After major changes in Canada’s stock indexes earlier this year, investors will see a much quieter rebalancing as the second quarter winds down.
S&P Dow Jones Indices said late Friday that it will add one stock – Frontera Energy Corp. – to the S&P/TSX Composite Index and remove four: CES Energy Solutions Corp., Fortuna Silver Mines Inc., New Gold Inc. and Uni-Select Inc.
It will make no changes to the S&P/TSX 60 index of Canada’s biggest stocks.
In the first quarter, software company Shopify Inc. and Brookfield Infrastructure Partners LP joined the 60. And S&P added cannabis company Canopy Growth Corp. to the 60 in April when Goldcorp Inc. merged with Newmont Mining Inc. S&P added eight companies and removed three from the composite, a list of 240 stocks that aims to give a broad picture of the Canadian stock market.
The second-quarter changes announced Friday will go into effect before the market opens June 24.
With the growth of index funds and other passive investing strategies, whether a stock is in or out of a major index can have a meaningful impact on share prices because many fund managers who track an index need to hold shares in the companies. A number of the stocks added in March saw increases in the trading days between the announcement and the formal date of inclusion.
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 stay in the composite, a company’s float-adjusted market capitalization must be 0.025 per cent, or 2.5 hundredths of a percentage point, of the total value of the index.
In the first quarter, S&P made an important methodology change that should expand membership in the composite over time. Until this year, a company’s float-adjusted market capitalization needed to be at least 0.05 per cent, or five-hundredths of a percentage point, for inclusion.
The new minimum to get into the composite index is 0.04 per cent, or four-hundredths of a percentage point, effectively cutting the minimum size of float-adjusted market cap for inclusion by more than $200-million, to just more than $900-million.
David Milstead