CIBC says Fairfax is likely to be added to the S&P/TSX 60 in December 2024 - sell decisions

[Hoodlum]

37 minutes ago, vinod1 said:

 

90x BV sure, but we should be talking about more realistic cases.

 

I think many of us bought in the $450-$480 range a couple of years ago when BV is like $480ish. Say it spiked to $900 immediately, I would have been tempted and most likely would have sold off my entire position at that price.

 

But instead it went up gradually while the improvement in business fundamentals are becoming more visible each year. Even as it climbed it is still quite attractive so I was able to hold on and even add to it.

 

If I find a business that is going to grow at high rates of return I would want it to remain at a reasonable price for as long as possible. 

 

Imagine Buffett selling Geico because someone offered to buy it at 4x BV or whatever he paid soon after purchase.

I would say that the gradual rise in share price along with the continued improving business has likely stopped me from selling earlier.  I have had to reset more than once at what valuation I would consider selling Fairfax. 

[Hamburg Investor]

18 hours ago, vinod1 said:

If I find a business that is going to grow at high rates of return I would want it to remain at a reasonable price for as long as possible. 

 

Imagine Buffett selling Geico because someone offered to buy it at 4x BV or whatever he paid soon after purchase.

If ones goal would be to beat the market over the very longrun (and maybe having to pay taxes, among the fees and the spread, when jumping from one stock to the next), say 15%, say 40 years (that’s more than a 64-bagger or an 8-bagger over 20 years), why should one sell FFH? 100k today would be an option, but your example with Geico leads the way: Other than at extreme elevated levels and having a better idea in terms of value creation, selling often isn’t the best idea.

I see a lot of stock, that might do better over the longterm, but I don’t find a lot, where I am so sure about beating the market by a bit. 

[villainx]

23 hours ago, vinod1 said:

90x BV sure

 

I'm not greedy, 50x BV would be enough.

[MMM20]

Just gimme ~3x BV like WRB and I’ll be a happy man. 

[SafetyinNumbers]

5 hours ago, MMM20 said:

Just gimme ~3x BV like WRB and I’ll be a happy man. 

Or IFC at ~3x. Canadians are willing to pay it, just not for FFH yet. I think that we’ll get there while we still have reasonably high visibility on forward ROE which makes it easier to hold. 

[Junior R]

3 hours ago, SafetyinNumbers said:

Or IFC at ~3x. Canadians are willing to pay it, just not for FFH yet. I think that we’ll get there while we still have reasonably high visibility on forward ROE which makes it easier to hold. 

I think its cause Canadian's love consistent dividend hikers and higher yield vs growth and lower yield...but eventually FFH will get over 2x book value 

[SafetyinNumbers]

40 minutes ago, Junior R said:

I think its cause Canadian's love consistent dividend hikers and higher yield vs growth and lower yield...but eventually FFH will get over 2x book value 

Like all quants, Canadian institutions, like growing highly predictable earnings estimates. Actually hitting them is not a real concern. It will be interesting if Fairfax shareholders hold on to their shares long enough to get the multiple expansion tney deserve. If not, more buybacks.

[Junior R]

5 minutes ago, SafetyinNumbers said:

Like all quants, Canadian institutions, like growing highly predictable earnings estimates. Actually hitting them is not a real concern. It will be interesting if Fairfax shareholders hold on to their shares long enough to get the multiple expansion tney deserve. If not, more buybacks.

yup I would have them buyback as much as they can before any dividend hikes

[dartmonkey]

From Yahoo FInance: "Anglo Teck would maintain its listings on the London and Johannesburg stock exchanges and also apply for listings on the Toronto and New York stock exchanges. The plan is to keep the company incorporated in London, which would mean the S&P/TSX composite index would lose Teck from its listings, since companies need to be based in the country to be included."

