S&P/TSX composite index

Definition

The S&P/TSX composite index is the primary benchmark index for the Canadian equity market.

What is the S&P/TSX composite index?

The index is weighted by market capitalisation, meaning that the weight of each stock in the index is determined by its market capitalisation relative to the total market capitalisation of all stocks in the index. This method ensures that larger companies have a greater influence on the index’s performance.

The index aims to provide broad and comprehensive coverage of the Canadian equity market, including companies of different sizes and industries. As such, it includes both large-cap, mid-cap, and small-cap stocks, offering investors exposure to the entire spectrum of Canadian equities.

Furthermore, the index serves as a benchmark for evaluating the performance of Canadian stocks and investment portfolios. It is widely used by investors, portfolio managers, financial analysts, and institutional investors to track the performance of the Canadian equity market, compare investment returns, and assess investment strategies.

The index is diversified across multiple sectors, with allocations reflecting the composition of the Canadian economy. Sector weightings within the index may vary over time based on changes in market dynamics, economic trends, and sector-specific developments.

Lastly, the index undergoes periodic rebalancing to make sure that it remains representative of the Canadian equity market. Rebalancing involves adjusting the index constituents and their weightings to reflect changes in market capitalisation, corporate actions, and other factors.

Example of the S&P/TSX composite index

John, an investor, decided to track the performance of the Canadian stock market. He monitored the S&P/TSX composite index. By following the index, John got insights into the overall performance of the Canadian equity market and used it as a benchmark to evaluate his investment portfolio.