What Is the S&P/TSX Composite Index?
It is the equivalent of the S&P 500 index in the United States, and as such is closely monitored by Canadian investors. Since the S&P/TSX Composite Index is comprised of Canada's largest and most prominent companies, it is often used as a barometer for the health of the Canadian economy.
- The S&P/TSX Composite Index is a benchmark equity index that tracks around 250 of Canada's largest public companies.
- It is viewed as a barometer of the Canadian economy and is analogous to the S&P 500 Index in the United States.
- Companies must maintain strict liquidity and market capitalization requirements in order to remain part of the index.
- As of Q2 2022 the total market cap of the index (in U.S. dollars) is over $2.75 trillion—roughly 70% of the entire Toronto Stock Exchange.
- The S&P/TSX Composite Index serves both as a benchmark and an investable index, accessible to individual investors mainly through ETFs and mutual funds that track it.
Understanding the S&P/TSX Composite Index
The S&P/TSX Composite Index is calculated by Standard and Poor's (S&P). The broadest in the S&P/TSX index family, it contains around 230 to 250 publicly traded Canadian companies, out of the approximately 1,500 listed on the Toronto Stock Exchange (the ninth-largest exchange in the world). However, these companies represent about 95% of the Canadian equities market and roughly 70% of TSX's entire market capitalization.
As of April 2022, the total market cap of the index (in U.S. dollars) is over $2.75 trillion. Roughly one-third of the index's members belonged to the financial sector, which consists of banks, investment companies, financial services firms, and insurance companies. Other sectors heavily represented in the index included energy, materials, industrials, and information technology.
The remaining sectors represented in the S&P/TSX Composite Index include Communication Services, Utilities, Consumer Staples, Consumer Discretionary, Real Estate, and Health Care. There are 11 sectors in all.
As a capitalization-weighted index, the S&P/TSX Composite Index is more influenced by large member companies than small ones. This is a common method of calculating stock indices, with the S&P 500 and Nasdaq Composite Index both using this approach.
Like most benchmark indexes, the S&P/TSX has three primary functions: to provide an easily understood snapshot of how a nation’s public companies are performing, to provide a standard against which fund managers can compare their results, and to provide a formalized structure that exchange traded funds (ETFs) and index funds can follow.
S&P/TSX Composite Index Eligibility Criteria
Companies wishing to be included in the S&P/TSX Composite Index must meet a series of eligibility criteria relating to their liquidity and market capitalization. Specifically, member companies will be removed from the index if their share prices remain below $1 for more than a specified period of time. Similarly, members must ensure that their market capitalization remains at least 0.04% of the index.
Sufficient liquidity is important, too. Liquidity, which is measured as the total number of shares traded in the U.S. and Canada in the past 12 months divided by the number of float-adjusted shares outstanding at the end of the period, must be at least 0.50 for new entrants and at least 0.25 for existing constituents. For dual-listed stocks, liquidity of at least 0.25, or 0.125 for existing members, is necessary when using Canadian volume only.
To be included, companies must also qualify as Canadian. That means they must have been incorporated, formed, or established in Canada, have a primary stock exchange listing on the TSX, file financial statements and other disclosure documents with local regulators, and have a "substantial presence" in the country—defined as either having headquarters or principal executive offices located in Canada or a substantial portion of fixed assets and revenues in the country.
The maximum weighting a single stock can receive in the S&P/TSX Composite Index.
Top 10 Index Components
As of Q2 2022, the top index components by market cap in the S&P/TSX index include the following stocks (exact order may fluctuate day-to-day):
|TSX Composite Index Components (as of Q2 2022)|
|Royal Bank of Canada|
|Bank of Nova Scotia Halifax|
|Brookfield Asset Mgmt.|
|Canadian National Railway|
|Bank of Montreal|
|Canadian Pacify Railway|
|Canadian Natural Resources, Ltd.|
The index is rebalanced on a quarterly basis in March, June, September, and December.
How to Invest in the S&P/TSX Composite Index
The S&P/TSX Composite Index serves both as a benchmark and an investable index.
An investor could get exposure to the index by picking the individual stocks within it, of course—a bit impractical, considering there are over 200 of them—or at least the top 10 stocks. Given the advent of global trading and online platforms, it's easier than ever to buy foreign equities directly, though U.S.-based investors still often find it more convenient to purchase American depositary receipts (ADRs). They are usually available for large-cap Canadian corporations, like those in the index.
However, for maximum economy and diversification, it's probably more practical to invest in a fund that tracks the S&P/TSX Composite Index. One such is the iShares S&P/TSX 60 Index ETF (TSX: XIU), which—as the name implies—holds the 60 largest companies in the index.
Two other ETFs— iShares S&P/TSX Capped Composite Index (TSX: XIC) and BMO S&P/TSX Capped Composite Index (TSX: ZCN)—track a subset index, the S&P/TSX Capped Composite. This index imposes capped weights of 10% on all of the constituents of the S&P/TSX Composite, to reduce volatility (which could dull performance, as well).
There are also mutual funds that track the S&P/TSX Composite Index. The Scotia Canadian Equity Index Fund, for example, aims to achieve long-term capital growth by investing in the index's stocks.
History of the S&P/TSX Composite Index
The S&P/TSX Composite Index developed out of an earlier index, the TSE 300. The TSE 300 was launched by the Toronto Stock Exchange in 1977 (TSE was a previous acronym for the exchange). Modeled on the S&P 500, it included a fixed number of equities: 300, to be exact. Hence, the name Standard & Poor's (now S&P Dow Jones Indices) assumed control of the index in 2002, changing its name.
Over the years, the exact number of the companies in the index has fluctuated, and the composition of the index has changed. At first, mining and oil companies dominated—reflecting resource-rich Canada. In the 21st century, that began to shift, and when the S&P/TSX composite index deleted 17 resource companies in 2014, and added 16 mostly non-resource firms in 2015, it made headlines. In 2016, financial companies comprised 20% of the index; in 2021, they comprise 31.7%—the largest sector.
The index registered steady growth since its launch in 1977. In recent years, it has also experienced a few big crashes, including most notably at the beginning of 2020, during the outbreak of the COVID-19 pandemic. The index eventually bottomed out in March 2020 and has since been performing at unprecedented levels. On March 9, 2022 the S&P/TSX Composite Index reached an all-time closing high of 22,087.
How Much Does It Cost to Get Listed on the TSX?
Listing fees for the Toronto Stock Exchange (TSX) range from $10,000 - $200,000; $7,500 - $40,000 for the TSX Venture Exchange. The exact amount is determined by the market value of the company at the point of listing.
How Many Stocks Are in the S&P TSX Composite Index?
The S&P/TSX Composite Index generally has 230 to 250 stocks at any one time. It doesn't maintain a fixed number. As of Q2 2022, there were 239 constituents.
What Does It Mean When the TSX Goes Up?
The overall performance of Canadian equities is judged by whether the Toronto Stock Exchange (TSX)—the nation's principal stock market, and the third-largest in North America-goes up or down. When people say "The TSX is up," they generally are talking about the S&P/TSX Composite Index, a basket of the 250-odd largest companies (by market capitalization) on the Toronto Stock Exchange.
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S&P Dow Jones Indices. "S&P/TSX Canadian Indices Methodology," Page 5.
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