S&P Dow Jones Indices, manager of the S&P/TSX Composite Index, said four companies will join prior to the open of trading on June 21. Stelco will be joined by payment-technology company Nuvei Corp. , which at recent springtime highs had more than doubled from its initial public offering prices just eight months prior.
Stelco’s addition marks a return to the index after getting delisted in 2003. The company’s long journey since that time has included two trips to court-ordered protection from creditors, including one that concluded eight years of private ownership by U.S. Steel. The company’s 2017 IPO brought it back to the Toronto Stock Exchange.
Nuvei’s stock debut last September was the largest technology IPO ever on the TSX, raising US$805-million in gross proceeds. With a current market capitalization of more than $12-billion, it’s one of Canada’s most valuable technology companies.
The changes mean the index will comprise 231 members. Market tumult and other corporate changes had caused the index to drop to as low as 219 members earlier this year.
No changes are planned for the S&P/TSX 60, an index of select larger-capitalization stocks.
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 companies. The stocks can see a price bump before and even after inclusion. Similarly, companies removed from the index lose a source of demand for their shares.
In November, 2019, research by Morningstar Direct for The Globe and Mail found Canadian mutual funds and exchange-traded funds with assets under management totalling $219-billion had returns that closely correlated with those of the companies in the S&P/TSX. This included funds that explicitly say they track the index.
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. Also, companies must be listed on the TSX for at least six full calendar months as of the month-end prior to the quarterly review, so recent IPOs will have to wait a bit longer to be considered for inclusion.
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 index.
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