Mining is on the rise, with Canada’s major movie chain falling, as the country’s primary stock index plans its latest changes.
The S&P/TSX Composite will add five companies, but remove two, next week as it performs a quarterly rebalancing. S&P Dow Jones Indices, the index’s manager, announced the changes late Friday.
Joining the index are miners Fortuna Silver Mines Inc., New Gold Inc., Osisko Mining Inc. and precious-metals investment company Sprott Inc. Biotech Trillium Therapeutics Inc. was the sole non-mining industry company added.
Dropping out: Cineplex Inc., whose shares tumbled after its deal to be sold fell apart in the COVID-19 pandemic, and energy supplier Pason Systems Inc.
It was a relatively quiet rebalancing, after big changes in the second quarter. S&P Dow Jones Indices skipped the first-quarter process because of COVID-19 market turmoil and and waited until June to make broad changes. With those moves, the index providers dropped Bombardier Inc. and BlackBerry Ltd. from the large-cap S&P/TSX 60 Index, replacing them with Algonquin Power & Utilities Corp. and Canadian Apartment Properties REIT, known as CAPREIT. Bombardier also fell out of the composite, one of 14 companies removed versus seven added in June.
With the growth of index funds and other passive investing strategies, whether a stock is part of a major index can have a meaningful effect on share prices. Fund managers who track an index need to hold shares in the companies. Canadian stocks added to the composite, which has about 230 to 240 members, depending on the quarter. The stocks can see a price bump before and even after inclusion. Similarly, companies removed from the index lose a source of demand for their shares.
In November, 2019, research by Morningstar Direct for The Globe and Mail found $219-billion in Canadian mutual funds and exchange-traded funds whose returns were closely correlated with those of the companies in the S&P/TSX Composite – including the ones that explicitly say they track that index.
The Composite index is the broader measure of the market and is tracked by more funds. The 60 is a more elite group, but it’s not the biggest 60 Canadian public companies – its industry balance needs to be similar to the composite. Also, S&P uses “float” – the value of shares that aren’t held by insiders and therefore trade frequently and are easily available to the public – to judge whether a company should be included. In addition, the S&P Index Committee has discretion in making changes beyond its set formulas.
To get into the Composite Index, a company’s float-adjusted market capitalization must be 0.04 per cent, or four-hundredths of a percentage point, of the total value of the index. To stay in the composite, a company’s float must be 0.025 per cent, or 2.5 hundredths of a percentage point, of the index.
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