 

Teck is the #49 Canadian company, by market cap. It is in the materials category of the S&P TSX Composite and the S&P,  so if the deal goes through, which I expect it will, it would be dropped from both. It's market cap before today's 10% jump was about $24b, representing about 1% of the TSX 60, 0.8% of the ~210 companies on the TSX Composite and 0.6% of all ~1500 stocks traded on the TSX. 

 

Fairfax, at C$54b market cap, is currently the 25th biggest Canadian company, and by far the biggest not already included in the TSX 60. So it would seem likely that this might be its moment. It would skew the weight of the Financials in the TSX 60 a little farther from the overall Canadian market (currently 37% of the TSX 60, and 'only' 21% of the Composite), but what is the alternative? I suspect that is the reason FFH shares are up 2.2% today. But the S&P will probably wait for the merger to be approved before they toss Teck. The Globe thinks this might take Investment Canada a year and a half to decide (WTF?), so we had better be patient.

Edited September 9, 2025 by dartmonkey

[SafetyinNumbers]

36 minutes ago, dartmonkey said:

From Yahoo FInance: "Anglo Teck would maintain its listings on the London and Johannesburg stock exchanges and also apply for listings on the Toronto and New York stock exchanges. The plan is to keep the company incorporated in London, which would mean the S&P/TSX composite index would lose Teck from its listings, since companies need to be based in the country to be included."

 

Teck is the #49 Canadian company, by market cap. It is in the materials category of the S&P TSX Composite and the S&P,  so if the deal goes through, which I expect it will, it would be dropped from both. It's market cap before today's 10% jump was about $24b, representing about 1% of the TSX 60, 0.8% of the ~210 companies on the TSX Composite and 0.6% of all ~1500 stocks traded on the TSX. 

 

Fairfax, at C$54b market cap, is currently the 25th biggest Canadian company, and by far the biggest not already included in the TSX 60. So it would seem likely that this might be its moment. It would skew the weight of the Financials in the TSX 60 a little farther from the overall Canadian market (currently 37% of the TSX 60, and 'only' 21% of the Composite), but what is the alternative? I suspect that is the reason FFH shares are up 2.2% today. But the S&P will probably wait for the merger to be approved before they toss Teck. The Globe thinks this might take Investment Canada a year and a half to decide (WTF?), so we had better be patient.

I posted about this on Twitter last night (@brownmarubozu if anyone is interested). 
 

It does look highly probable that an opening is coming in the next 12-18 months. The other two alternatives are CLS and RBA which are smaller but not financials so it’s possible they will skip FFH in their favour. Here is what the weightings look like now. I also included the exposure breakdowns. They could jump to RBA and justify it based on the industrial weighting.

 

[TwoCitiesCapital]

The longer it takes them, the less competition we all, and Fairfax, has for shares. 

 

Hopefully they take their time to approve and close on the deal so the gift can keep on giving. 

[SafetyinNumbers]

3 hours ago, TwoCitiesCapital said:

The longer it takes them, the less competition we all, and Fairfax, has for shares. 

 

Hopefully they take their time to approve and close on the deal so the gift can keep on giving. 

For sure. The longer it takes the better but it happens when it happens. 

[dartmonkey]

16 hours ago, SafetyinNumbers said:

It does look highly probable that an opening is coming in the next 12-18 months. The other two alternatives are CLS and RBA which are smaller but not financials so it’s possible they will skip FFH in their favour. Here is what the weightings look like now. I also included the exposure breakdowns. They could jump to RBA and justify it based on the industrial weighting.

Yes, this is certainly a distinct possibility. As the S&P says in its methodology paper, "Within the S&P/TSX Composite, the S&P/TSX 60 covers large cap securities, with a view to matching the sector balance of the S&P/TSX Composite" (my emphasis.) As far as I can tell, it doesn't explicitly say that it is looking to include all the largest cap securities, just that they should be covered and match the Composite's sector balance. So one could argue that both CLS and particularly RBA would be better choices.

