Tuesday, 15 March 2011

TSX Market Darlings & Dogs in March 2011

It is always worthwhile to compare the iShares TSX S&P 60 Index ETF (XIU) with Claymore Canada's Fundamental Index (CRQ). CRQ selects and weights its constituents according to historical accounting data while XIU does so based on the market value of companies. As such, the comparison tells us which sectors are popular and where the market expects future excess profitability and growth will come from - i.e. when XIU has more weight in a company or sector than CRQ.

Here's what my comparison table below tells me:
  • Dogs (in Red on the table): Financials are still unpopular (less weight in XIU than CRQ) as a sector and across the board company by company with one exception, the Royal Bank, whose weight in XIU is slightly more than in CRQ. CRQ's 13.5% greater weighting than XIU in Financials and its overall weighting of 45% in that sector makes it extremely dependent on it. Incredibly, CRQ's Financial weighting has even increased since my last comparison. Inklings of popularity amongst banks and insurance companies are beginning to glimmer as most of them have gone up slightly in their weight within XIU from last August to today. Even Manulife and Sunlife, though still way less weighted in XIU than CRQ, have become less doggy i.e. have gained a little ground within XIU.
  • Darlings (in Green, naturally): Energy (as in petroleum) has not only maintained its popularity, it is continuing to rise in XIU, both relative to CRQ, where it was already a heftier component, and to past August within XIU. The biggies are Suncor, Canadian Natural Resources and Cenovus and they have all gotten bigger. They must be making more money than other sectors since they have gone up within CRQ too.
  • Waning Darlings: The Materials sector is still a grossly over-weight in XIU compared to CRQ but some slimming has occurred. Gold companies Barrick Gold and Goldcorp both lost ground as did Potash Corp of Saskatechewan. By the end of the day, uranium producer Cameco (CCO) (not shown on the table as it is too low down the list) might be considerably less as a proportion of XIU (it is down c. 6% as of 11:30am). CRQ has less to lose that way as Cameco is only have the size within CRQ as it is within XIU.
  • CRQ's sector weightings have evolved much more slowly than in XIU. None of CRQ's sectors has changed as much as the 1.5% increase in Energy's weight, or Materials' 1.2% drop, in XIU. Accounting profits, sales and the like do not change as rapidly as market expectations, or should I say, today, market panic.

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