Canadian equities

Canadian equities, for the purpose of this article, are common shares that trade on the Toronto Stock Exchange. Other types of Canadian equities, such as real estate investment trusts (REITs) or preferred shares, are covered elsewhere.

Canadian equities represented 3% of world stock markets at the end of 2019. Nevertheless, many Canadian investors invest much larger portions of their portfolios in the domestic stock market. Reasons for this home country bias include a preference for the familiar, avoiding too much exposure to foreign currencies, and for taxable accounts, the dividend tax credit.

Benchmarks
Canadian equities are typically benchmarked against the S&P/TSX Composite Index. An alternative is the FTSE Canada All Cap Index, used by a Vanguard Canada ETF. The two are very highly correlated, see Canadian indices for a comparison graph. Large capitalization stocks are tracked by the S&P/TSX 60 Index.

Diversification
The Canadian stock market is significantly less diversified than the US stock market (or the European market), and tends to be heavily focused in three sectors : financials; energy; and materials. This lack of diversification can lead to some difficulties in indexing, as the so-called 'broad indexes' may, on occasion, be relatively concentrated. Possible strategies to overcome this problem include global diversification, i.e. investing in foreign equities as well as in the domestic stock market, or stock picking to mainting a better sector balance (see diversification strategies for more details).

Mutual funds and exchange-traded funds
Countless actively managed mutual funds cover Canadian equities, but their asset-weighted management expense ratio are among the highest in the world. Passively managed index funds and exchange-traded funds (ETFs) are also available and tend to have much lower fees. A notable index fund is the TD Canadian Index Fund - e, Fund Code TDB900, with a 0.28% MER.

Many ETFs similarly follow the S&P/TSX Composite Index, or rather its capped version. TSX-listed examples are the iShares Core S&P/TSX Capped Composite Index ETF (XIC) and the BMO S&P/TSX Capped Composite Index ETF (ZCN). Vanguard Canada offers the FTSE Canada All Cap Index ETF (VCN) which follows a different index as noted above.

Other ETFs covering Canadian equities have a narrower focus such as large caps (e.g., XIU or VCE). Note that as of September 2021, XIU still has a management fee of 0.15% (MER of 0.18%) at a time when XIC, ZCN, VCE and VCN all charge about 0.05% (MER 0.06%).

Stock picking
Some Canadians include individual stocks in their portfolios. Such stocks may be selected according to several different investment styles, depending upon the investor.