It’s been a respectable year so far for the TSX. We touched a new all-time high in intraday trading on May 21, and, as of the close on May 24, the composite index was ahead 6.5 per cent year to date. That’s not as good as the S&P 500, but it’s a decent showing.
The two subindexes that are leading the way are resource-driven. The Capped Energy Index has gained 22.11 per cent so far in 2024, while the Capped Materials Index is up 18.66 per cent.
Another subindex that is doing well is the S&P/TSX Completion Index, which is ahead 10.51 per cent this year. Many people have never heard of it – and, no, it does not consist of companies with a track record of finishing their projects on time. Rather, it’s composed of the stocks in the composite index that are not included in the large-cap S&P/TSX 60 Index.
Previously, this subindex was called the S&P/TSX MidCap Index. It was renamed in March, 2007, but the new name never caught on. I’d venture to say that fewer than half the people reading this article know what it is and what’s in it. That’s too bad, because investing in this index has been reasonably profitable, with less volatility than might be expected.
Some of the top companies in the index include familiar names such as Fairfax Financial Holdings Ltd., Great-West Lifeco Inc. and Brookfield Renewable Partners LP. Others are ARC Resources Ltd., TFI International Inc., Stantec Inc., Descartes Systems Group Inc., Ivanhoe Mines Ltd., Lundin Mining Corp. and GFL Environmental Inc.
The easiest way to invest directly in the completion index is through an ETF. The iShares S&P/TSX Completion Index ETF (XMD-T) has been around since 2001 and has $228-million in assets under management. As of April 30, it was showing a one-year gain of 10.67 per cent and an average annual compound rate of return since inception of 6.46 per cent. The year-to-date gain to May 23 was 10.21 per cent.
What I found especially interesting was that in 2022, which was a terrible year for all stock markets, this ETF was down only 4.72 per cent. By comparison, the iShares S&P/TSX 60 Index ETF, which you’d expect to be less volatile, lost 6.36 per cent that year.
The portfolio holds 163 positions. The leading sectors are materials (21.9 per cent), energy (18.12 per cent), industrials (17.41 per cent) and financials (16.23 per cent).
Distributions are paid quarterly and average 15 to 16 cents. The trailing 12-month payout was 62.571 cents for a yield of 1.8 per cent based on the Friday closing price of $34.69.
XMD has a management expense ratio of 0.6 per cent and is rated as medium risk. I recommend it for those who want to increase their exposure to mid-cap Canadian stocks through a diversified portfolio.
Gordon Pape is the editor and publisher of the Internet Wealth Builder and Income Investor newsletters.
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