Canada is one of the most interesting economies in the West. With so much going for it, we analyze the 3 most important stock market indexes in Canada.
The Canadian economy is one of the most interesting in the Western world. According to the IMF, and based on its nominal GDP, Canada is the ninth largest economy in the world despite its population of only 35 million.
This means that Canada is one of the most prosperous countries on the planet. This is in part thanks to its abundant commodity reserves.
Whether it is oil, natural gas, uranium, precious metals like gold, or industrial metal, Canada has it all. Therefore, both its economy and stock market are set to benefit from an inflationary period and a commodities bull cycle.
Consequently, Canada can be a very interesting market to invest in. Especially if we believe the loose monetary policy or commodity shortages will be the norm through the decade of the 2020s.
For those who want to invest passively in Canada through an ETF, or who simply want to analyze the historical performance of its stock market, we analyze its most important stock market indexes:
The S&P/TSX Composite is Canada’s most important stock index. Owned and published by S&P Dow Jones Indices, it has existed since 1977. Its full name is Standard & Poor’s/Toronto Stock Exchange index.
The number of companies that are part of the index is not fixed but fluctuates over time. Thus, those companies that meet all eligibility criteria join the index.
Because one of the rules for being part of the S&P/TSX Composite index is that a company must at least have a weight of 0.05% in the index, the number of stocks remains fairly stable. The S&P/TSX Composite tends to have between 200 and 250 stocks at any given time.
More than 200 companies for a relatively small country like Canada means that many of the index’s members are small-cap stocks. Therefore, it is a very good representation of the Canadian economy.
Within the index, companies are weighted according to their market capitalization adjusted for free float. The combined weight of the energy and natural resources sectors is around 25%.
And if you are only interested in investing in a specific sector, S&P also calculates sector indices, such as the S&P/TSX Capped Energy. It is composed exclusively of the energy companies that are part of the S&P/TSX Composite.
If you want to read more about the main stock market index in Canada, here is the link to the official website of S&P Dow Jones Indices.
Also calculated by S&P Dow Jones Indices, the S&P/TSX 60 is an alternative to the S&P/TSX Composite. It was introduced in 1998 for those investors who wanted to focus on the country’s largest companies.
While the S&P/TSX Composite is made up of about 200-250 stocks, the S&P/TSX 60 only contains 60 companies.
As you can imagine, these 60 companies are the ones with the largest market capitalization. For many investors, this segment of the stock market is the one that carries the least amount of risk, because it is where we find the more established corporations, that also enjoy the most liquidity in the market.
Something to keep in mind about the S&P/TSX 60 index is the very significant weight that the financial sector has in it, representing between 30% and 40% of its market capitalization.
For additional details, you can visit S&P’s official website.
The MSCI Canada is another stock market index that allows us to invest in the North American country, as it is often chosen by ETF providers. Published by the US company MSCI, The MSCI Canada is composed of all Canadian companies that can be found in the famous MSCI World Index.
As a result, the number of shares within the MSCI Canada varies over time, depending on how many companies meet the eligibility criteria. We can usually find between 80 and 100 stocks in it.
Something to note is that, apart from having both large and mid-cap companies, the weight of the financial sector is also very substantial here, hovering around 30-40%.
For those who wish to analyze the MSCI Canada in detail, here is the link to the official website of MSCI.
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And for a complete guide about the stock market indices in the United States, check out this link:
Top 7 Stock Market Indexes in the United States