 

At the moment, for the 3 sectors, as of August 29, we had

Financials - In the Composite: 32.1%; in the 60: 36.8%, so the 60 is 4.7% overweight already, and more so with the loss of Teck, and the inclusion of FFH would make this about 1.5% worse;

Information technology - Comp: 10.5%; 60: 11.4%, so 0.9% overweight already, and more with the loss of Teck, and the inclusion of CLS would make this about 1% worse;

Materials* - Comp: 14.8%; 60: 12.2%, so 2.6% underweight. The loss of Teck, with its weight of about 0.7%, would mean that the 60 would be about 3.3% underweight, and the inclusion of RBA would make this about 0.8% better.

 

So on this basis of this criterion, RBA would be the most logical pick, not FFH; they would be replacing a 'materials' company with another one, albeit smaller, but any other choice from the 3 biggest would make the weightings worse. (Is RB Global really a 'materials' business? It is basically an auctioneer, and this is how they describe themselves: "RB Global is your trusted global partner for insights, services, and transaction solutions for commercial assets and vehicles." But I don't think the S&P committee is going to get into the weeds about how much a 'materials' company really gets its hands dirty with actual materials.)

 

If it really is going to take Investment Canada a year or more to decide whether they will approve of the Anglo American - Teck deal, there's a good chance some other opening in the 60 will crop up in the meantime, and for people hoping that Fairfax gets in, they should hope it's a financial company that is leaving, not a materials company.

 

[SafetyinNumbers]

1 hour ago, dartmonkey said:

Yes, this is certainly a distinct possibility. As the S&P says in its methodology paper, "Within the S&P/TSX Composite, the S&P/TSX 60 covers large cap securities, with a view to matching the sector balance of the S&P/TSX Composite" (my emphasis.) As far as I can tell, it doesn't explicitly say that it is looking to include all the largest cap securities, just that they should be covered and match the Composite's sector balance. So one could argue that both CLS and particularly RBA would be better choices.

 

At the moment, for the 3 sectors, as of August 29, we had

Financials - In the Composite: 32.1%; in the 60: 36.8%, so the 60 is 4.7% overweight already, and more so with the loss of Teck, and the inclusion of FFH would make this about 1.5% worse;

Information technology - Comp: 10.5%; 60: 11.4%, so 0.9% overweight already, and more with the loss of Teck, and the inclusion of CLS would make this about 1% worse;

Materials* - Comp: 14.8%; 60: 12.2%, so 2.6% underweight. The loss of Teck, with its weight of about 0.7%, would mean that the 60 would be about 3.3% underweight, and the inclusion of RBA would make this about 0.8% better.

 

So on this basis of this criterion, RBA would be the most logical pick, not FFH; they would be replacing a 'materials' company with another one, albeit smaller, but any other choice from the 3 biggest would make the weightings worse. (Is RB Global really a 'materials' business? It is basically an auctioneer, and this is how they describe themselves: "RB Global is your trusted global partner for insights, services, and transaction solutions for commercial assets and vehicles." But I don't think the S&P committee is going to get into the weeds about how much a 'materials' company really gets its hands dirty with actual materials.)

 

If it really is going to take Investment Canada a year or more to decide whether they will approve of the Anglo American - Teck deal, there's a good chance some other opening in the 60 will crop up in the meantime, and for people hoping that Fairfax gets in, they should hope it's a financial company that is leaving, not a materials company.

 

RBA is an Industrial as shown below but the same logic applies. Scotia is apparently out with a note today and have RBA as their top pick to replace. The committee apparently told brokers last year that size matters more than sector weighting but it probably matters what the relative size is when it happens. 
Last year FFH was much bigger than TFII the next biggest component, right now the spread is smaller.

[Hamburg Investor]

20 hours ago, SafetyinNumbers said:

RBA is an Industrial as shown below but the same logic applies. Scotia is apparently out with a note today and have RBA as their top pick to replace. The committee apparently told brokers last year that size matters more than sector weighting but it probably matters what the relative size is when it happens. 
Last year FFH was much bigger than TFII the next biggest component, right now the spread is smaller.

