S&P Dow Jones Indices said late Friday that it is adding five companies to the S&P/TSX Composite Index TXCX, the broadest measure of the Canadian market, as rising precious metal prices lifted the value of silver and gold firms.
It did not announce any deletions from the index as part of its quarterly review of index components.
S&P Dow Jones will add AbraSilver Resource Corp., Avino Silver & Gold Mines Ltd., i-80 Gold Corp., Montage Gold Corp. and Americas Gold and Silver Corporation to the S&P/TSX Composite Index, the index provider said in a news release.
The changes will be effective at the open of markets on March 23.
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S&P Dow Jones did not announce changes to the S&P/TSX 60, a selection of most of the largest companies in the composite.
To determine whether a company should be included in its S&P/TSX Composite Index, S&P Dow Jones uses the “float” – the value of shares that it considers to be available to the public to trade. It excludes shares held by other publicly traded companies, government agencies and “certain types of strategic shareholders,” according to its published methodology.
To be added, a company’s float-adjusted market capitalization must be at least 0.04 per cent of the total value of the index over a period of 10 trading days prior to inclusion and the volume-weighted average price of its shares must be over $1 over the previous three months. Companies whose float drops below 0.025 per cent of the total value of the index over a 10-trading-day period, or whose volume-weighted average share price stays below $1 over a three-month period, can be dropped from the index.
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With the growth of index funds and other passive investing strategies, a stock’s inclusion in a major index can have a meaningful effect on share prices. Fund managers who track an index need to hold shares in the underlying companies. Canadian stocks added to the composite can see price bumps before and after inclusion. Similarly, companies removed from the index lose a source of demand for their shares.
Materials firms have driven strong gains in Canadian markets, with an S&P/TSX sub-index tracking the sector roughly doubling last year, and rising an additional 17 per cent since January. The price of gold, which touched a record high of around US$5,600 per ounce in late January, was 1.8 per cent higher on Friday at US$5,172 per ounce.