows, is not yet battle tested."

Gold equities might be one of those 'required courses' for investors, they wrote. "Their long-term underperformance should rightly weigh on investors' minds but gold stocks do offer excellent protection against geopolitical risks. Also let's not forget that these stocks are very inversely correlated with interest rates so they will provide some ballast if interest rates do fall. Like a 'required' course at university, an investor probably needs to devote more time and money (say 5 per cent to 6 per cent of the portfolio) to gold stocks."

-- Gillian Livingston, Deputy Editor, Globe Investor

This is the twice a week Globe Investor newsletter. If someone has forwarded this e-mail newsletter to you, you can sign up for Globe Investor and all Globe newsletters here.

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Stocks to ponder

Lithium Americas Corp.
This stock appears on the positive breakouts list. The stock has long-term upside potential driven by attractive industry fundamentals. The share price has rallied over 60 per cent year-to-date and based on the consensus 12-month target price, there is the potential for a further 31-per-cent gain. However, in the near-term, the share price may be due for a pause or pullback given the stock's sharp 19 per cent price increase realized last week. Its key focus is on advancing two of its lithium projects, one in Argentina and the other in Nevada. Jennifer Dowty explains.

The Rundown

Why DIY investors are being blocked from buying some of Canada's lowest-cost funds

As Canadians increasingly turn to lower-cost options for their investment dollars, they are discovering a hurdle they didn't know exists: Some of the most popular low-cost mutual fund families aren't available on do-it-yourself online platforms. Funds offered by several companies that include Mawer Investment Management, Leith Wheeler Investment Counsel and Steadyhand Investment Funds Inc. are no longer available on some of the most widely used platforms, including those run by major banks. Clare O'Hara explains the changes.

'Tis the season for weaker stock markets

As summer recedes and it's back to the grindstone, an investor's thoughts turn once again to the issue of seasonality. September and October are seasonally weak months for stocks (and seasonally strong months for government bonds). But not always. In general, what determines the weakness of stocks in these months depends on how strong the first few months of the year are. If the first quarter is strong, September and October tend to be weak months and vice versa. George Athanassakos explains how the rest of this year may turn out.

Is diversification as we know it broken?

Rising interest rates have led to disappointing returns in both bonds and stocks. Since May 1, Canadian, U.S. and international equities have all declined in value. And those bonds that are supposed to be our safety net? They've been hit hard, too. Most investors understand the trade-off that comes with diversification. But as we've seen in recent months, it doesn't always work that way. Sometimes they all go down together. Before you throw up your hands and declare that diversification is broken, however, let's try to figure out what's going on here. Dan Bortolotti does just that.


Tuesday's Insider Report: Companies insiders are buying and selling

Sun starting to shine on Nevsun Resources

The Globe's stars and dogs for last week

Ask Globe Investor

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Is there a Canadian REIT exchange-traded fund that you can recommend?

The advantage of owning an exchange-traded fund, as opposed to investing in individual REITs, is that you'll get diversified exposure to a large segment of the REIT industry. The downside is that you'll pay a management fee and other expenses and the weighting of the ETF's constituents might be less than optimal.

Consider the iShares S&P/TSX Capped REIT Index ETF (XRE). It charges a management-expense ratio of 0.61 per cent and holds 15 of Canada's largest REITs. However, because XRE's weightings are determined by market capitalization, the top-three holdings – RioCan REIT, H&R REIT and Canadian Apartment Properties REIT – account for more than 40 per cent of the fund, whereas the bottom three – Boardwalk REIT, Crombie REIT and Northview Apartment REIT – make up just 8 per cent.

The Vanguard FTSE Canadian Capped REIT Index ETF (VRE) has a similar problem. The MER is an attractive 0.38 per cent, but the top three of VRE's 18 holdings account for about 35 per cent of the fund, while the bottom three make up less than 5 per cent in total.

As an alternative, you might consider the BMO Equal Weight REITs Index ETF (ZRE). The MER is identical to XRE's at 0.61 per cent, but – as ZRE's name implies – weightings for each of the 17 constituents are roughly equal at around 6 per cent (give or take a percentage point). The benefit of equal weighting is that it improves diversification, which helps to control your risk.

Another REIT worth considering is the First Asset Canadian REIT ETF (RIT). Because it's an actively-managed fund, the MER is higher at 0.93 per cent. But diversification is very good: RIT holds 38 REITs and real estate operating companies, and the highest-weighted stock - First Capital Realty Inc. - accounted for just 4.3 per cent of the fund at June 30. Also of note is the relatively high weighting of residential REITs, which stood at 22 per cent as of July 31.

--John Heinzl

Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.

What's up in the days ahead

This is the cruelest month for stocks. Since 1950, the S&P 500, the world's most cited equity benchmark, has lost ground on average during September. Ian McGugan will tell us why this year looks ripe to repeat the pattern. Meanwhile, David Berman will take a look at what's it going to take for investors to embrace Canadian bank stocks after another upbeat earnings season.

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Click here to see the Globe Investor earnings and economic news calendar.

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Compiled by Gillian Livingston

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