The S&P/TSX Composite hit a record intraday high Monday – but what's not at its peak is Canadian investors' exposure to the big sectors that have traditionally dominated this country's equity investing.
As 2017 heads to a close, the financial sector – Canada's big banks – has maintained its significant share of the index, roughly 35 per cent of the overall value. Energy stocks, however, have slipped from 21.4 per cent of the Composite to less than 20 per cent. Materials, the sector that contains Canada's gold miners, remains at around 11 per cent of the Composite. (The data, as of Nov. 30, is provided by the Toronto Stock Exchange via its monthly Index Reports.)
Add that up, and two-thirds of the Composite comes from those three sectors – but that number remains well below its highest level of concentration. In February, 2011, to pick an example, the materials sector had twice the weight it does today, and the three sectors –finance, energy and materials – combined to provide nearly 80 per cent of the Composite's value.
This is not just trivia – there are $150-billion in equity-based mutual funds and exchange-traded funds whose returns are closely correlated with the Composite, including those who explicitly say they're tracking that index, according to Morningstar Direct. (The Globe and Mail asked for funds that have a correlation with the Composite of 90 per cent or more to define "closely.")
The S&P/TSX Composite hit a record intraday high Monday of 16,200.81, before trimming gains to close at 16,131.64 – less than five points shy of its record closing peak last week. The issue is what Canadian investors get exposed to by following the domestic index, which is much more concentrated than, for example, the S&P 500, the major U.S. equity index (which did close at a record high Monday). Information technology makes up 24 per cent of the S&P 500, with no other sector greater than 15 per cent. The top three sectors in the U.S. combined to form just 43 per cent of the S&P 500's value.
This is the shift that has occurred over the past five years: As the mining sector collapsed, much of the slack was picked up by the two consumer sectors, "consumer discretionary," which measures companies that sell products widely viewed to be optional (restaurant meals), and "consumer staples," those that sell things folks can't go without (groceries).
So while Canadians got a more diversified index, they also got more exposure to their country. The share abandoned by global miners largely got grabbed by homegrown retailers and restaurant companies. The financial sector also picked up share, as it was about 28 per cent of the Composite five years ago, but was steady around 35 per cent this year.
The big gainer this year, in a world where a percentage point represents a significant move, is utilities, which has added a full percentage point of share. Consumer discretionary, industrials and information technology have each added about 0.5 percentage points.