The manager of Canada’s biggest stock index will add a dozen new members just before Christmas, including a cryptocurrency miner, electric bus maker, funeral services provider and nine companies from the rebounding energy sector.
S&P Dow Jones Indices, manager of the S&P/TSX Composite Index, said the new members will join prior to the open of trading on Dec. 20. All currently list on the Toronto Stock Exchange.
Cryptocurrency mining company Hut 8 Mining Corp., which traded for less than $2 a year ago, now has a market capitalization of nearly $2-billion at recent trades of around $12. The volatile stock crossed the $20 mark last month but is down by nearly half in less than a month.
The company reported $65.8-million in profit, fuelled by tax gains and other extraordinary items, on $128.9-million in revenue in the 12 months ended Sept. 30, according to S&P Global Market Intelligence.
Lion Electric Co. , a maker of electric school buses and other vehicles, has a market capitalization of more than $2.2-billion despite being more than 50 per cent off its 52-week high. It had a loss of US$123.4-million on revenue of US$48.3-million in the past 12 months.
The new energy entrants are Advantage Energy Ltd., Baytex Energy Corp. , Energy Fuels Inc. , Freehold Royalties Ltd., Peyto Exploration & Development Corp. Paramount Resources Ltd. , Secure Energy Services Inc. , Tamarack Valley Energy Ltd and Topax Energy Corp.
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Also joining: funeral services provider Park Lawn Corp.
With the growth of index funds and other passive-investing strategies, whether a stock is part of a major index can have a meaningful effect on share prices. Fund managers who track an index need to hold shares in the companies. The stocks can see a price bump before and even after inclusion. Similarly, companies removed from the index lose a source of demand for their shares.
Research by Morningstar Direct for The Globe and Mail found Canadian mutual funds and exchange-traded funds with assets under management totalling $234-billion had returns that were 95 per cent or more correlated with the S&P/TSX Composite over the 12 months ended June 30. This included funds that explicitly say they track the index.
Dow Jones Indices uses “float” – the value of shares that aren’t held by insiders and therefore trade frequently and are easily available to the public – to judge whether a company should be included in its indexes.
To get into the composite, a company’s float-adjusted market capitalization must be 0.04 per cent, or four-hundredths of a percentage point, of the total value of the index. Also, companies must be listed on the TSX for at least six full calendar months as of the month-end prior to the quarterly review, so recent initial public offerings will have to wait a bit longer to be considered for inclusion.
To stay in the composite, a company’s float must not drop below 0.025 per cent, or 2.5 hundredths of a percentage point, of the total value of index.