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The S&P/TSX Composite Index (SPTSX) is the main index used for tracking the performance of the Toronto Stock Exchange (TSX). It also functions as the benchmark index for the Canadian economy, and it came into being in 2002 when it replaced the TSE 300 index.
This page will take you through a quick history of the SPTSX, how the stocks that the index tracks are selected, and let you know how you can invest in its performance.
The SPTSX has been calculated since May 1st 2002. It was introduced to replace the TSE 300 index, which was launched by the Toronto Stock Exchange in 1977. The old TSE 300 index tracked the performance of 300 of the largest stocks on the TSE, whereas the S&P/TSX Composite Index includes in the region of 250 of the highest value and most liquid stocks on the exchange.
Over time the level of the SPTSX has fluctuated, with the index tracking a long time to recover from the fall it experienced during the stock market crash of 2007-08. The index was at a level of around 15,000 in 2006, but had fallen to under 8,000 by February 2009 – a drop of nearly 50%.
Over the next decade, the SPTSX showed sustained growth (with a few corrections along the way) before reaching its all-time high of 17,944.10 on February 20th 2020. At this point, however, the Canadian economy was hit hard by the COVID-19 pandemic, and fell to 11,228.49 by 23rd March. The index quickly bounced back to over 16,000 over the following months, but it is uncertain how much of an impact the pandemic will have going forward.
The SPTSX includes around 250 stocks traded on the Toronto Stock Exchange. These stocks have to meet certain criteria in order to be selected, including:
- Are listed on the Toronto Stock Exchange
- Having a minimum weight of 0.05% of the index as a whole (to ensure that the largest and most stable companies are included)
- Possess a trading volume that is, in terms of both number of transactions and value of those transactions, at least equal to 0.025% of the value of all equities traded on the exchange (to ensure that the stock is commonly traded)
While you cannot invest in indices directly, there are a variety of tools you can use to invest in a way that follows their performance. The most common ways of investing in the S&P/TSX Composite Index are ETFs and mutual funds. An ETF is an ‘exchange-traded fund’ which gives you a diversified investment covering the stocks tracked by the SPTSX, and can be traded on an exchange at any time during trading hours. There are currently no ETFs that exactly match the SPTSX, but there are a variety of other ETFs you can invest in which will give you exposure to a large portion of the index. Alternatively, you could use a mutual fund.
Mutual funds pool investors’ money with a fund manager directing investments to generate profits for everyone putting money into the fund. An SPTSX mutual fund (also known as an SPTSX index fund) also gives a diversified investment into the performance of theS&P/TSX Composite Index, but unlike ETFs mutual funds can only be bought or sold at the end of each trading day. If you’re looking to trade rather than buy and hold for the long term, it’s generally better to use an ETF, but in the case of the SPTSX the relative unavailability of ETFs make mutual funds an attractive proposition.