S&P Dow Jones Indices announced late Friday that it is adding one stock and deleting two from the S&P/TSX Composite Index, the broadest measure of the Canadian market.
No changes are being made to the S&P/TSX 60, a selection of most of the largest companies in the composite.
S&P said it will add aerospace company MDA Ltd. MDA-T, while deleting Lithium Americas (Argentina) Corp. LAAC-T and Lithium Americas Corp. LAC-T
Brampton-based MDA designs, manufactures, and services space robotics and satellite and intelligence systems. At its $14.71 close Friday, it’s more than doubled its 52-week low of $6.24 last May. Its 2023 net income of $48.8-million is nearly double the year prior.
On Oct. 3, 2023, the former Lithium Americas Corp. reorganized into two independent – and therefore smaller- publicly traded companies. Lithium Americas, which describes itself as “a pure-play North American lithium company,” is focused on developing the 100 per cent-owned Thacker Pass project in northern Nevada. It’s down 12.2 per cent so far this year. Lithium Argentina, down 19.9 per cent year-to-date, owns full or partial interests in three Argentinian mines.
Both are Vancouver-based; neither have recorded any revenue.
The changes will be effective at the open of markets on March 18.
S&P Dow Jones uses “float” – the value of shares that aren’t held by insiders and that therefore trade frequently and are easily available to the public – to judge whether a company should be included in its indexes. The index provider does not release its proprietary float calculations.
To get into the composite, 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 not drop below 0.025 per cent, or 2.5 hundredths of a percentage point, of the total value of the index.
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 underlying companies. Canadian stocks added to the composite – which has about 220 to 250 members, depending on the quarter – can see price bumps before and after inclusion. Similarly, companies removed from the index lose a source of demand for their shares.
Research by Morningstar Direct for The Globe and Mail found Canadian mutual funds and exchange-traded funds with assets under management amounting to $395-billion had returns that were 95 per cent or more correlated with the S&P/TSX Composite over the 12 months ended Dec. 31, 2023. This included funds that explicitly say they track the index.
Analysts at ATB Securities Inc. who track the additions and deletions for their clients estimate index-related demand accounts for an average of 5.5 per cent of the float of a S&P/TSX Composite member company.
David Milstead