I don’t know if I get you (what do you mean with „relative size“?) and the whole thing right; but anyhow here’s just an additional thought:

 

The difference between FFH and RBA (which seems to be the most likely concurrent to FFH) is 10bn now and it has been 6bn last year to TFII, if I get your screenshots right. So while the spread today is less in relative terms it is wider in absolute terms (or nearly the same than last year if compared to CLS). I know „spread“ normally refers to relative numbers. But still I think it’s worth noting. BTW: I don’t get, why FFH seems to have doubled in value, following your screenshots, while it hasn‘t in reality? Or is one in US dollar and the other CAD?
 

Another perspective: While the index is up around 23 per cent within the last year, FFH is up double that number (46 per cent).

 

So if „size“ should be more important than sector (which is what they say), than the pressure of taking in FFH today should be bigger than last year. FFHs size has outgrown the average index component again by far, so it would be less understandable today than last year, if they are not getting part of the index; at least, as long as size matters more than sector, which gets only a „view“.
 

Which does not mean I want them to put FFH into the index…   As a longterm holder I am happy for every cheap share, that FFH is able to buy back.

[Hamburg Investor]

BTW: If FFH would be added to the TSX today, it would be a bit above the median component in terms of market cap (54bn CAD versus 45bn CAD), and a bit below the average market cap (54bn CAD versus 61bn CAD). It would be on position 26 out of the 60. It would be about 1.5 % of the TSX60, while the average component is 1.7%. So all in all: FFH would be pretty average. Not big, not small. 
 

RBA with a market cap of 29bn CAD would be around two thirds of the median component and half the average company and it would be on position 41 of the 60 and around 0.8% of the TSX60. So all in all, that’s the description of a rather small new component. 

 

Looking at it from that perspective I see two things:

1. SIZE: FFH and RBA are clearly different in terms of size: One is among average, the other underaverage/small. FFH is not so far from double RBAs market cap. That’s a big difference.

 

2. SECTOR WEIGHTING: Although different in size with 1.5% and 0.8% of the TSX60, both are clearly not big enough to move the needle in terms of sector components in a meaningful way.  That’s true, even though RBA would bring the sector weighting to a more wanted direction, as @dartmonkey has shown above (thank you!).

 

From this angle I tend to think, they‘d have to add FFH. There is clearly a meaningful difference between RBA and FFH in terms of size. But both only have little impact on the sector weighting; it’s not perfect now, and won’t be perfect after an addition of any of the two. It would be a bit worse with FFH and a bit better with RBA. Not meaningful in my eyes.
 

So as long as size is the main criteria with only „a view“ to the sector balance, to me it would feel wrong letting out FFH for a company nearly half its size, letting out the 26th biggest Company of Canada out of an index, that wants to mirror the 60 biggest companies of the Country.
 

But this is only my thinking. They do what they do (and again I am happy for a low stock price below intrinsic value over a looong time).

 

 

 

 

 

[dartmonkey]

20 hours ago, Haryana said:

On 9/10/2025 at 11:07 AM, dartmonkey said:

Yes, this is certainly a distinct possibility. As the S&P says in its methodology paper, "Within the S&P/TSX Composite, the S&P/TSX 60 covers large cap securities, with a view to matching the sector balance of the S&P/TSX Composite" (my emphasis.) 

Right, you have put emphasis on what comes later in the sentence.

Their primary criteria is "large cap securities" and the rest is a "view".

This means that they will look at sector if there was a close/tie on the size.

They had confirmed along same lines to the analysts when asked about it.

What they actually do may be different but size matters more as per policy.

 

Given the language from the S&P document, with criteria such as 'the S&P/TSX 60 covers large cap securities' and 'with a view to matching the sector balance of the S&P/TSX Composite', I don't know how anyone could be as confident as you seem that 'size matters more'. You may be right about size mattering more, but I would be much more confident if they expressed this clearly, along the lines you propose, saying we "will look at sector if there was a close/tie on the size."

