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Other large companies are under-represented, compared to their stock market values. This, admittedly, seems at first to be a deadly boring topic. But there are real-world implications for Canadian investors: And investors in the companies that are under-represented are paying a penalty because the shares suffer from a lack of demand that a choice place in a major index might bring.

He is also a graduate of the University of Alberta, with his postgraduate work at University of Toronto. Before we name some winners and losers, however, a short primer on index construction is necessary, unfortunately. Most indexes use a measure of market capitalization to weight the companies they include.

A more valuable company takes up a larger piece of the index. Shares held by founding families, or by employees and executives, or by major strategic investors. Companies with a higher percentage of free float take up a larger share of the index than they would if overall market cap were the deciding factor. It wants the blend of industries in the 60 to resemble the broader composite index and not get too concentrated in one or two industries. You might be able to guess which industries run the risk of over-representation.

What is the practical import of this? Companies like Great-West Lifeco Inc. They are not in the 60, though, because it already has its quota of energy and financial companies.

The Big Five Canadian banks currently take up almost 29 per cent of the TSX Two examples are IGM Financial Inc. It also helps underweight companies that make the cut. Heavy insider ownership means less than half the companies' shares are in the free float, however, and the float-adjusted weight for each is about 1 per cent or slightly less.

The math also works in reverse: Follow us on Twitter: CEO pay and TSX 60 returns have plotted opposite courses. War of words heats up between Sentry Investments and Timmins Gold. STOCK PICK Are low expectations making SNC-Lavalin a bargain? Discover content from The Globe and Mail that you might otherwise not have come across.

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Globe Investor is part of The Globe and Mail's Report on Business. Selected data supplied by Thomson Reuters. Comments Share via email Share on facebook Share on twitter Share on LinkedIn Print. A stock index of the 60 most valuable companies in Canada. A stock index of 60 of the most valuable companies in Canada. Think again … Great-West Lifeco Inc. But there are 15 smaller companies behind it in the TSX More Related to this Story CEO pay and TSX 60 returns have plotted opposite courses War of words heats up between Sentry Investments and Timmins Gold STOCK PICK Are low expectations making SNC-Lavalin a bargain?

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