The TSX Completion Index is a key benchmark in the Canadian equity market that often flies under the radar, despite playing an essential role in portfolio diversification and investment strategy. For those seeking to understand the broader Canadian stock market beyond the large-cap companies that dominate the headlines, the TSX Completion Index offers a more complete view. This article explores what the TSX Completion Index is, how it’s constructed, why it matters, and how investors can use it in their portfolios.
What Is the TSX Completion Index?
The TSX Completion Index, officially known as the S&P/TSX Completion Index, includes all stocks listed on the Toronto Stock Exchange (TSX) that are part of the S&P/TSX Composite Index excluding those in the S&P/TSX 60 Index. In simpler terms, it represents the mid- and small-cap segment of Canada’s public companies.
While the S&P/TSX 60 Index tracks the 60 largest and most liquid Canadian stocks — often the big banks, energy companies, and telecom giants — the TSX Completion Index captures everything else in the Composite. It’s the “completion” to the TSX 60, providing exposure to the rest of the equity market.
Key Characteristics
Market Capitalization: Companies in the TSX Completion Index are typically smaller than those in the TSX 60, ranging from mid-cap to small-cap status.


Sector Diversity: This index adds diversification, often containing sectors and companies underrepresented in the TSX 60.


Volatility: Smaller-cap stocks generally exhibit higher volatility, and so the Completion Index may show more price swings compared to the TSX 60.


Growth Potential: Mid- and small-cap companies can offer higher growth prospects, though at increased risk.


Why the TSX Completion Index Matters
Investors often focus on the TSX 60 because of its size and familiarity. However, this can lead to overconcentration in large-cap stocks, particularly in the financial and energy sectors. The TSX Completion Index addresses this issue by adding exposure to other sectors and companies, thereby improving diversification.
Here are some reasons why the Completion Index is significant:
Broadens Exposure: It allows investors to access a more representative slice of the Canadian economy beyond the heavyweights.


Enhances Diversification: Reduces reliance on a few major players and spreads risk across a wider array of stocks.


Improves Risk-Return Profile: While small and mid caps are riskier, combining them with large caps can enhance portfolio performance over time.


Complements Passive Investing: When used alongside a TSX 60 ETF, the Completion Index can create a more comprehensive passive investment strategy.


How It's Used in Portfolio Construction
Investors can use the TSX Completion Index in a variety of ways:
1. Completing the Market
As the name suggests, one of the most straightforward uses is to pair a TSX 60 Index fund with a Completion Index fund to effectively replicate the full TSX Composite Index. This gives the investor complete exposure to Canada’s equity market without unnecessary duplication.
2. Tactical Allocation
Some investors may overweight or underweight the Completion Index based on market outlooks. For instance, during a bull market, investors might tilt toward the Completion Index due to the growth potential of smaller companies.
3. Diversifying Sector Risk
Large-cap indices like the TSX 60 are often concentrated in a few sectors (e.g., financials and energy). The Completion Index includes more exposure to sectors like technology, industrials, consumer discretionary, and healthcare, helping reduce sector-specific risks.
Example: Combining TSX 60 and Completion Index
To simulate the full S&P/TSX Composite Index, investors may choose to allocate their funds proportionally between the TSX 60 and the Completion Index. A common split might look like:
TSX 60: 70%


TSX Completion Index: 30%


This mirrors the weighting of large-cap vs. mid- and small-cap stocks in the broader market.
ETFs Tracking the Completion Index
For individual investors, the most convenient way to invest in the TSX Completion Index is through Exchange-Traded Funds (ETFs). These funds aim to replicate the performance of the index by holding a portfolio of the underlying stocks.
By investing in a Completion Index ETF, investors gain low-cost, diversified exposure to a broad group of Canadian companies that they might otherwise overlook.
Risks and Considerations
As with any investment, the TSX Completion Index has its risks:
Higher Volatility: Mid- and small-cap stocks can be more volatile and less liquid.


Economic Sensitivity: These stocks are often more sensitive to economic cycles.


Lower Dividend Yields: Compared to large caps, Completion Index constituents may pay smaller or no dividends.


Conclusion
The TSX Completion Index is a powerful yet underappreciated tool for Canadian investors. It offers exposure to a broader, more diversified segment of the market, balancing out the large-cap dominance of the TSX 60. By understanding and utilizing this index, investors can build more complete, resilient, and growth-oriented portfolios.
Whether you're a passive investor aiming for full-market coverage or an active investor seeking opportunities in underrepresented sectors, the TSX Completion Index is worth your attention. It’s the missing puzzle piece for a truly complete view of the Canadian equity landscape.