 

In particular, how am I supposed to understand 'covers large cap securities'? Do you think this means 'will include all or pretty much all the largest cap securities'? I think you could equally well understand this to mean that all the securities chosen will be large caps, say out of the biggest 100 or so, with market sector being a secondary criterion (note that this is the singular word, not criteria which is plural.)

 

Anyways, this is idle speculation on my part, since we will probably never have any way of really knowing, and it may just depend on how committee members choose to interpret these somewhat vague criteria.

[dartmonkey]

5 hours ago, Hamburg Investor said:

The difference between FFH and RBA (which seems to be the most likely concurrent to FFH) is 10bn now and it has been 6bn last year to TFII, if I get your screenshots right.

I think the screenshot you are referring to is saying what the total value of FFH shares is in the TSX completion ETF, i.e. the TSX Composite companies that are NOT in the TSX 60. It is not saying what their market cap is, which is considerably higher. 

[Hamburg Investor]

2 hours ago, dartmonkey said:

I think the screenshot you are referring to is saying what the total value of FFH shares is in the TSX completion ETF, i.e. the TSX Composite companies that are NOT in the TSX 60. It is not saying what their market cap is, which is considerably higher. 

That makes sense, thank you!

[SafetyinNumbers]

9 hours ago, Haryana said:

All major indices include based on how large the marketcap is as long the company has reasonable future. 

Therefore, I would assume priority of size over sector matching. Not only it is important for inclusion but the weight of inclusion proportional to the size or float in this Tsx case. 

The composite index be comparable to a broad US market index and the Tsx60 be comparable to the DJIA. 

The 60 is more comparable to the S&P 500. Both are committee based, market cap weighted and both are part of the S&P Global 1200. DJIA is a price based index. 

[SafetyinNumbers]

9 hours ago, Haryana said:

Btw, Ffh is currently included in the Tsx30 which has objective criterion. 

https://money.tmx.com/en/tsx30

Is there any money indexed to this?

[dartmonkey]

11 hours ago, SafetyinNumbers said:

The 60 is more comparable to the S&P 500. Both are committee based, market cap weighted and both are part of the S&P Global 1200. DJIA is a price based index. 

The 60 uses market sector representativity as a criterion, and none of the other indexes mentioned in this thread do, except the Dow Jones, for which market sector is one criterion among many. Most indexes are mostly or almost entirely market cap based, including the S&P 500 and the TSX Composite.

 

The S&P 500 does have some other criteria, in addition to market cap, including having several quarters of profitability, but it is almost identical to the biggest 500 USA-based public companies, just because it includes all of the biggest 220 or so companies, and these already account for 89% of the index, by my calculation. Another way of looking at this is that the biggest 500 companies have a total market cap of $59.6 trillion, and the total market cap U.S.-based companies within the top 500 that are excluded due to failing other criteria is $2.1 trillion. (The biggest ones are Super Micro Computer, The Trade Desk, CoinBase Global and Palantir, all less than $55b.)

 

The S&P 500 is really concentrated - to calculate these numbers, I looked at the cumulative percentage of the S&P 500 market cap, and this is already 49% for the first 20 companies, 75% for the first 100, and 89% for the first 224 (stopping at Kroger, market cap of $45.2b), all bigger than the biggest firm excluded, Super Micro Computer. So it doesn't matter much if ~15 of the remaining 276 smaller companies between #225 and 500 are excluded or not.  

[SafetyinNumbers]

44 minutes ago, dartmonkey said:

The 60 uses market sector representativity as a criterion, and none of the other indexes mentioned in this thread do, except the Dow Jones, for which market sector is one criterion among many. Most indexes are mostly or almost entirely market cap based, including the S&P 500 and the TSX Composite.

 

The S&P 500 does have some other criteria, in addition to market cap, including having several quarters of profitability, but it is almost identical to the biggest 500 USA-based public companies, just because it includes all of the biggest 220 or so companies, and these already account for 89% of the index, by my calculation. Another way of looking at this is that the biggest 500 companies have a total market cap of $59.6 trillion, and the total market cap U.S.-based companies within the top 500 that are excluded due to failing other criteria is $2.1 trillion. (The biggest ones are Super Micro Computer, The Trade Desk, CoinBase Global and Palantir, all less than $55b.)

