Investor demand for gold plunged 56 per cent year-on-year in the third quarter, according to the World Gold Council.Ian Barrett/The Globe and Mail
Amid the seesawing of global stock markets, Canada stands out this year, and in a good way. The S&P/TSX composite index is up 4.5 per cent, leading the S&P 500, the Nasdaq composite index, the FTSE 100, Germany's DAX index and Japan's Nikkei 225.
The reason? Commodity producers have been solid performers, following several years of underperformance. Materials stocks, which include gold producers, have rallied more than 16 per cent in 2014. Energy stocks are no slouches either, rising more than 4 per cent.
These sectors have a large combined weighting in the commodity-heavy TSX, which makes the index stand out from most other developed market indexes – many of them now struggling with geopolitical tensions and an economic slowdown in China.
But what's interesting about the TSX is that its commodity exposure is actually relatively low right now, compared with previous years.
Combined, materials and energy stocks have a 37.9 per cent weighting in benchmark index. Sure, that's high next to just about every other major index, but it is well below levels seen in recent years. In March 2013, the combined weighting was 41.4 per cent. It was 46.6 per cent in 2012, 49.3 per cent in 2011 and 51.2 per cent in 2008.
Today's combined energy and materials weighting is very similar to the 2005 level, which is good news: That year, the S&P/TSX composite index rallied 21.9 per cent, versus just 3 per cent for the S&P 500.
The S&P/TSX composite index is rightly criticized for lacking diversification. But a bet on commodity producers isn't such a bad idea when they are clearly out of favour.
David Berman