By Jeff Sanford
Winnipeg, Manitoba -- September 16, 2015 -- Boyd Group Income Fund announced this week that it will be added to the S&P/TSX Composite Index. The fact the company is being added is conformation that Boyd is becoming a major name on the TSX.
The index represents a group of the largest companies traded on the Toronto Stock Exchange. Companies are chosen to be in the index if they are considered to represent a cross-section of the broad Canadian economy. As Boyd has grown over the years, the big brains at Standard & Poors now consider it a constituent part of the TSX.
The addition doesn’t change anything at the company. The announcement means that Boyd’s daily trading price will be included in the calculation of the S&P/TSX index. The value of the index is heavily quoted in the business news media. Rather than quote the value of every company on the TSX, the S&P TSX index is quoted instead, in a way similar to how the Dow Jones index in the US is typically quoted in lieu of the broad value of all the companies on the New York Stock Exchange.
Indexes like the Dow Jones and the S&P/TSX are thought to deliver a better “picture” of how the economy of the US or Canada is doing at any one time. The companies included are added because they are the biggest companies out of the vast pool of smaller issues that are also traded on these stock exchanges.
The Dow Jones index came about in the early 20th century when a couple of reporters working on Wall Street—there really was a Mr. Dow and a Mr. Jones—began printing a list of the biggest, most important companies on the New York Stock Exchange, as a way of offering readers a better picture of how the American economy is doing. Few companies in the original Dow Jones index are still on the list. Over the decades the companies included have changed as the economy has changed. The S&P/TSX index was created to replace the old TSE 60 index. The current index has over 200 names in it.
There may be some practical consequences as a result of the addition. The S&P/TSX index is often used to determine the constituent stocks of index funds that are bought up by institutional investors in great amounts. A basic investing strategy is to put a large part of a portfolio into an equity index fund. Now that Boyd is a part of the basic TSX index its stock will become part of the many index funds held by this country’s largest investors. That is, more large institutional (and retail) investors will hold the stock. This should give the issue a bit of a boost in terms of price. Such are the benefits of becoming a larger and constituent part of the national economy.
"In terms of being added to the index, it’s partially a recognition of the growth Boyd has achieved but difficult to quantify the impact on the stock," said Craig MacPhail, an investor relations contact at Boyd. "As there are several institutions and funds that follow a strategy of owning the index, there likely will be some increased trading after we are added to the index.” MacPhail pointed out that any potential increase in trading would occur after the S&P rebalances its index, which is set to occur after markets close September 18, 2015.
According to a press release announcing the addition, the S&P/TSX Composite Index “measures the combined performance of constituents in the index that meet specific market capitalization and liquidity criteria.” That is, companies have to be large and valuable enough. They also need to see a certain amount of stock traded each day. Boyd now qualifies on both counts. Boyd is one of four new companies added to the S&P/TSX Composite Index. After the adjustments made on September 18, the index will consist of 242 companies.