Canadian Banks Dominate TSX with Record-Weighting

Canada's financial sector has reached its highest weighting on the S&P/TSX Composite in eight years, accounting for 37% of the index. This concentration leaves investors with a higher exposure to bank shares, which have driven the increase in recent months.

The TSX financials group has gained 22% since February, outperforming energy and materials, which have dropped 7% and 25%, respectively. The Big Six banks, Royal Bank of Canada, TD Bank, Bank of Montreal, Bank of Nova Scotia, CIBC, and National Bank of Canada, control much of this weight after posting consecutive quarters of double-digit earnings growth.

However, some managers are questioning the high valuations, which now sit at an average of 15 times forward earnings for the five largest Canadian banks. This is the most expensive level since 2010 and has left many concerned about potential declines in price if earnings fall short.