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A recent column in The Globe and Mail entitled “The TSX isn’t invited in the stock market party. Here’s why” questions why major indexes around the world including the U.S., Europe, Asia and emerging markets are posting double-digit gains while the TSX is almost flat. The writer concludes that it has to do with the uncertainty surrounding NAFTA and weakness in commodity prices.

While there is some truth to this, in my opinion the TSX suffers from what I call the “Trudeau Effect.” Since the federal Liberal government was elected with a majority on Oct. 19, 2015, I decided to compare the performance of two large-cap and highly liquid ETFs, namely iShares S&P/TSX 60 ETF (XIU.TO) in Canada and SPDR S&P 500 ETF (SPY) in the U.S., from January 2016 to the end of 2017, and, for comparison and control purposes, from January 2013 to end of 2014.

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The annualized return of the Canadian ETF between Jan. 1, 2016 and Dec. 31, 2017 was 15.3 per cent versus 22.3 per cent for the U.S. ETF. However, from Jan. 1, 2017 to Dec. 31, 2017, the Canadian ETF rose by only 6.8 per cent versus 26.3 per cent for the U.S. And 2017 was a year of co-ordinated global expansion! The two years prior to 2015, a worse period for commodity stocks, XIU also underperformed SPY, but the underperformance was more typical of the long-run underperformance of Canadian indexes versus the U.S. equivalents. The annualized XIU return from Jan. 1, 2013 to the end of 2014 was 11.8 per cent versus 17.7 per cent for SPY; the corresponding returns from Jan. 1, 2014 to the end of 2014 were 12.5 per cent and 14.1 per cent, respectively.