Wednesday, May 29, 2013

Canadian Index Primer

When you hear the news that "S&P/TSX Composite is up 102 points today" most people have no idea what that means.  Today I hope to break it down so we can have further discussion about the instruments that replicate or compare against the index.

For starters the index is a creation of financial professionals for the purpose of having a widely agreed upon measuring stick which we are able to compare similar investments.  This allows people to see if the investment they have is under- or out-performing the index in question.  Here are some of the details about the TSX Composite Index -

Index Characteristics

Number of Constituents237
Adjusted Market Cap (C$ Billion)1,522.984
% Weight Largest Constituent6.09%
Top 10 Holdings
(Market Cap Share - C$ Billion)
CurrencyCDN Dollars

Inclusion Criteria

  • Listing: Only stocks listed on Toronto Stock Exchange are considered for inclusion in this index.
  • Domicile: Only securities which are Canadian incorporated, established in the case of income trusts, or formed in the case of limited partnerships, under Canadian federal, provincial, or territorial jurisdictions are eligible.
  • Market Capitalization: Stocks are assessed based on their float adjusted market capitalization. A company's float adjusted market capitalization is calculated by removing control blocks of 10% or more.
  • Liquidity: Only stocks that are actively and regularly traded are considered for inclusion in any S&P/TSX index. A stock's liquidity is measured relative to liquidity thresholds
Sector & Top 10 - S&P/TSX Composite Index

We can see a couple very basic facts about the 'TSX' -
1) It largely consists of financial, energy, and materials companies .
2) It contains 237 companies and the top 10 biggest companies make up over 30% of the index.

Up next . . . . how to buy the TSX.

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