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David Schawel, Chief Investment Officer of U.S.-based Family Management Corp., wrote a recent column urging investors not to compare portfolio returns to equity benchmarks.

“The tendency to compare their portfolio performance to the S&P 500 is more often than not both inappropriate and counterproductive for individual investors… Unlike a large-cap stock mutual fund where the comparison may be valid, individual investors have specific goals, objectives, and risk tolerance considerations."

Mr. Schawel went on to note that investors chasing index-beating returns suffer disproportionately when equity markets inevitably turn, when compared with diversified portfolios. He writes, “An investor in the S&P 500 between April 1999 and August 2010 would have lost nearly 4 per cent. If this same investor had 'beaten’ the S&P 500 by losing 'only’ 2 per cent, would they feel better?”

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Investors close to retirement, or already retired, often can’t afford to accept the risks involved with trying to beat the S&P/TSX Composite Index returns with their portfolio. The end of the post-financial crisis equity rally, when it happens, will inevitably be followed by bear market conditions that could threaten living standards for an extended period.

Younger investors can afford to carry risk, enduring bear markets knowing that they’ll be positioned for the eventual recovery. For older generations, risk-averse portfolio strategies emphasizing fixed income and diversification are essential.

-- Scott Barlow, Globe and Mail market strategist

This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.

Stocks to ponder

StorageVault Canada Inc. (SVI-X). The stock is nearing oversold territory and may soon find support at it approaches a key technical support level. This small-cap stock is covered by seven analysts, of which six analysts have buy recommendation. With a reasonable valuation, the anticipated one-year price return is over 27 per cent. Headquartered in Toronto, StorageVault operates storage centres across the country, providing self-storage facilities, portable storage containers, moving containers, and storage for boats, RV’s, trailers and cars. Jennifer Dowty reports (for subscribers).

The Rundown

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Investors could be in store for a rude awakening this earnings season

There is a strange cognitive dissonance around U.S. earnings season where equity strategists are making dire proclamations about rising risks, but investors seem broadly insensitive to the warnings. The potential for significant market volatility is real. Over the past six months, both the S&P 500 and the S&P/TSX Composite Index initially sold off sharply on fears central banks were raising interest rates, then recovered strongly as central banks backed off. Focused on credit conditions, investors largely ignored the deterioration in U.S. corporate earnings expectations. Investors could pay a high price for getting distracted. Scott Barlow reports (for subscribers).

RBC, TD threatened with lawsuit over ‘closet indexers'

Two of Canada’s largest investment managers are being threatened with a class-action lawsuit that claims investors were overcharged for actively managed mutual funds that did little more than mimic their benchmark indexes. Two law firms, Investigation Counsel PC and Bates Barristers PC, filed proposed class-action lawsuits Tuesday in the Supreme Court of British Columbia against TD Asset Management Inc. and RBC Global Asset Management Inc. and its subsidiary, the Royal Trust Co. They target two widely held mutual funds: the RBC Canadian Equity Fund and the TD Canadian Equity Fund. The proposed class actions allege that excessive fees paid to RBC and TD over many years have significantly reduced the returns of investors. Clare O’Hara reports (for subscribers).

Why shorting the Canadian banks on housing makes no sense

When Steve Eisman warns about a downturn, investors listen – so his recent bet against Canadian banks is getting a lot of attention. Famous for his prescient call against the United States housing market before the 2008 global financial crisis, one of the fantastically profitable wagers profiled in The Big Short, Mr. Eisman, a fund manager, is now predicting trouble for Canada’s largest lenders. He is very clear that he does not expect a U.S.-style housing collapse, yet he worries that Canada’s housing market is cooling quickly. Mr. Eisman also fears the fallout from a sluggish economy. Because the Big Six banks dominate domestic lending, he expects they will suffer. It is a compelling story, one that other hedge funds have been making as well. The problem with the thesis, however, is that there are a number of holes in it. Tim Kiladze and James Bradshaw report (for subscribers).

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Corporate earnings may be decisive factor in whether bull market runs much further

Optimism that the United States and China will soon reach a trade deal has helped propel stocks close to new highs, but the decisive factor in whether the bull market runs much further may be this year’s corporate earnings. Earnings season begins in earnest on Friday when JPMorgan Chase & Co. and Wells Fargo & Co. report quarterly results. Profit forecasts have been falling, and beating these lowered expectations could provide a catalyst for sustaining the rally that began a decade ago, investors say. April Joyner from Reuters reports (for subscribers).

Will investors get a jolt from EVs this year?

Industry watchers such as Deloitte are forecasting a 950-per-cent increase to 21 million units in global sales of EV units by 2030, up from about two million in 2018. Yet, other prognosticators are far less jubilant. Still, there’s little question that the global auto industry is undergoing a dramatic transformation. And where there’s change, there’s opportunity. The quandary for many with an interest in marrying their desire to address climate change with shareholder returns is in discerning where best to invest their cash. Is it wise to throw money at players such as Volkswagen and GM, or wait until Groupe Renault and others juice their production and EV fleets? With so many disparate views of the near-future, investors would do well to follow the supply chain. Martin Grosskopf from AGF Investments gives his view.

Others (for subscribers)

Scotia analysts really bearish on cannabis stocks ahead of profit results

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Canadian banks ‘ill-prepared’ for turn in credit cycle, says short seller

Fifteen dividend growth stocks showing good corporate governance

These high-dividend stocks also score highly on ESG

Thursday’s Insider Report: Three stocks that CEOs and board members are buying

Thursday’s analyst upgrades and downgrades

Thursday’s small-cap stocks to watch

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Wednesday’s Insider Report: Chairman invests in this stock that’s yielding 6.7% with a payout ratio of 37%

Wednesday’s analyst upgrades and downgrades

Others (for everyone)

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Ask Globe Investor

Question: If I buy a Canadian dividend exchange-traded fund, do I still get the dividend tax credit (DTC)?

Answer: Yes. ETFs pass their income on to unitholders, and the portion of that income that consists of eligible dividends will qualify for the DTC. This is only relevant if you are investing in a non-registered account, of course.

--John Heinzl

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What’s up in the days ahead

Are gyms the next great investment? Some value investors believe they just may be. Ian McGugan will explain.

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

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Compiled by Gillian Livingston

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