 

The S&P 500 is really concentrated - to calculate these numbers, I looked at the cumulative percentage of the S&P 500 market cap, and this is already 49% for the first 20 companies, 75% for the first 100, and 89% for the first 224 (stopping at Kroger, market cap of $45.2b), all bigger than the biggest firm excluded, Super Micro Computer. So it doesn't matter much if ~15 of the remaining 276 smaller companies between #225 and 500 are excluded or not.  

It matters a lot to their valuation multiples. TD estimates that the passive demand for S&P 500 members is 17%+ of the float.

[dartmonkey]

15 hours ago, SafetyinNumbers said:

15 hours ago, dartmonkey said:

The S&P 500 is really concentrated - to calculate these numbers, I looked at the cumulative percentage of the S&P 500 market cap, and this is already 49% for the first 20 companies, 75% for the first 100, and 89% for the first 224 (stopping at Kroger, market cap of $45.2b), all bigger than the biggest firm excluded, Super Micro Computer. So it doesn't matter much if ~15 of the remaining 276 smaller companies between #225 and 500 are excluded or not.  

It matters a lot to their valuation multiples. TD estimates that the passive demand for S&P 500 members is 17%+ of the float.

That is a different point, and I'm not disagreeing with it. I'm just saying that the TSX 60 is quite different from the S&P 500, in that the S&P 500 ends up being almost identical to the biggest 500 USA firms, even if there are 15-20 different companies in the smallest 280 or so companies that represent 10% of the market cap of the S&P 500. Whereas the TSX 60 is quite different from the biggest 60 Canadian-based firms, and the committee making the choices really is using sector membership as an important criterion. The Dow Jones does this too, but it has an additional crazy twist, by virtue of the fact that the weighting its members is by share price and not by market cap. This makes Goldman Sachs its biggest component (0.4% of the S&P 500 because of its $238b market cap, but 8.8% of the DJ because of its $786 share price), explaining why some of the biggest companies like Alphabet or Berkshire will likely not be included, because of their high share prices. 

 

The TSX 30, which I had never heard of, is quite different again, and uses 3-year outperformance as its only criterion, not market cap, reevaluated every year. So it is completely different from all the others discussed, in addition to having very little money invested in it. 

 

[SafetyinNumbers]

5 hours ago, dartmonkey said:

That is a different point, and I'm not disagreeing with it. I'm just saying that the TSX 60 is quite different from the S&P 500, in that the S&P 500 ends up being almost identical to the biggest 500 USA firms, even if there are 15-20 different companies in the smallest 280 or so companies that represent 10% of the market cap of the S&P 500. Whereas the TSX 60 is quite different from the biggest 60 Canadian-based firms, and the committee making the choices really is using sector membership as an important criterion. The Dow Jones does this too, but it has an additional crazy twist, by virtue of the fact that the weighting its members is by share price and not by market cap. This makes Goldman Sachs its biggest component (0.4% of the S&P 500 because of its $238b market cap, but 8.8% of the DJ because of its $786 share price), explaining why some of the biggest companies like Alphabet or Berkshire will likely not be included, because of their high share prices. 

 

The TSX 30, which I had never heard of, is quite different again, and uses 3-year outperformance as its only criterion, not market cap, reevaluated every year. So it is completely different from all the others discussed, in addition to having very little money invested in it. 

 

Is that just because of the number of companies in each of the 60 and the 500? Both are based on float, both have a committee decide if it should go in. The TSX 60 is not that different from the 60 biggest floats. The names that are in the completion index that are bigger than the smallest names in the 60 just haven’t had a chance to go in since there haven’t been any openings. The S&P 500 has spots open up regularly because it has more spots so large names get a chance to go in more often.