S&P rolls out equal weight composite index

There has always been a certain level of dissatisfaction with cap-weighted indices; critics often point out that Canadian investors might have found their portfolio hugely overweighted in Nortel back at the turn of the millennium.

Now S&P Indices and TMX have launched an equal weight version of the S&P/TSX Composite Index, providing Canadian investors with a new approach to tracking the performance of the principal broad-based index for the Canadian market.

“The S&P/TSX Composite Equal Weight Index is designed to meet clients’ needs for benchmarking strategies that require a size-neutral index compatible with the S&P/TSX Composite Index,” says Abigail Etches, director at S&P Indices. “An equally weighted index provides investors with a tool that will enable size, style, and sector comparison.”

S&P Indices first introduced the S&P/TSX Equal Weight Indices in 2009. The new S&P/TSX Composite Equal Weight Index is the headline index in the S&P/TSX Equal Weight Index Family.

As a result of equal weighting, the S&P/TSX Composite Equal Weight Index tends to have a higher exposure to sectors with small companies than the S&P/TSX Composite Index. Relative performance of the two indices will also differ due to different sector exposure and risk and return profiles in different market cycles.

Given the index industry’s track record, there is bound to be an ETF launched soon to track this index.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.