Global X announced on Thursday the launch of the S&P/TSX Venture 30 Canada (TSXV), the first ETF to target companies on Canada’s junior exchange. The TSX Venture Exchange was created in 1999 after major Canadian stock exchanges agreed to restructure the country’s financial markets by market capitalization. The Venture Exchange includes companies too small in terms of assets and market capitalization to be listed on the Toronto Stock Exchange, and as a result has historically been dominated by resource exploration and junior mining companies.
TSXV will seek to replicate the S&P/TSX Venture 30 Index, a benchmark that includes the 30 most liquid securities of the S&P/TSX Venture Composite Index. The index is split between materials and energy companies, making TSXV an option for gaining exposure to the small cap segment of Canada’s natural resources industry. The largest components of the index include gold discovery firms Atac Resources and Rainy River Resources, as well as oil exploration and production company Canacol Energy. Significant weightings are also given to companies such as Rare Element Resources and Quest Rare Minerals that focus on the discovery and mining of rare earth metals, giving TSXV exposure to a wide variety of commodity-intensive equities.
“We are pleased to provide the first vehicle that easily tracks the S&P/TSX Venture 30 Index,” said Bruno del Ama, ceo of Global X Funds. “Our innovative product allows investors access to a previously difficult to trade, illiquid market.”
TSXV is unique in its focus on small cap companies that are generally engaged in more speculative exploration activities. Because proven reserves of these firms may be minimal, individual resource exploration stocks can be risky plays; while there is tremendous upside potential, the risk of failure is heightened as well. That makes this asset class ideal to access through an ETF that spreads exposure across more than two dozen individual names, reducing exposure to company-specific risk and increasing the odds of a holding striking gold–literally.
TSXV vs. CNDA
IndexIQ offers a Canada Small Cap ETF (CNDA) that focuses on smaller companies listed on the Toronto Stock Exchange, Canada’s primary bourse. The TSX Venture Exchange is headquartered in Calgary, and was originally formed by the merger of the Vancouver Stock Exchange and the Alberta Stock Exchange. The largest component of the index underlying TSXV has a market capitalization of about $580 million; CNDA’s largest holding, Pan American Silver Corporation, is worth about $3.5 billion [use the Country Exposure Tool to see all ETFs with Canada exposure].
Another difference between the two funds relates to the nature of the underlying companies. TSXV’s holdings will be more speculative in nature, including firms primarily engaged in exploration. The same may be true to some extent for companies in CNDA, though many companies will maintain more established operations. Pan American Silver, for example, is the world’s second largest primary silver producer.
CNDA is also heavy in materials and energy, allocating about 70% of total holdings to these two sectors. The remaining holdings are spread across a number of different sectors, including industrials, financials, and technology. So TSXV is more of a pure play on energy and materials, whereas CNDA maintains a heavy tilt towards these sectors but rounds out holdings with exposure to other corners of the Canadian economy as well.
Growing Commodity ETF Lineup
Investors seeking exposure to natural resource prices have no shortage of options in the ETF world. In addition to physically-backed and futures-based funds, there are a number of ways to achieve exposure to commodities through the stocks of companies engaged in the discovery, extraction, and sale. Because the profitability of these companies depends on the prevailing market price for their products, stock prices generally exhibit strong correlations to movements in the spot price of the underlying commodities. Because mining and exploration companies often maintain considerable fixed costs, ETFs focusing on commodity-related equities can often trade as a leveraged play on the related resource [see ETF Options For Contango Free Commodity Exposure].
There are now more than two dozen ETFs in the Commodity Producers Equities ETFdb Category, including both broad-based products and funds targeting specific resources. Global X is behind a number of these products, including funds focusing on gold explorers (GLDX), silver miners (SIL), and copper miners (COPX).
TSXV will charge an expense ratio of 0.75%.
Disclosure: No positions at time of writing.