20 Canadian Stocks To Build A High-Quality Portfolio

Stock Market Sherpa profile picture
Stock Market Sherpa


  • The S&P/TSX Composite Index in Canada is dominated by two sectors (financials and energy).
  • To combat this problem, one could create an equally weighted portfolio of 20 stocks (2 from each sector, excluding healthcare).
  • The resulting portfolio is well diversified and has significantly outperformed the index over the last 6 and 12 months.

Finding an effective way to invest in Canadian stocks while achieving reasonable sector diversification is challenging. The Toronto Stock Exchange is dominated by financial stocks and energy stocks. Mining stocks used to form a significant portion as well, although the weight has come down over the past several years due to the declining price of gold and base metals. As it stands today, more than 1/3 of the S&P/TSX Composite Index is comprised of financial stocks, while more than 1/5 of the Index is in the energy sector:


For this reason, it is very difficult to invest in Canadian stocks using ETFs and achieve proper sector diversification. This recent Seeking Alpha article suggests avoiding Canada altogether in portfolios, in part because of the significant weighting financial stocks have in Canadian ETFs.

A recent article in the Globe and Mail (paywall) by David Berman outlined an interesting idea for Canadian portfolio construction: create a portfolio of equally weighted positions in the largest (or most well known) stock from each GICS sector. Mr. Berman excluded healthcare, because there are so few reasonable options in that sector in Canada (Valeant (VRX) is by far the largest Canadian healthcare stock, and it is rather controversial).

My idea is to expand this slightly to 20 stocks - this improves diversification and produces a portfolio of well-known companies with a solid dividend yield and 1-year track record.

20 Stock Diversified Portfolio - Methodology

This portfolio will consist of 20 names, each with a 5% weighting. It uses the largest two stocks from each GICS sector (based on market capitalization), with the exception of healthcare. Compared to the S&P/TSX Composite Index, defensive sectors such as real estate, telecom and consumer staples are over-weighted, while more cyclical sectors such as financials, energy and materials are under-weighted. The result is a portfolio with MUCH better diversification than the S&P/TSX

This article was written by

Stock Market Sherpa profile picture
A Canadian with numerous years of investment experience who has a BCom degree from a well respected Canadian university and has experience working in the wealth management industry.

Disclosure: I am/we are long CNI, GIB, ANCUF, BIP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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