While nearly everyone in the Canadian investment community has heard of the S&P/TSX Composite, few are aware of the key methodological Senior Director intricacies that distinguish it from other broad market Canadian equity benchmarks.
The most notable distinction is that the S&P/TSX Composite is designed specifically for Canadians (as are all S&P/TSX Indices), while many other Canadian equity indices, such as the FTSE Canada All Cap Index, are simply country slices of global benchmarks and, therefore, take the perspective of foreign investors. Why might this matter? Canada has foreign ownership limits that affect several industries, such as telecommunications, broadcasting, transportation, and real estate. Therefore, whether or not these limits are accounted for in the index is significant.
As an example, Bell Canada (BCE)—the largest Canadian telecommunications company—was the 10th largest company in the S&P/TSX Composite, with a weight of 2.3%, as of June 28, 2019 (see Exhibit 1). However, foreign investors are restricted from owning more than one-third of BCE under Canada’s Telecommunications Act. As a result, BCE’s weight in the FTSE Canada All Cap Index is reduced by two-thirds from its natural market-cap weighting to roughly 0.75%.