While many investors prefer the familiar confines of the Canadian large-cap universe, most of the best-performing stocks live outside of the S&P/TSX Composite Index.
The 30 listings on the Toronto Stock Exchange with the highest total return over the past three years include 16 stocks not included in the country’s main index, which currently totals 233 names.
“There are companies that just aren’t on the radar of the average retail investor,” said Loui Anastasopoulos, TMX Group Ltd.’s president of capital formation for equity markets.
To showcase some of Canada’s lesser-known market darlings, TSX is announcing its first TSX30 list of top performers on Thursday.
Several mining stocks on the list reinforce Canada’s resource concentration, but other sectors not typically associated with the Canadian market are also well represented here, including consumer stocks and technology.
“Once you go down in market cap, there’s a lot of activity in the technology space,” Mr. Anastasopoulos said.
Here are some of the major takeaways from the inaugural TSX30.
Tech, cleantech and life sciences
The scarcity of tech stocks has long been a shortcoming of the Canadian market.
This week, Sierra Wireless Inc. was dropped from the S&P/TSX Composite Index, leaving just nine information technology names in the index, representing a weighting of 5 per cent of the market. By contrast, tech stocks account for 22 per cent of the S&P 500 index, and that doesn’t even include the FANG stocks – Facebook Inc., Amazon.com Inc., Netflix Inc. and Google-parent Alphabet Inc., which fall under different sector classifications.
But the composite is not a great representation of the Canadian tech sector, Mr. Anastasopoulos said. The TSX30, by contrast, has 11 companies in the tech, cleantech and life-sciences sectors, the last of which also includes cannabis stocks.
Tucows Inc., for example, has seen growth in its fibre internet business fuel a total return of 152 per cent over the three years up to the end of June.
But too many promising Canadian tech companies still get taken out by bigger U.S. competitors before they become homegrown large-caps, Mr. Anastasopoulos said.
“The challenge is having some of these companies stay around longer, and continue to access public markets to fuel their growth.”
Divergence in resources
The oil patch’s perennial stagnation is apparent in the shortage of energy names from the TSX30.
The sector counts just one stock on the list – energy-services firm North American Construction Group Ltd., which is the largest provider of heavy construction services to the oil sands.
Despite the plunge in oil sands spending, the company has managed to improve margins and gain market share, generating a three-year total return of 304 per cent – a period of time that saw the overall energy sector within the composite fall by close to 15 per cent.
There are eight mining stocks on the list, on the other hand, as a gap has opened up between the two resource sectors.
Helped along by the bullish run in precious metals prices in recent months, the small-cap mining sector has seen a resurgence. Outside of the composite, the best performer of the group was Trilogy Metals Inc., which is focused on exploration in Alaska, and which posted a total return of 503 per cent over the three years to the end of June.
Graduating to the big board
Eight of the companies on the TSX30 started trading on the TSX Venture Exchange before eventually moving up to the TSX.
“That speaks to just how well that two-tier market works,” Mr. Anastasopoulos said. “The graduation story is very powerful.”
The best-performing graduates include cannabis names Canopy Growth Corp., Aphria Inc. and Neptune Wellness Solutions Inc., which added a cannabis extraction business to its line of health products and supplements in 2017.
While international interest in Canadian equities in general has waned with the prolonged downturn in the oil patch, foreign investors still look to Canada for its abundance of cannabis listings, Mr. Anastasopoulos said.
“In a short period of time, we’ve seen an incredible amount of wealth creation come out of this sector.”
Tim Shufelt