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Discussion Starter #1
Do you think we will ever have a year going forward where the TSX will beat S&P, Dow or Nasdaq??? Or will there be continued decades of underperformance?
 

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Who knows?

In the past (e.g. 2003-2013), it has beaten the US indices. Impossible to tell if it will going forward.
 

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Sure, and the TSX has beaten the S&P 500 before. More importantly, over the very long term, the TSX has had about the same performance as the S&P 500.

In the past (e.g. 2003-2013), it has beaten the US indices. Impossible to tell if it will going forward.
Actually, as you can see from the chart below, the TSX has beaten the US index all the way from 2000-2019. But isn't it amazing how it "feels" different to people?

This is due to recency bias (the tendency to focus too much on most recent years) plus the confusion caused by currency exchange rates. The USD/CAD fluctuations confuse most people about which market is performing better.

There is nothing wrong with the TSX index. In fact in recent years, it's been performing about the same as all non-US stocks.

Here's some context, looking at total returns of XIU (the TSX 60) and S&P 500 both in CAD going back to 2000. They have the same 20 year performance. And actually, over the last 20 years, the TSX has had a steadier positive performance than the US has.


20709
 

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I want to emphasize again that the TSX has beaten the US for a very long time.

From Jan 1, 2000 to Jan 1, 2020 (that's 20 years), here are cumulative total returns in CAD:
XIU, the TSX 60, returned 190%
SPY, the S&P 500, returned 186%

What's really throwing people off is the recency bias. The S&P 500 started performing amazingly, in CAD, around 2013-2015.

Long term investors with passive portfolios should maintain their TSX weight according to their plan. There's no reason at all to think that the TSX has less performance potential than the S&P 500.
 

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One can play with Norm Rothery's Asset Mixer to see the effects for whatever period one wants over the past 50 years. Just set either of TSX Composite or S&P500 at 100 % for the periods one wishes. Norm's data is all CAD equivalent.

Recency bias is a major factor in performance chasing. Sometimes it (momentum or certain sectors) works for awhile until it doesn't. There is no substitute for geographical/regional diversification unless one wants to spend a lot of time looking at the markets.
 

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Discussion Starter #6
Yes I realize the TSX outperformed many years....I am talking about going forward. Energy is in terminal decline and financials need a proper yield curve to make $. Then add in no tech exposure and it's a lost cause.
 

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That is recency bias too, thinking what is strong today will continue that way indefinitely. Maybe for several years, maybe just a few years. There is no way to know in any given industry.

One simple example: Once the surplus is worked off in the oil industry, price will firm up in the $60-70 range. Even if oil demand falls by almost 50% to 50 million barrels per day, about $300B in capital will have to be spent every year to replace needed production. No one is doing the math over what is simply well understood metrics. 50 million bpd x 365 days x $15-18/B or so of development cost.
 

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Yes I realize the TSX outperformed many years....I am talking about going forward. Energy is in terminal decline and financials need a proper yield curve to make $. Then add in no tech exposure and it's a lost cause.
We do have some tech and the index adapts to all of this stuff over time anyway. Tech is now 12% of XIU, actually about identical to the weighting in energy. And remember that energy was once over 30% so it's more than halved in weight since then. The TSX of today does not look like the TSX of 2002 or 2006.

The index is ever-changing and I like the direction the index has evolved in over the last few years.

Also keep in mind that the US has reached some pretty insane, bubble-like valuations. Take a look at the Shiller PE. With more sensible valuations, it's very possible the TSX will outperform the S&P 500 going forward.
 

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Yes I realize the TSX outperformed many years....I am talking about going forward. Energy is in terminal decline and financials need a proper yield curve to make $. Then add in no tech exposure and it's a lost cause.
No tech exposure?
Shopify might be the only well known headline company, but they're not the only ones.
Also we've had some major tech companies in Canada, but they come and go, just as they do in the US.

Remember AOL or Yahoo? Corel?
 

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A couple of other ones are Constellation Software and Open Text.
In other cases, the disappearance is because of a US based buyout. There are also some tech companies whose main market is the US where to get around the "buy US" theme, they incorporate in the US but have upwards of ninety percent of their staff in Canada. Similar to some of the oil and mining companies whose main business is in other part of the world.


Cheers
 

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There are lots of companies with big Canadian offices, Ubisoft made several of their top tier games in Canada.
Google is building out offices and buying up companies like crazy.

I know several "Aqui-Hires", where they buy the company simply to get the staff they want.
 

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We do have some tech and the index adapts to all of this stuff over time anyway. Tech is now 12% of XIU, actually about identical to the weighting in energy. And remember that energy was once over 30% so it's more than halved in weight since then. The TSX of today does not look like the TSX of 2002 or 2006.

The index is ever-changing and I like the direction the index has evolved in over the last few years.
The Energy sector is now majority weighted in Pipelines. As I seem to recall reading recently in the G&M, true O&G is now 3% of the TSX Composite. Even if it is 5-6% or thereabouts, it is really a non-issue. As you say the index is ever-changing as it should.
 

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The Energy sector is now majority weighted in Pipelines. As I seem to recall reading recently in the G&M, true O&G is now 3% of the TSX Composite. Even if it is 5-6% or thereabouts, it is really a non-issue. As you say the index is ever-changing as it should.
That's very interesting, I didn't realize 'true O&G' is that low. Amazing.
 

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Took the time to fine the actual G&M article which is behind paywall, but a quote
Pipelines and storage companies now make up nearly two-thirds of the energy component of the S&P/TSX Composite Index – that’s an eight-fold rise in the subsector’s relative size over the past 12 years.

As a result, Canadian index investors are much more heavily invested in transporting oil and gas than in exploring and producing it.

Unfortunately, in the COVID-19 crisis, the entire energy complex has been walloped. While pipeline stocks have held up a bit better, the big names are still down by roughly 30 per cent from their prepandemic peaks.

Current pressures aside – and there are many of them – there is good value in Canadian pipelines, said David Sherlock, chief investment officer at SAGE Connected Investing.

“The yields are high and attractive. They have positive earnings. And they’re delivering a commodity that people will need, no matter what price.”

You can’t say the same about explorers and producers (E&Ps), Mr. Sherlock added.

A little more than a decade ago, when American crude was trading well in excess of US$100 a barrel, Canadian E&Ps accounted for more than a 25-per-cent share of the overall market capitalization of the S&P/TSX Composite Index. Today, that figure sits at just 3 per cent.
 

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Discussion Starter #15
Yet another day where US markets up and TSX down. What exactly is driving this if Energy is a nothing burger as some stated above??
 

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Yet another day where US markets up and TSX down. What exactly is driving this if Energy is a nothing burger as some stated above??
Try looking at the performance of each sub-sector. I am sure you will find some are laggards, or more likely it could be the Tech sector is continuing to drive the S&P500 where I think the weighting is already around 20%. Several S&P500 sectors are lagging considerably.
 
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