Comparing the Equity Markets of U.S. and Canada

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The sectors composition of the US and Canadian equity markets differ widely. The Canadian market as represented by the TSX index is heavy in energy, financials and materials. Together these sectors make up over two-thirds of the index. On the other hand, the S&P 500 is highly concentrated in the information technology sector. Overall the Canadian market is dominated by cyclical sectors which tend to move up and down with the economy. When the economy expands, cyclicals grow and vice versa. Counter-cyclical sectors do not move in lockstep with the economy. Example of this sector include utilities and consumer staples. Consumers depend on them regardless of the state of the economy.

The following chart shows the comparison of the US and Canadian equity markets:

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Source: What’s the relationship between the stock market and the economy?, RBC Asset Management

Following a strategy based on the sector composition of the markets, investors looking to profit from growth in US equities can go with with US mega caps such as Amazon(AMZN), Microsoft(MSFT), Apple(AAPL), etc. Similarly, those that want to diversify and add stocks from Canada are wise to add banks like Bank of Nova Scotia (BNS), Royal Bank of Canada (RY), Suncor Energy Inc (SU), etc.

Disclosure: Long BNS, RY

Because Every Country is The Most Beautiful at Something: Infographic

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A cool infographic showing the countries of the world noted with their best “thing” landed in my inbox recently. The chart compiled by authors at “Information is Beautiful” site ranked countries based on a variety of factors such as health, nature, safety, renewables, etc. Canada for example is top country for most top 100 box office hit productions. This is not surprising since Hollywood makes many movies in Canada substituting Toronto for instance for many large US cities. Moreover most people can’t notice the difference when cities such as Toronto or Montreal is shown as LA or Atlanta or other cities. Language and other factors add additional benefits as well. Similarly Chile is noted for being the best in green tourism.

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Source: Information is Beautiful

The above link has an interactive version of the chart.

The Competitive Advantages of Frontier Markets: Infographic

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In the universe of equity markets, the developed world has the most advanced and efficient market. Emerging markets occupy the next place followed by frontier markets. Most major emerging markets are widely followed and get major coverage in the media as well. However frontier markets do not get as much attention since these markets are considered to be the wild west of investing.

The index provider MSCI currently classifies 27 countries as frontier markets in the MSCI Frontier Markets Index. These include markets like Vietnam, Morocco, Bahrain, Iceland, Kazakhstan, etc. Other notable countries in the frontier markets include Colombia, Peru, Argentina, Philippines, etc. According to Schroders, frontier markets offer some of the exciting investment opportunities in the world due to their competitive advantages over other markets. The following is an infographic showing some of the competitive advantages of these markets:

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Source: Schroders

Related ETF:

  • iShares MSCI Frontier and Select EM ETF (FM)

Disclosure: No positions

Concentration in the US Equity Market in the Long Term

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The makeup of the US stock market has evolved over the past two centuries according to the changes in the economy. When the market was first established in the 1800s financial firms were the only ones listed as per an article in the Ruffer Review published last year. Transportation firms especially the railroads dominated in the 1850s. For most of the 20th century energy and materials were the major sectors in the US market.

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Source: Market Concentration – the long view, Ruffer Review 2019

Today technology and communications account for about 40% of the market. This is actually less concentration than in the 19th century when the largest sector accounted for more than half of the market.

Sector Composition of the S&P 500 Index:

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Source: S&P Global

Related ETFs:

  • SPDR Dow Jones Industrial Average ETF Trust (DIA)
  • SPDR S&P 500 ETF (SPY)

Disclosure: No Positions