The S&P/TSX 60′s top stocks, based on their weightings, are like a wish list of solid performers, including Canadian National Railway Co.Mark Blinch/Reuters
Canadian banks, oil producers, railways and pipelines look like fine sectors to ride out the economic turmoil ahead, given their mix of reasonable valuations, strong cash generation and rising dividends.
So, why not grab them all with a fund that tracks the S&P/TSX 60 Index?
The benefits of passive investing – a strategy based on accepting the returns of the market, rather than trying to outperform it with active stock selection – are well known.
But the appeal of Canada’s blue-chip index looks particularly strong in 2023, given the index’s exposure to companies that can survive an oncoming recession and reap the benefits of an economic recovery, all while paying out hefty dividends.
The S&P/TSX 60′s top stocks, based on their weightings, are like a wish list of solid performers, including Royal Bank of Canada RY-T, Enbridge Inc. ENB-T, Canadian National Railway Co. CNR-T and Canadian Natural Resources Ltd. CNQ-T.
The blue-chip benchmark does not have the diversification of the S&P 500. It doesn’t have the exposure to smaller companies that the S&P/TSX Composite Index delivers. And it lacks the global tech-stock dominance of the Nasdaq.
But none of these shortfalls looks like a bad thing right now, with higher interest rates weighing on tech stock valuations in particular.
The S&P/TSX 60 is also currently free of hype surrounding any particularly overvalued hot stock among its top holdings.
Recall that Valeant Pharmaceuticals International Inc. (now Bausch Health Cos. Inc. BHC-T), Research In Motion Ltd. (now BlackBerry Ltd. BBT), Potash Corp. of Saskatchewan Inc. (now Nutrien Ltd. NTR-T), Barrick Gold Corp. ABX-T and Nortel Networks Corp. all briefly dominated as Canada’s most valuable companies during remarkable rallies, only to fade soon after.
The most recent example, Shopify Inc. SHOP-T, overtook RBC as the country’s most valuable company in 2020. But Shopify’s shares have declined 64 per cent over the past 52 weeks, and it is now languishing as the 10th most valuable company.
But the best reason for considering a fund tied to the S&P/TSX 60 is the one-stop exposure to banks, energy, rails and pipelines, which appear well-suited to today’s economic backdrop.
Bank stocks have tumbled 15 per cent over the past year amid concerns about the Canadian economy and fears that rising borrowing costs will weigh on the country’s wobbling housing market.
But some analysts say that decline implies that a mild recession has been priced in already, and it has lifted the Big Six banks’ average dividend yield to nearly 4.8 per cent. As well, valuations, as measured by estimated price-to-earnings ratios, are below the historical average, giving the stocks the potential to deliver upbeat returns over the longer term as valuations improve.
Railways maintain indispensable transportation networks that can benefit this year from bumper crops, even if demand for commodities such as lumber subsides.
Pipeline operators Enbridge ENB-T and TC Energy Corp. TRP-T are compelling dividend plays, with yields of 6.4 per cent and 6.5 per cent, respectively. Both companies play a crucial role in traditional energy infrastructure that has taken on new significance over the past year.
Traditional oil producers have also roared back to life as lofty crude prices drive gargantuan profits, which large companies are distributing as bigger dividends as their debt levels decline.
“Among the many themes within the global energy landscape last year, none resonates more than the commitment of energy producers to return meaningful capital to shareholders,” Greg Pardy, head of global energy research at RBC Dominion Securities, said in a note this week.
Of course, you can buy any of these stocks individually (full disclosure: I own Enbridge shares and a fund that tracks the Big Six bank stocks, among other Canadian holdings).
But exchange-traded funds – such as the iShares S&P/TSX 60 Index ETF (ticker: XIU), a descendant of the world’s first ETF, launched in 1990 – have advantages that are hard to ignore.
Fees are slim: 0.18 per cent for the iShares fund, or $18 per year for every $10,000 invested. And academic evidence suggests that it is very difficult to outperform major indexes over time, even for professional stock pickers. That helps explain why the XIU fund has nearly $11-billion in assets.
“XIU has a significant amount of institutional usage. You have this critical mass of assets because of how widely used the product is,” Steven Leong, head of product for iShares Canada, said in an interview.
The S&P/TSX 60 is not immune to a deeper-than-expected recession, a downturn in commodity prices or further tumult in Canada’s housing market, which could cause volatility. But as an all-in-one bet on Canadian blue-chip stocks that will deliver results over the longer term, the index may be hard to beat.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
