It’s time to stop ignoring the TSX

Buildings in financial district in downtown Toronto, Canada.

Why Canadian equities could outperform American ones in 2019.

“Canadian equities have had a decent return this decade, with a holding period total return of approximately 60%, or 5.5% annualized,” said Jerusalim, senior portfolio manager at CIBC AM, in a Jan. 18 interview.

“That’s not bad, unless you compare with the 171% return for the S&P 500. And that gap gets even wider when you look over the past 30 years, where the TSX’s annualized return was 7.7%, versus 11.5% for the S&P 500.”

The TSX’s underperformance in the last decade compared to the S&P 500 is due to tech giants like Microsoft, Apple, Google and Amazon fuelling U.S. growth, noted Jerusalim, who co-manages the Renaissance Canadian Small-Cap Fund.

Meanwhile, the Canadian index is resource-heavy, with energy-related stocks making up 20% of the TSX, he said. And that’s before accounting for banks and construction companies indirectly exposed to the energy sector. Lacklustre growth in energy and materials have put a drag on the TSX.

But that’s all about to change.

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