The index, which was launched in 1977, includes both common stocks and income trust units.
The S&P/TSX Composite Index is reviewed each quarter; at that time, additions or removals can be made. To be eligible for addition, the company needs to be incorporated, formed or established in Canada and must have traded on the TSX for at least six full months.
Stock liquidity, which is measured by float turnover, must be at least 0.5, or at least 0.25 in Canadian volume for dual-listed stocks. Float turnover is calculated by dividing the total number of shares traded over the past year by float-adjusted shares outstanding.
Securities that cannot be included in the S&P/TSX Composite Index include those issued by mutual fund corporations, preferred shares, warrants and all other types of securities that the index committee decides are inappropriate. Securities that have been listed on the TSX for fewer than six months are also ineligible.
Securities may be removed from the index if they fall beneath the index committee’s buffer criteria at the time of the quarterly review. To stay eligible, securities must maintain a volume-weighted average price above C$1 over the three months leading up to a quarterly review. They must also keep a minimum index weight of 0.025 percent three days prior to the review, as well as liquidity of 0.25.
Securities may also be removed at the index committee’s discretion at any other time. If a security is removed during the quarterly review it is ineligible for at inclusion for 12 full calendar months unless the committee believes the business has substantially restructured.
There are 11 categories of securities included in S&P/TSX Composite Index: financial, energy, materials, industrial, consumer discretionary, telecommunications services, healthcare, consumer staples, utilities, information technology and real estate.
The TSX sector breakdown shows the most constituents in financial and energy followed by the industrial and materials categories. Its performance therefore heavily reflects how those industries are doing, and disturbances in the economy or oil price dips can have a big impact.
The company also operates North America’s largest natural gas utility by volume, Enbridge Gas. Enbridge was an early investor in renewable energy, and has a growing offshore wind portfolio.
As of July 31, 2024, the S&P/TSX Composite Index had an adjusted market cap of more than C$3.668 trillion.
This is an updated version of an article originally published by the Investing News Network in 2014.
Securities Disclosure: I, Melissa Pistilli, currently hold no direct investment interest in any company mentioned in this article.
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