S&P/TSX Composite Index: Definition, Constituents, How To Buy

What Is the S&P/TSX Composite Index?

The S&P/TSX Composite Index is a capitalization-weighted equity 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 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.

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 225 publicly traded Canadian companies, out of the approximately 1,900 listed on the Toronto Stock Exchange. These companies represent roughly 80% of TSX's entire market capitalization.

As of January 2024, the total market cap of the index (in CAD dollars) is over $3.32 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.

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.

Top 10 Index Components

As of Q1 2024, the top index components by market cap in the S&P/TSX index include the following stocks (exact order may fluctuate day-to-day):

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 a small part of the index; by 2024, they comprise 30.9%—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 29, 2022 the S&P/TSX Composite Index reached an all-time closing high of 22,087.