Canadian and Global Stock Markets in 2013
In 2013, the Canadian S&P/TSX Composite index lagged behind the major stock indices of the world. During 2013, the S&P/TSX Composite index’s return was less than 10%, at a time when the big European indices returned 14%-25% and the U.S. indices returned over 26%.
The main reason for the weaker performance for the S&P/TSX Composite index can be traced to its structure in terms of weightings of industry sectors. If we compare the S&P/TSX Composite index (TSX) to the S&P 500 index (SP500), better performing sectors have considerably smaller weightings in the TSX than in the SP500, while the poor performing sectors had much larger weightings in the TSX than the SP500. For instance, Health Care, Consumer Discretionary and Industrials sectors had 38%-41% annual returns in 2013 in the SP500, each contributing between 11%-13% for the index overall return. At the same time, Information Technology, Health Care and Consumer Discretionary, which returned from 36%-72% in 2013 in the TSX, had weightings from 1.8%-5.5%.
For the below average performing sectors, these had substantially larger impact on the TSX than on the SP500. In particular, Energy (up by just 9.9% in 2013) and Materials (down 30.6% in 2013) had weights of 24.8% and 11.9% (combined weight of 36.7%) respectively in the TSX. These same two sectors accounted for only 13.8% for the SP500.
The biggest Canadian sectors by weight, Financials (35.3% in the S&P/TSX Composite index), Energy (24.8%) and Materials (11.9%) did not perform as well in 2013 as their counterparts did for the SP500. Canadian Financials (banks, insurance companies, etc.) returned 19.1% in 2013 as compared to 33.2% for U.S. Financials; Energy (oil and gas, energy services, etc.) sectors in the two countries grew by 9.9% and 22.3% respectively; and Materials (metals and mining, forestry, etc.) in Canada dropped 30.6% while in the U.S. they rose by 22.7%.
Among Canada’s top performers in the Health Care were stocks as Patheon Inc (up almost 200% in 2013) and Valeant Pharmaceuticals International, Inc (up around 100%). The top performer in the Consumer Discretionary sector, Transat A.T. Inc (an integrated tour operator), returned more than 110% in 2013. Air Canada’s stock rose by more than 300% in 2013. However, Health Care, Consumer Discretionary and Industrials (which includes airlines) sectors, which grew handsomely in 2013, were not able to lift the S&P/TSX Composite index higher due to their low weights in the index, 16.4% altogether.
Among the biggest losers in Canada’s worst performing sector, Materials, were gold mining stocks, such as Barrick Gold, IAMGOLD Corp, Kinross Gold Corp, and others fell in many instances by more than 40% in 2013. Much of this weak performance can be linked to the general weakness in the price of gold in 2013, which fell by 28%.
Last year, the U.S. stock exchanges grew strongly as corporate earnings grew and indicators of economic development improved. European exchanges benefited from recovery from the financial and economic crisis of earlier years. The performance of the Canadian exchange was particularly poor in the first half of 2013 when the TSX was down more than 2%. The market improved in the second half of 2013, growing by more than 12%. This helped the TSX post its best performance since 2010.
Michael Zienchuk, MBA, CIM
Credential Securities Inc.
Manager, Wealth Strategies Group
Ukrainian Credit Union
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