Alternative Index Choices for Canada

The ever-changing environment of business has led to significant changes in the index world.  As with any market, consumers or market participants require more options in order to operate in such a fast-paced environment.  For many years, Canadians have relied on a singular index provider to represent their market.  As the pressures of the current business environment require cost controls, additional service demands, or regulatory review, the need for additional service and provider options increases.

The S&P Dow Jones Indices series of Canadian indices offers competitive alternatives for benchmarking, product issuance, and data needs.  The minimum par amount outstanding required for sovereign bonds is CAD 1 billion.  With the exception of sovereign bonds, the minimum par amount outstanding required for a bond to be eligible for index inclusion is CAD 250 million.

In comparison, the FTSE TMX Canada Universe Bond Index requires CAD 100 million for corporate bonds and CAD 50 million for government bonds, which include municipal and provincial bonds.  The higher minimum par amount outstanding enables S&P DJI’s indices to capture the market’s performance while also providing a universe of more liquid bonds.

Exhibit 1 shows a structural and return comparison between the two index providers of comparable bond universes.

The posts on this blog are opinions, not advice. Please read our disclaimers.

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