The S&P/TSX Composite Index touched a record high during trading on Thursday, before ending the day slightly below its highest close on April 23 – rewarding many Canadian investors but also reinforcing a confounding pattern.
The benchmark index climbed to 16,696.40 midday before finishing the session at 16,643.28. Today’s close was about 26 points shy of the record.
But through a number of peaks and valleys over the past five years, the benchmark index of Canadian companies has delivered a lacklustre overall performance that pales next to major U.S. indexes such as the S&P 500.
Since September, 2014, the S&P/TSX has risen just 7.1 per cent (not including dividends), compared with a gain of 51.6 per cent for the S&P 500 (in U.S. dollar terms).
This is the problem that the Canadian index has faced for years: It is woefully undiversified, with a heavy emphasis on financials and commodity producers. When one of these big engines sputters – the energy sector has slumped more than 40 per cent over the past five years, which is in line with the decline in the price of crude oil – the index’s overall performance is dragged down.
The good news? The S&P/TSX is enjoying a banner year, with gains of 16.2 per cent in 2019, putting it in line with the year-to-date performance of the S&P 500 (also nearing a record high). Even once-sleepy gold mining companies are adding to the rally.
The index is also benefiting from new heavy hitters, adding a touch of diversification. Shopify Inc., a technology company that provides an e-commerce platform to online merchants, has seen its share price soar 149.5 per cent in 2019, making it the 13th most valuable public company in Canada.
And lastly, the index’s underwhelming longer-term performance reinforces the importance of dividends. Over the past five years, the total return for the S&P/TSX is 24.4 per cent – meaning that quarterly payouts are the biggest rewards for long-term investors.
David Berman