The S&P/TSX Composite index is up 2,119.17 points, or 14.7 per cent, in 2019. The stocks that contributed most to the gains offer an instructive lesson on the investment strategies that are working.
On the flip side, the three companies that have been the biggest detractors from the index highlight the fact that while the domestic equity market has generated strong returns, the negative effects of the global economic slowdown are already being felt in Canadian portfolios.
Here’s a breakdown of the 10 stocks that had the biggest influence on the composite so far this year (Note: returns are as of midday Friday).
The biggest lifters
Shopify Inc. has been a juggernaut so far this year, rising 165.4 per cent and contributing 217 points to the index’s upside. The stock is far from cheap at 579 times forward earnings, but markets have been rewarding stocks with the greatest long-term growth potential and largely ignoring price to earnings multiples. Shopify also highlights the success of momentum investing strategies – buying stocks with the best recent performance and riding them higher.
TC Energy (formerly TransCanada Corp.) is the second largest contributor to the index’s upside year to date. The company continued to add to its pipeline project backlog and has created efficiencies through asset sales.
TC Energy was perfectly positioned to benefit from falling bond yields in 2019. At the end of last year, the dividend yield was a mouthwatering 5.7 per cent. The income looked increasingly desirable as bond yields fell, attracting investors and driving the stock price higher. The current yield is 4.4 per cent.
Canadian National Railway was the third largest booster of the benchmark, adding 115.7 points while its stock price rose 22.2 per cent. Crude by rail was a key contributor to performance as the trend both added revenue and gave the company more pricing power when negotiating contracts for non-energy goods.
The Canadian market allowed CN Rail to sidestep much of the negative effects of a slowing U.S. and global economy, which proved more of a hurdle for competing U.S. railways.
Brookfield Asset Management Inc. has added 105.6 upside points to the S&P/TSX Composite index in 2019. As with TC Energy, Brookfield’s strong income stream drew buying interest and the price has jumped 32.6 per cent so far this year.
Concerns about slowing global growth and market volatility have pushed many investors into defensive, less economically sensitive market sectors such as real estate through the year, and this has also benefited Brookfield.
Barrick Gold Corp. was the fifth strongest positive force for the index and is the easiest story to tell. The gold bullion price has jumped 19 per cent year to date driving profits higher for related miners. For many investors, co-ordinated monetary-policy easing among global central banks has made precious-metals positions attractive as a hedge against currency market volatility or related financial calamity.
Royal Bank of Canada and Toronto-Dominion Bank rank sixth and seventh as benchmark performance contributors, adding 94.2 and 75.4 points, respectively. The banks’ influence on index returns is largely a function of their size. In a market-capitalization-weighted index such as the S&P/TSX Composite, even small moves in bank stocks have significant effects.
Royal Bank has appreciated 9.8 per cent in 2019 and TD has climbed 8.5 per cent, much lower than the stocks listed above. Also, the recent profit reports from the major banks produced mixed results and the ability of the sector to support the domestic equity market for the remainder of the year is an open question.
The biggest drags
Not every stock in the index is higher in 2019 and a few have been significant drags on market returns.
The most damage was done by SNC-Lavalin Group Inc.; it removed 36.8 index points from returns as the company’s litigation issues linger.
Teck Resources Ltd.'s stock bore the brunt of a global economic slowdown that has limited manufacturing activity and demand for basic materials. The copper price is down 0.6 per cent this year and Teck’s stock has fallen 23.5 per cent.
Encana Corp. was also a negative influence on the TSX, docking 24.3 points from benchmark returns. As with Teck, weaker commodity prices, notably North American natural gas prices, were the culprit for the stock’s 25.2-per-cent decline year to date.
Scott Barlow