What Is the S&P/TSX Composite Index?

The S&P/TSX Composite Index is a capitalization-weighted index that tracks the performance of the largest companies listed on Canada's primary stock exchange, the Toronto Stock Exchange(TSX).

It is the equivalent of the S&P 500 market 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.

Key Takeaways

  • The S&P/TSX Composite Index is a benchmark equity index that tracks around 230 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.

Understanding the S&P/TSX Composite Index

The S&P/TSX Composite Index is calculated by Standard and Poor's (S&P) and contains about 230 large Canadian firms. As of May 31, 2021, roughly one-third of the index's members belonged to the financial sector, which consists of banks, investment companies, insurance companies, real estate firms, and so forth. Other sectors heavily represented in the index included energy, materials, industrials, and information technology.

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 sharing this same methodology.

The S&P/TSX Composite Index serves both as a benchmark and an investable 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.

The index is subject to a maximum weight of 10% for each stock.

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.

Top 10 Index Components

As of May 31, 2021, the top index components by market cap in the S&P/TSX index include the following stocks:

TSX Composite Index Components (as of May 31, 2021)
RY-T Royal Bank of Canada
SHOP-T Shopify Inc
TD-T Toronto-Dominion Bank
BNS-T Bank of Nova Scotia
ENB-T Enbridge Inc
CNR-T Canadian National Railway Co.
BAM-A-T Brookfield Asset Management Inc Cl.A Lv
BMO-T Bank of Montreal
CP-T Canadian Pacific Railway Limited
CM-T Canadian Imperial Bank Of Commerce
Source: The Toronto Stock Exchange (TSX)

History of the S&P/TSX Composite Index

The S&P/TSX Composite Index has 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 climbing to new highs.