Every conversation about market concentration starts and ends with the S&P 500. The Magnificent Seven, the top-heavy index, the fragility of it all. It’s framed as an American condition.
But one border north, right here in Canada, it has found a home too. The S&P/TSX’s top ten constituents make up 38.2% of the index, which is higher than the S&P 500’s 36.4%.
Index composition comparison: S&P 500 vs. S&P/TSX Composite
Source(s): Dow Jones Indices LLC and/or its affiliates. As at June 30, 2026.
When looking at the leading sectors, we again see a similarity between 68.8% and 59.5%. By the measures we usually reach for, Canada is the more concentrated market. The difference is more about composition than degree, however: financials, energy, and materials drive the Canadian economy and index. In the United States, the same can be said for technology, financials, and communication services.
Point #1: Concentration isn’t a U.S. export. It’s what happens when a market reflects the economy underneath it.
Why Oil Volatility Matters More in Canada
Which matters more than usual right now, because one of those tilts has been on quite the ride this year. In U.S. dollar terms, Brent went from the low $60s in January to nearly $120 in April. Not one to relax on vacation, it spent the summer round-tripping most of the way back.
Brent front-month futures (USD/barrel)
Source(s): Bloomberg Finance L.P. Retrieved August 10, 2026.
The dips can’t be described as following the fundamentals. Supply has yet to fully recover, transit through the Strait is far removed from normal, and infrastructure repairs are measured in years and decades. It traced sentiment: headlines, expectations, and how quickly both can reverse.
Point #2: Oil volatility is pronounced, and once it finds its footing, prices could settle higher than pre-war levels.
Sector Leadership Rotated in Two Quarters
Sentiment-driven commodity swings can produce sentiment-driven sector returns.
Quarterly sector performance (%), high to low
Source(s): S&P Dow Jones Indices LLC and/or its affiliates. Q1 data as at March 31, 2026. Q2 data as at June 30, 2026.
Energy led the market in Q1 with an exceptional +38.25%, then finished dead last in Q2 after giving back -12.54%.
Technology ran the same film backwards: -9.13%, then +43.49%. Two quarters is all it took for the leaderboard to invert itself.
Index-level results followed. The S&P 500 returned -4.54% in Q1, dragged down by its technology weighting. That same reliance drove +15.20% in Q2.
Point #3: Opposite outcomes for the same index, explained by a simple variable: was the subject of concentration (Technology) in favour or not?
Portfolio Concentration Is a Choice, Not a Default
Countries concentrate where they’re structurally strong. Canada has the natural resources; the U.S. has the world’s largest technology companies. Neither is a flaw, and markets are just doing their job.
But the two are not the same bet. Canada’s concentration is, at its core, stapled to commodity prices. America’s is a wager on growth multiples. Q1 and Q2 read almost like a controlled experiment in how differently those two can behave over a short window. Interestingly enough, they’re somewhat opposed to one another: higher oil prices often stifle growth, and growth is encouraged by cheap energy. We’ll save the discussion of negative correlations for another day.
Smart investors recognize that they aren’t countries. We aren’t obligated to inherit any single nation’s structural tilt as a reflex. A globally diversified, actively managed portfolio holds exposure to both, without needing to know in advance which quarter belongs to which.
Concentration isn’t a given within either country. Equal-weight versions of both indices, mid- and small-cap benchmarks, and broader composites all exist. None require you to hold 8.3% (per the chart above) of your Canadian equity in a single name. Building a portfolio or buying an ETF that mirrors a concentrated index is a choice, not a default.
All in all, the risk is rarely market concentration itself. It’s building your portfolio around borrowed concentration, where top performers can be recalled from one quarter to the next.
So why not invest elsewhere too?
Frequently Asked Questions
Why is the Canadian stock market so concentrated?
Because a capitalization-weighted index reflects the economy underneath it. Canada’s structural strengths are natural resources and a small number of very large banks, and any index weighted by market value will mirror that. This composition has been stable for decades and is a feature of the Canadian economy rather than a flaw in the index.
What sectors dominate the S&P/TSX Composite?
Financials, energy, and materials, which together represented 68.8% of the index as of June 30, 2026. Financials carry the largest share, reflecting the scale of Canada’s major banks relative to the domestic market.
What is concentration risk in an index?
Concentration risk is the exposure that comes from a small number of holdings or sectors driving a disproportionate share of an index’s returns. When the dominant sector is in favour, a concentrated index outperforms; when it falls out of favour, the same weighting works against it. Sector leadership can invert within a small number of quarters, which means the effect runs in both directions rather than being purely a downside.
