When exploring investment opportunities on the Canadian stock market, one term that often comes up is the TSX Completion Index. For both seasoned and beginner investors, understanding this index can provide valuable insight into the broader Canadian equities market beyond the major players. This article takes a deep dive into what the TSX Completion Index is, how it functions, and why it may matter in an investment portfolio.
What Is the TSX Completion Index?
The TSX Completion Index is a Canadian stock market index that includes all constituents of the broader Toronto Stock Exchange Composite Index, excluding those in the S&P/TSX 60 Index. In simple terms, it represents mid- and small-cap stocks that do not belong to the top 60 largest companies by market capitalization in Canada.
This means the TSX Completion Index provides exposure to a wide range of companies outside the Canadian blue-chip segment. While the S&P/TSX 60 features well-known names like the big banks and energy giants, the TSX Completion Index captures companies from diverse sectors with smaller footprints but considerable growth potential.
Why Is It Called a “Completion” Index?
The name itself offers a clue to its purpose. The TSX Completion Index completes the picture of the Canadian equity market. By excluding the top 60 large-cap stocks and including the rest, it helps investors gain access to the full breadth of publicly traded Canadian companies.
For investors already holding the S&P/TSX 60 in their portfolio, adding exposure to the TSX Completion Index helps balance risk and enhance diversification. Together, the two indices make up the full S&P/TSX Composite Index.
Composition and Characteristics
The TSX Completion Index typically consists of approximately 200–220 companies, although this number can vary as the market evolves. The sectors most heavily represented include:
Industrials
Information Technology
Real Estate
Materials
Consumer Discretionary
Since the index includes mid- and small-cap firms, these companies often show higher volatility than large-cap counterparts. However, this increased volatility is accompanied by the potential for higher growth over time.
Another key characteristic is that the index is market-cap weighted. This means larger companies in the index have a greater influence on its performance. However, since it excludes the 60 largest companies, the largest weights in the TSX Completion Index are still relatively modest compared to those in the S&P/TSX 60.
Investment Use Cases
Many mutual funds and exchange-traded funds (ETFs) track the TSX Completion Index to provide investors with exposure to this specific segment of the market. These funds are often used by investors looking to:
Diversify holdings beyond the well-known large-cap stocks
Capture growth from emerging and mid-tier companies
Complete a portfolio that already includes large-cap Canadian equities
For example, an investor might hold an ETF that tracks the S&P/TSX 60 and complement it with one that mirrors the TSX Completion Index. This strategy can effectively replicate the broader composite index while offering flexibility in weighting large- vs. mid-/small-cap exposure.
Risk and Return Considerations
Because the TSX Completion Index contains smaller and less-established firms, it may be more sensitive to economic cycles and investor sentiment. While large-cap companies often benefit from stable revenues and established markets, mid- and small-cap companies can struggle during downturns but outperform during periods of expansion.
This means that while the TSX Completion Index can enhance returns during bull markets, it may also amplify losses during corrections. Investors should consider their risk tolerance and time horizon before allocating a significant portion of their portfolio to it.
Additionally, liquidity can be an issue for some of the smaller names within the index. Lower trading volumes might lead to larger bid-ask spreads, impacting trade efficiency.
Performance Tracking
Historically, the performance of the TSX Completion Index has varied, largely in step with broader market trends. In years when technology and industrial sectors performed well, the index often outpaced the more conservative S&P/TSX 60. On the other hand, during times of market stress or recession, it has tended to underperform due to its higher risk profile.
That said, for long-term investors, the TSX Completion Index remains a useful tool for capturing comprehensive exposure to Canadian equities. It plays a key role in understanding how different segments of the market are contributing to overall performance.
Strategic Allocation
In portfolio construction, the TSX Completion Index can serve several strategic purposes:
Complements core holdings in blue-chip Canadian stocks
Provides targeted exposure to growth sectors like tech and healthcare
Enhances diversification across company sizes and industries
Some financial advisors recommend a “core and satellite” approach, where the S&P/TSX 60 forms the core, and the TSX Completion Index acts as a satellite exposure to enhance return potential.
Final Thoughts
The TSX Completion Index may not be as well-known as its larger sibling, the S&P/TSX 60, but it holds an important place in the Canadian investment landscape. It represents the companies that often fly under the radar but could offer significant opportunities for growth. For investors aiming to achieve a well-rounded Canadian equity portfolio, understanding and considering the TSX Completion Index can be a key step.
Whether used alone or in combination with other indices, the TSX Completion Index helps complete the picture — offering deeper insights into Canada’s vibrant and evolving stock market.
Top comments (0)