A stock market index is a measurement of a portion of the stock market. It is calculated from the prices of selected stocks (often a weighted average). It is a tool used by financial managers and investors to describe the market, and to compare the return on specific investments. Below you will find an interactive chart of the S&P TSX Index. What is the S&P TSX Index?
The S&P/TSX Composite Index is the Canadian equivalent of the S&P 500. The index tracks approximately 250 of the largest Canadian companies that are listed on the Canadian Stock Exchange (TSX). It is a market capitalization-weighted index which means that the companies that have the largest market cap have a greater effect on the price movement of the index. Like other national indexes, the S&P/TSX is an indicator of the health of Canada’s economy. Like most global indices, the S&P TSX plummeted during the global financial crisis. However, in September 2019 it reached an all-time high
Like the S&P 500 in the United States, many of the major countries that impact the global economy have their own stock exchanges. In Canada, that exchange is the S&P/TSX Index. Originally named the TSE300 Index when it debuted in 1977, the index became part of Standard & Poors in 2002. At that time the name was changed. In this article, we’ll take a close look at what the S&P/TSX Index is, what sectors are represented and at what weighting, and we’ll list a few of the popular ETFs that investors can use to trade the index.
What is the S&P/TSX Index?
The S&P/TSX Index is essentially Canada’s version of the S&P 500 in the United States. The index tracks the performance of approximately 250 of the largest and most prominent Canadian companies. It is a market capitalization-weighted index so the largest companies, by market cap, carry a larger weight in terms of the index.
TSX stands for the Toronto Stock Exchange which is Canada’s primary exchange and the exchange that the index tries to approximate. The TSX is the ninth largest stock exchange in the world by market cap.
Like all index funds, the S&P TSX serves three important purposes:
- To give investors an easy-to-understand overview of how a country’s public companies are performing.
- To give fund managers a benchmark with which they can compare their results and assess their success.
- To give low-cost ETFs and index funds a formalized structure to follow
History of the S&P/TSX Index
The S&P/TSX Index originated in 1977 as the TSE300. Standard & Poor’s, the American financial services company, took over the index in 2002 and changed the name to the S&P/TSX Index.
As its name suggests, the TSE300 tracked the performance of exactly 300 companies. The S&P/TSX is more fluid and dynamic. Currently the index tracks 250 of the approximately 1,500 companies listed on the TSX. However, those companies make up approximately 70% of the entire market cap of the exchange.
Like most of the major indices, the S&P/TSX collapsed during the global financial crisis of 2008, losing 35% of its value. However, the index steadily rebounded and reached an all-time high in September of 2019.
How are companies chosen for the S&P/TSX Index?
To be listed on the S&P/TSX Index, a company must represent at least 0.5% of the entire index. A company that has a higher market cap is more heavily weighted in the movement of the index. Companies can, and do, move off the index based on a number of factors. Market cap is a key consideration. But companies can also be listed or delisted from the index based on the volume of trading of their stock. The S&P also looks at how many liquid assets a company possesses. Also, while 250 companies is an approximate number. In any year the S&P/TSX may have more or less companies.
What sectors are represented in the S&P/TSX Index?
The sectors that make up the S&P/TSX Index are not as dominated by the natural resource companies as in years past. However, the index can be disproportionately affected by oil price fluctuations. Here is an overview of the top 11 sectors ranked by the weighting they carry in the index as of September 2019.
- Financial – This sector makes up the largest percentage of the index at 32.1%. It also contains the index’s top constituent by weight, the Royal Bank of Canada (NYSE:RY).
- Energy – This sector makes up approximately 16.4% of the index. One of the leading components in this sector is Suncor Energy (TSX:SU).
- Industrial – This sector comprises 11.6% of the index. The leading component in this sector by weight is the Canadian Railway Company (TSX:CNR).
- Materials – This sector makes up 11.2 percent of the index. The companies most heavily represented in this sector are mining and agriculture companies. One of the largest components in the index is Nutrien (TSX:NTR).
- Communication Services – This sector makes up 5.5 percent of the index. One of the notable companies in this sector is the telecommunications company BCE (NYSE:BCE).
- Information Technology – This sector is comprised of 5.2 percent of the index. A top company in this sector is the e-commerce platform Shopify (NYSE:SHOP).
- Utilities – This sector makes up approximately 4.4 of the index. One of the significant components is Canadian Utilities (TSX:CU).
- Consumer Discretionary – This sector is nearly identical to the Utilities sector, making up 4.3 percent of the index. One of the leading companies in this sector is Cineplex (TSX:CGX), a theater and film exhibition company.
- Consumer Staples – This sector (sometimes referred to as consumer discretionary) is about 4 percent of the index. Canada’s leading consumer packaged meats company, Maple Leaf Foods (TSX:MFI) is one of the leading components in this sector.
- Real Estate – This sector comprises 3.5% of the index. First Capital Realty (TSX:FCR) is a leading company in this sector.
- Healthcare – The lightest weighted segment is Healthcare which makes up 1.7% of the index. One of the leading companies in this space is Extendicare (TSX:EXE).
How can investors invest in the S&P/TSX Index?
There are many index funds and ETFs that use the S&P/TSX as their baseline index. One of the most well-known is the iShares S&P/TSX 60 Index. This is the largest ETF in Canada and trades over 4 million shares per day on average. As its name implies, this fund only tracks a subset of the underlying index. However, those 60 stocks comprise approximately 73% of Canada’s equity market capitalization. Other popular options include the iShares S&P/TSX Capped Composite Index and the BMO S&P/TSX Capped Composite Index. Both ETFs cover the entire index. However, neither ETF can include a stock that has a weighting of more than 10 percent in the index.
The final word on the S&P/TSX Index
The S&P/TSX index is the Canadian equivalent of the S&P 500 in the United States. Like the S&P 500, and other major indices, the S&P/TSX is a market-cap-weighted index which means the larger companies have a more significant effect on the upward or downward movement of the index. The financial sector makes up the largest percentage of the index. This sector includes the largest component in the index, the Royal Bank of Canada.