Are there less concentrated alternatives to the S&P/TSX Composite?
Yes. Equal-weight versions of the major Canadian and American indices exist, as do mid-cap, small-cap, and broader composite benchmarks. Holding a concentrated index is a portfolio decision rather than an unavoidable condition of investing in either country.
Market Concentration Is Not an American Problem
By Craig Ellis, Chief Investment Officer
The S&P/TSX Is More Concentrated Than the S&P 500
Every conversation about market concentration starts and ends with the S&P 500. The Magnificent Seven, the top-heavy index, the fragility of it all. It’s framed as an American condition.
But one border north, right here in Canada, it has found a home too. The S&P/TSX’s top ten constituents make up 38.2% of the index, which is higher than the S&P 500’s 36.4%.
Index composition comparison: S&P 500 vs. S&P/TSX Composite
When looking at the leading sectors, we again see a similarity between 68.8% and 59.5%. By the measures we usually reach for, Canada is the more concentrated market. The difference is more about composition than degree, however: financials, energy, and materials drive the Canadian economy and index. In the United States, the same can be said for technology, financials, and communication services.
Why Oil Volatility Matters More in Canada
Which matters more than usual right now, because one of those tilts has been on quite the ride this year. In U.S. dollar terms, Brent went from the low $60s in January to nearly $120 in April. Not one to relax on vacation, it spent the summer round-tripping most of the way back.
Brent front-month futures (USD/barrel)
The dips can’t be described as following the fundamentals. Supply has yet to fully recover, transit through the Strait is far removed from normal, and infrastructure repairs are measured in years and decades. It traced sentiment: headlines, expectations, and how quickly both can reverse.
Sector Leadership Rotated in Two Quarters
Sentiment-driven commodity swings can produce sentiment-driven sector returns.
Quarterly sector performance (%), high to low
Energy led the market in Q1 with an exceptional +38.25%, then finished dead last in Q2 after giving back -12.54%.
Technology ran the same film backwards: -9.13%, then +43.49%. Two quarters is all it took for the leaderboard to invert itself.
Index-level results followed. The S&P 500 returned -4.54% in Q1, dragged down by its technology weighting. That same reliance drove +15.20% in Q2.
Portfolio Concentration Is a Choice, Not a Default
Countries concentrate where they’re structurally strong. Canada has the natural resources; the U.S. has the world’s largest technology companies. Neither is a flaw, and markets are just doing their job.
But the two are not the same bet. Canada’s concentration is, at its core, stapled to commodity prices. America’s is a wager on growth multiples. Q1 and Q2 read almost like a controlled experiment in how differently those two can behave over a short window. Interestingly enough, they’re somewhat opposed to one another: higher oil prices often stifle growth, and growth is encouraged by cheap energy. We’ll save the discussion of negative correlations for another day.
Smart investors recognize that they aren’t countries. We aren’t obligated to inherit any single nation’s structural tilt as a reflex. A globally diversified, actively managed portfolio holds exposure to both, without needing to know in advance which quarter belongs to which.
Concentration isn’t a given within either country. Equal-weight versions of both indices, mid- and small-cap benchmarks, and broader composites all exist. None require you to hold 8.3% (per the chart above) of your Canadian equity in a single name. Building a portfolio or buying an ETF that mirrors a concentrated index is a choice, not a default.
All in all, the risk is rarely market concentration itself. It’s building your portfolio around borrowed concentration, where top performers can be recalled from one quarter to the next.
So why not invest elsewhere too?
Frequently Asked Questions
Because a capitalization-weighted index reflects the economy underneath it. Canada’s structural strengths are natural resources and a small number of very large banks, and any index weighted by market value will mirror that. This composition has been stable for decades and is a feature of the Canadian economy rather than a flaw in the index.
Financials, energy, and materials, which together represented 68.8% of the index as of June 30, 2026. Financials carry the largest share, reflecting the scale of Canada’s major banks relative to the domestic market.
Concentration risk is the exposure that comes from a small number of holdings or sectors driving a disproportionate share of an index’s returns. When the dominant sector is in favour, a concentrated index outperforms; when it falls out of favour, the same weighting works against it. Sector leadership can invert within a small number of quarters, which means the effect runs in both directions rather than being purely a downside.
Yes. Equal-weight versions of the major Canadian and American indices exist, as do mid-cap, small-cap, and broader composite benchmarks. Holding a concentrated index is a portfolio decision rather than an unavoidable condition of investing in either country.
let’s connect
How Can We Help You?