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Impact Investing Conference

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The TSX Composite is no longer the index you think it is. Plus, shorts raise bets against energy stocks, and Gordon Pape’s top pick for income investors  The Globe and Mail

Impact Investing Conference

Impact Investing Forum 2022

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London. April 28-29, 2022.

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It’s a mark of success that the S&P/TSX Composite Index is no longer dominated by a sectoral Big Three.

Financials, energy and materials combined used to account for two-thirds of the index. Financials still rule the index, with a weighting of about one-third. But energy and materials now account for about 12.7 and 11.3 per cent, respectively. Industrials and information technology are right in that second tier as well, with weightings of 12.3 and almost 11 per cent.

The last couple of years have rounded out the S&P/TSX Composite Index nicely. In fact, it’s starting to look a little like the S&P 500 in terms of diversification. One or two dominant sectors, four or so secondary sectors and then a bunch of smaller sectors with a weighting of roughly 5 per cent or more.

For index investors using exchange-traded funds or mutual funds, this shift in the composition of the S&P/TSX index means a better diversified core for your portfolio’s stock market exposure. Cyclical commodities will still drive the index to some extent, but not nearly as much as in previous eras. We may lose some upside for the index in a hot market for commodities, but we make up for that with less exposure to commodity busts and more exposure to attractive sectors like technology.

As much as the diversification of the S&P/TSX Composite Index has improved, index investors still benefit hugely from exposure to stock markets in the United States and elsewhere. The S&P 500 has a weighting of almost 30 per cent in tech, and 13 per cent in health care. The S&P/TSX Composite Index weighting in health care, which includes a lot of cannabis shares, is still a puny 0.8 per cent. The S&P 500 weighting for consumer discretionary stocks is 12.5 per cent, compared to 3.5 per cent for the S&P/TSX Composite Index.

One sector where the two markets are aligned is real estate – the S&P 500 is at 2.7 per cent and the S&P/TSX Composite is just above 3 per cent.

Index investors still face one diversification challenge in the Canadian market. Financials dominate not only the stock market, but also the corporate bond and preferred share markets. Financials are a pillar of the Canadian market, harnessing a big chunk of your portfolio to one sector could be risky.

— Rob Carrick, personal finance columnist

This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.

Stocks to ponder

Western Union Co. (WU-N) The name conjures up images from a distant past. Fingers tapping out messages in Morse code for transmission over telegraph lines across the continent. Saddened families receiving heartbreaking telegrams informing them of the death in battle of a beloved son or daughter. Smartly dressed boys delivering yellow envelopes containing urgent news. All part of history, and certainly not relevant in the age of e-mails and the internet. That’s true, except the company has reinvented itself. It is now one of the leaders in national and international financial transfers, moving money to more than 200 countries and territories, in 130 currencies. And it’s also Gordon Pape’s top pick this month for income investors.

The Rundown

Why companies adored by retail investors are seeing their share prices collapse

Scores of high-flying stocks that benefited from one of the frothiest markets in decades are crashing, concluding a pandemic round trip that saw share prices soar, then collapse, in under 24 months. Tim Kiladze explains why.

Also see: Reddit IPO to test social media platform’s ‘meme’ stock hype

IPOs abandoned: Why investors have lost their appetite for Canada’s newest tech stocks

For many of the tech companies that made debuts to great fanfare on Canadian exchanges since the pandemic began, the post-IPO hangover has been brutal. Stocks whose initial public offerings were heavily oversubscribed as a result of ravenous investor appetite earlier in the year are now struggling to find shareholder support. The biggest casualties of the 2021 class of tech newcomers have seen their share prices plunge by more than half from their highs of the year to date. Tim Shufelt takes a look at why investors are turning their back on them.

Short sales on the TSX: what bearish investors are betting against

Investors are raising their bets against energy stocks and for TSX stocks overall, Larry MacDonald reports. But short positions against Air Canada are easing.

Central banks give the market what they want: Stern inflation talk, but little drastic action

This week’s global flurry of central bank announcements gave nervous voters and edgy investors what they wanted: A lot of stern talk about inflation, but little in the way of drastic action. From Ottawa and Washington to London and Frankfurt, central bankers found ways to signal they are taking inflation seriously, while avoiding what financial markets and homebuyers fear most – a dramatic swing to significantly higher interest rates. Ian McGugan explains why most investors seem fine with this cautious strategy.

Global sustainable shares post record gains in 2021

Stocks of companies rated highly for their sustainability efforts have registered record gains this year, boosted by growing awareness and investor interest in investments focused on environmental, social and governance issues. MSCI World ESG Leaders’ index has risen 23% so far this year, already its highest annual gain ever, compared with MSCI World index’s return of 14.4%. Analysts said this outperformance should boost the confidence of investors who are concerned about the ability of ESG stocks to provide higher returns.

Investors brace for delisting of U.S.-listed China stocks

As a long-running Sino-U.S. diplomatic spat threatens to force Chinese companies off American stock exchanges, global equity investors are assessing ways to retain or add exposure to the world’s second-biggest economy. Fund managers are planning or accelerating a shift out of Chinese American Depository Receipts (ADRs) into their Hong Kong-listed counterparts, or buying more shares listed on the mainland. Some activist investors are going as far as pressing U.S.-listed Chinese companies not yet listed in Hong Kong to do so as soon as possible.

Also see: Beijing rule changes to revive China’s IPO prospects in 2022, bankers say

Wall Street’s SPAC boom fizzles as investors cash out on big names

Several companies, including Grab Holdings and BuzzFeed, that merged with shell entities to go public have seen their shares tumble, as investors pull the rug out from under the stocks hyped in Wall Street’s frenzied blank-cheque deals this year.

Others (for subscribers)

The highest-yielding stocks on the TSX, plus risk data

Number Cruncher: These 14 TSX stocks are analyst favourites for earnings growth in 2022 and beyond

Number Cruncher: These eight U.S. consumer staple stocks have attractive valuations and earnings growth

Friday’s analyst upgrades and downgrades

Thursday’s analyst upgrades and downgrades

Tuesday’s Insider Report: CEO invests over $500,000 in i-80 Gold Corp. stock that’s projected to more than double in value

Friday’s Insider Report: CEO invests $300,000 in this defensive stock with consistent dividend growth

Globe Advisor

How advisors are getting clients back on track for RESPs before year-end

Are you a financial advisor? Register for Globe Advisor (www.globeadvisor.com) for free daily and weekly newsletters, in-depth industry coverage and analysis, and access to ProStation – a powerful tool to help you manage your clients’’ portfolios.

Ask Globe Investor

Question: What if I go over my Tax-Free Savings Account contribution limit?

Answer: You don’t want to do that. Amounts that exceed your available contribution room are subject to a penalty tax of 1 per cent per month. This is another reason to track your TFSA contributions and withdrawals closely.

–John Heinzl

What’s up in the days ahead

Jennifer Dowty talks to Kurt Reiman, senior investment strategist for North America, on his outlook for 2022.

It’s a wrap: World market themes for the week ahead

Click here to see the Globe Investor earnings and economic news calendar.

More Globe Investor coverage

For more Globe Investor stories, follow us on Twitter @globeinvestor

You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.

Compiled by Globe Investor Staff

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ESG Investing Conference