2007 TSX Performance worse than you think…

You may already know that Canada’s TSX stock market is very poorly diversified. The energy, materials and financial sectors make up three-quarters of the index! Also, our Technology "sector" is basically RIM (Research in Motion) – so when an analyst says you should be overweight or underweight Technology, he’s basically telling you to buy or sell RIM! :)

ChasingTheMarketsOrRisk.jpgAccording to Bloomberg, the TSX was up 7.16% for 2007 – and many are happy with the positive number even though it is not in the double digit range that we have been used to from 2003 to 2006 (inclusive). (As Financial Jungle points out in a comment on this post – the TOTAL return including dividends is approximately 9.62% as the dividend yield was approximately 2.5%)

An analysis of the point contributors to the TSX’s performance for the 2007 year reveals that perhaps the Canadian market faired much worse than the headline numbers might indicate. It turns out that 72% of the market’s performance can be attributed to only 3 stocks. The TSX started the year at 12,908.39 and ended at 13,833.06 for a total gain of 924.67 points. Here were the top 3 contributing stocks:

RIM – 275.02 points added to index

Potash – 260.914 points added to index

Alcan – 130.321 points added to index

And again, as FinancialJungle indicated – the dividends from the stocks in the index made up just over 25% of the total return. 

Does that change your take on the market’s overall performance for 2007? 

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Preet Banerjee
Preet Banerjee
...is an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
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  • FinancialJungle

    TSX’s total return is ~9.62%: 7.12% from capital gains and 2.5% from dividend yield. In other words, more than a quarter of the net gain comes from dividends alone.

    Finally, I think it’s only fair if the analyst removes both the top 3 as well as the bottom 3 stocks to reveal a clearer picture of how the the rest of the index did in 2007.

  • moneygardener

    I thought you mentioned you were looking at BNS. Have you added some yet, I am starting to get interested in adding more myself.


  • Preet

    Hi FJ – thanks for the additional info, I have added it to the post and included a link to your site.

    MG – BNS is trading at 48.07 as I write this (yield of 3.91%). I may add some for clients between 3pm and 4pm depending on what the day’s action bring from this point on since the day has been brutal so far. I’m also fine to wait until Monday too. I’m keeping an eye on volumes of bids to see where the institutions have pegged their orders – in that case I’ll set my bid just a tick higher so the order gets filled first and I have an educated guess from the bid volume as to how low the stock will get to before the pro’s decide to buy and stop the price from falling further.

    But even if it kept falling, I’d be happy knowing I was getting almost 4% on my money since the dividend is strong and not going anywhere.

  • moneygardener

    I’d like to get some more under $48. Let me know what you end up doing…

  • Preet

    I ended up getting filled at 48.03. I also bought some more RIM at 104.33 today.

  • moneygardener

    I held off, we’ll see what next week brings…

    Bank of America is also tempting me…

  • FinancialJungle

    I like to add more to BNS and BAC too! I wished all these deals were available when I first began dividend investing. It isn’t too hard to contruct a diversified 4% to 5% yield portfolio.

  • Preet

    The negative sentiment may continue on to Monday – I think it was Peter Lynch who noted that Mondays tended to have a lot of downward pressure becuase people have the whole weekend to worry. :)

  • moneygardener

    I doubled my position today at $47.39

  • Preet

    I was thinking about you as my Reuters terminal glowed red enough to give me a (deeper) tan… :)

    RIM touched $96.03 at one point, back up to $100 now.

    But nice score on BNS! I would add more, but I’m at 5% of total portfolio as is – gotta stick to my investment policy – no exceptions!