S&P/TSX Composite Index is the Canadian equivalent of the S&P 500 in the US. It acts as a barometer for the health and wellbeing of corporate Canada and, as such, is closely followed and reported in the Canadian financial news.
This index used to be called S&P 300, and resource extraction corporations dominated TSX. Currently, the financial sector dominates the index. S&P/TSX Composite can be followed using the ticker symbol ^GSPTSE or SPTSX. Its adjusted performance since inception is depicted in the graph above.
Currently, the S&P/TSX index stands 11.4 times its adjusted value in 1979. This translates to an annualized return of 6% over the past 43 years. TSX has returned 2.1% annualized over the past 15 years.
TSX stands for the Toronto Stock Exchange, which is among the ten largest exchanges in the world. There are 1775 companies listed on the Toronto Stock Exchange with a total market capitalization of $4 trillion ($3,891,999,952,913 as of July 31, 2022). Individuals cannot independently buy stocks on a stock exchange; they need to use a trading platform to have their broker perform their trades.
Two hundred thirty-eight of the TSX listed companies are included in the S&P/TSX Composite Index, whose market capitalization is $3,247,129M as of 25 August, 2022. S&P used to stand for Standard & Poor’s, but now it is simply the first part of S&P Global’s name. S&P Global is an American corporation specializing in financial information and analytics.
S&P Global is the majority owner of the S&P Dow Jones Indices joint venture. This is the company which has created and maintained many indices, including the S&P/TSX Composite Index. This index is designed with two goals. The first is to represent the TSX and the second is to be investable.
The financial sector constitutes one-third (31.3%) of the S&P/TSX Composite Index. The Toronto Stock Exchange's financial sector includes Canadian bank stocks, Canadian insurance stocks and asset managers. Together, the financial and energy sectors constitute one-half (49.8%) of the S&P/TSX Composite Index. Sector Weights are as of July 31, 2022.
|Vehicles for Gaining Exposure to S&P/TSX (Representing Canadian listed companies)|
|XIC - iShares Core S&P TSX Capped Comp ETF|
|ZCN - BMO S&P/TSX Capped Composite Index|
|CIBC Canadian Index Fund|
|XMD - iShares S&P/TSX Completion Index Fund + XIU - iShares S&P/TSX 60 Index Fund|
|XMD - iShares S&P/TSX Completion Index Fund + HXT - Horizons S&P TSX 60 Index ETF|
|Scotia Canadian Equity Index Fund|
To satisfy these goals, the eligibility criteria for this index include:
|Toronto Stock Exchange||TSX Venture Exchange|
|Listing Fees||$10,000 - $200,000||$7,500 - $40,000|
|Accounting and Auditing Fees||$75,000 - $100,000||$25,500 - $100,000|
|Legal Fees||$400,000 - $750,000||$75,000+|
|Underwriters' Commission||4 - 6 %||Up to 12 %|
Index weighting is determined by float capitalization. Every March, June, September and December, weights for index constituents are readjusted. TSX is considered the primary exchange in Canada; companies that do not qualify for listing on TSX can list on TSX Venture (Canada’s junior exchange), which also is part of the TMX group.
One can get exposure to S&P/TSX Composite through Canadian ETFs or mutual funds. ETFs and mutual funds are both investment pools but have technical differences. A combination of the XMD - iShares S&P/TSX Completion Index Fund and XIU - the iShares S&P/TSX 60 Index Fund gives complete exposure to the S&P/TSX Composite Index.
HXT - Horizons S&P TSX 60 Index ETF is another ETF following the TSX 60 Subindex. Also, XIC - iShares Core S&P TSX Capped Comp ETF and ZCN - BMO S&P/TSX Capped Composite Index ETF own the same securities represented in the S&P/TSX.
S&P/TSX Capped Composite is composed of the same stocks as S&P/TSX Composite, the only difference being that the first would cap the share of any single constituent at 10%. Royal Bank of Canada, with ticker RY, is the largest component of TSX and has a weight of 5.4% in S&P/TSX. Therefore, S&P/TSX Capped Composite and S&P/TSX Composite are currently identical.
60 large TSX listed companies from ten sectors constitute the S&P/TSX 60 index. The S&P/TSX 60 index and the S&P Completion index comprise the S&P/TSX Composite index.
It is also instructive to note the monthly return of this index over the past 37 years. The average monthly return of the index over the past 37 years has been 0.56%. Returns are seen all over the place. Even though the average monthly return of 0.56% annualizes to 6.9%, there are seven months with returns worth less than -10%. These significant negative returns suggest that the S&P TSX is quite a risky investment.
The Canadian S&P Index Committee, in addition to the S&P/TSX Composite Index, maintains the S&P/TSX 60 Index. The S&P/TSX 60 Index is designed to represent leading companies in the leading industries. It is the Canadian component of the S&P Global 1200 index.
The Toronto Stock Exchange, TSX Venture Exchange, TSX Alpha Exchange, The Canadian Depository for Securities, Montreal Exchange, and Canadian Derivatives Clearing Corporation are parts of the TMX group.
|Largest Constituents of the S&P/TSX Composite and the S&P/TSX 60 Indices|
|Rank||Constituent||Symbol||Weight in S&P/TSX Comp |
as of August 25, 2022
|1||Royal Bank of Canada||RY||Financials||5.4%|
|4||Canadian National Railways||CNR||Industrials||3.4%|
|5||Brookfield Asset Management||BAM.A||Financials||3.4%|
|6||Canadian Pacific Railway||CP||Industrials||3%|
|7||Bank of Nova Scotia||BNS||Financials||2.8%|
|8||Bank of Montreal||BMO||Financials||2.7%|
|9||Canadian Natural Resources||CNQ||Energy||2.6%|
|10||Thomson Reuters Corporation||TRI||Industrials||2.2%|
|11||Nutrien Ltd.||NTR||Basic Material||2.2%|
|12||TC Energy Corporation||TRP||Energy||2.1%|
|13||Suncor Energy Inc.||SU||Energy||1.9%|
|14||Alimentation Couche-Tard||ATD||Consumer Cyclical||1.8%|
|16||Canadian Imperial Bank of Commerce||CM||Financials||1.8%|
Relative success of Canadian companies change the list of most expensive TSX companies, for example, at the beginning of 2022 Shopify was at the top of the list of most expensive Canadian public companies.
Companies listed on the TSX are grouped into the energy sector companies, the mining sector, the technology sector, the life sciences sector, the clean technology sector, and diversified industries. The diversified industries sector is divided into five subsectors: communications and media, consumer products and services, financial services, industrial products and services, and real estate.
|Distribution of Market Capitalization Among Sectors Comprising the S&P/TSX Composite|
Based on MSCI standards, member companies of the index do not provide exposure to controversial weapons, nuclear weapons, civilian firearms and tobacco. Yet it exposes you to oil sand producers.
Every March, June, September and December, weights for the S&P/TSX composite index constituents are readjusted based on float capitalization. Float capitalization neglects the shares which are held by company insiders. In other words, company weights in the index are determined based on each company’s floating shares multiplied by its share price.