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Checking up on 12 stocks that were earmarked to be index insiders

What are we looking for?

How a dozen stocks that I earmarked for possible inclusion in the S&P/TSX composite index in early 2016 have fared since then.

The screen

Many portfolio managers follow a passive investment style, where they are required to accurately replicate the returns generated by an index while maintaining as low a tracking error as possible. If a company is added to an index, the portfolio manager may have to purchase the stock for his or her portfolio to stay in line with the index, which, when combined with similar moves by other market participants, should drive the price of that stock up.

Today's screen updates my Number Cruncher column from Feb. 23, 2016, which focused on the largest Canadian companies not included within the S&P/TSX composite that would be possible candidates for future index inclusion. The current inclusion status of these same companies is shown in the accompanying table, along with a comparison of price change from Feb. 23, 2016, to the present.

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What did we find?

Of the 12 companies outlined in the original screen, four have since been added to the S&P/TSX composite, with Boralex Inc. being the most recent joiner in March, 2017. The four aforementioned companies saw, on average, a 44-per-cent return since Feb. 23, 2016, compared with a 7-per-cent return among the remaining companies (excluding Oando Energy Resources, which was delisted in May, 2016). Premium Brands Holdings Corp., a specialty food manufacturing and distribution conglomerate, saw the highest returns among the group, more than doubling in value over the period. Also interesting to note, since February, 2016, all three companies within the utilities sector have been included in the S&P/TSX composite, which may signal a shift in the index composition toward this sector.

This commentary does not provide individualized advice or recommendations for any specific subscriber or portfolio. Investors should conduct further research before investing.

Ryan Gottschalk is an account manager at Thomson Reuters.

Stocks earlier touted for possible inclusion in the S&P/TSX

Company NameTickerGICS SectorMarket Cap ($Mil)S&P/TSX Composite Inclusion DatePrice Close Feb. 23, 2016Recent Price ClosePrice ChangeDividend Yield
Hydro One Ltd.H-TUtilities 13,529.9 Yes (20-Jun-16)22.8522.71-0.6%3.9%
TransAlta Renewables Inc.RNW-TUtilities 3,478.5 Yes (21-Mar-16)11.3015.3936.2%5.7%
Morguard Corp.MRC-TReal Estate 2,125.2 No129.28178.5038.1%0.3%
Evertz Technologies Ltd.ET-TIT 1,359.6 No17.5917.811.3%4.0%
Richelieu Hardware Ltd.RCH-TIndustrials 1,814.7 No66.9030.2435.6%0.8%
CT REITCRT.UN-TReal Estate 1,274.9 No14.2814.11-1.2%5.0%
Premium Brands Holdings Corp.PBH-TCons. Staples 2,794.3 Yes (21-Mar-16)46.0193.75103.8%1.8%
First National Financial Corp.FN-TFinancials 1,590.3 No20.2626.8432.5%6.9%
Oando Energy Resources Inc.OER-TEnergy n/a Delisted (16-May-16)1.47n/an/an/a
Choice Properties REITCHP.UN-TReal Estate 1,238.4 No12.4613.397.5%5.5%
Boralex Inc.BLX-TUtilities 1,611.8 Yes (20-Mar-17)15.6621.4537.0%2.8%
Leon's Furniture Ltd.LNF-TCons. Disc. 1,277.6 No14.0317.8126.9%2.7%

Source: Thomson Reuters Eikon

Editor’s Note An earlier version of the accompanying table showed an incorrect price change for Richelieu Hardware shares between Feb. 23, 2016, and July 10, 2017. After accounting for a three-for-one stock split, Richelieu shares gained 40.5 per cent during that period. Also, the table’s calculations are based on a recent closing price of July 7, not July 10 as originally indicated.
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