Price-to-Book on Canada's TSX: 9.72% CAGR and 8% Down Capture Over 25 Years

Canada's TSX delivered 9.72% CAGR on a low P/B screen from 2000 to 2025. That's 2.08% annual excess return over the S&P 500. The number that stands out more is down capture: 8.02%. When the S&P 500 fell in a given year, this portfolio barely moved. In 2022, while the S&P 500 dropped 18.99%, the Canada P/B portfolio returned +29.17%. That's a 48-point gap. Across all 18 exchanges we tested, no single year in any market produced a wider spread.

Contents

1. Method
2. What Research Shows
3. The Simple Screen
4. The Advanced Screen
5. Backtest Results
6. When It Works
7. When It Fails
8. Sector Concentration
9. Limitations
10. Takeaway
11. Part of a Series
12. Run This Screen
13. References

Canada's commodity-heavy structure made it a natural fit. Banks and resource companies dominate the TSX. They're asset-heavy businesses where book value is a real, measurable number. That's exactly the environment where P/B works.

Method

• Data source: Ceta Research (FMP financial data warehouse)
• Universe: TSX (Toronto Stock Exchange), market cap above exchange threshold
• Period: 2000–2025 (25 years, 25 annual rebalance periods)
• Portfolio: Top 30 stocks by lowest P/B ratio, equal weight
• Rebalancing: Annual (January)
• Signal filters: P/B between 0 and 1.5, ROE > 8%
• Cash rule: Hold cash if fewer than 10 stocks qualify
• Average stocks per period: 23.0
• Cash periods: 0 of 25 (fully invested throughout)
• Benchmark: SPY (S&P 500 ETF)

Currency note: Returns are in CAD (Canadian Dollar). The CAD tracked the USD closely over this period, ranging roughly between C$1.00 and C$1.45 per USD. The currency effect is modest over the full 25 years but can matter for individual years. A US-based investor would see somewhat different numbers.

What Research Shows

P/B is the original value signal in academic finance. Fama and French built their three-factor model around it in 1992, showing that high book-to-market (low P/B) stocks earned a persistent premium across multiple decades and markets. Their 1998 international study confirmed the pattern in 13 markets outside the US.

Rosenberg, Reid and Lanstein documented the US P/B premium as early as 1985, before it was mainstream knowledge. Gray and Vogel's 2012 comparison study found P/B underperformed EBIT/EV and FCF-based metrics as a standalone signal, but the premium persisted, especially in asset-heavy sectors.

The logic is straightforward. Buying below book value means paying less than the accounting value of net assets. For a bank or an oil company, where assets are real and tangible, that's a meaningful floor. For a software company with mostly intangible assets, book value is noise. Canada's sector mix (heavy on banks, energy, and mining) puts it squarely in the camp where P/B still means something.

The Simple Screen

Find every TSX stock currently trading below 1.5x book with a market cap above the exchange threshold:

SELECT
    k.symbol,
    p.companyName,
    ROUND(k.priceToBookRatioTTM, 3) AS pb_ratio,
    ROUND(k.marketCap / 1e9, 2) AS mktcap_b
FROM key_metrics_ttm k
JOIN profile p ON k.symbol = p.symbol
WHERE k.priceToBookRatioTTM > 0
  AND k.priceToBookRatioTTM < 1.5
  AND k.marketCap > 1000000000
  AND p.exchange = 'TSX'
ORDER BY k.priceToBookRatioTTM ASC
LIMIT 30

Run this screen on Ceta Research →

This finds the cheap-on-assets names. On the TSX, the output is typically dominated by banks, insurance companies, and resource producers. You'll see Royal Bank or Scotiabank sitting near P/B 1.0–1.3 in certain years, alongside mining and energy companies after sector downturns.

The Advanced Screen

Add an ROE filter to separate genuinely cheap stocks from ones that are cheap because the business is deteriorating:

SELECT
    k.symbol,
    p.companyName,
    ROUND(k.priceToBookRatioTTM, 3) AS pb_ratio,
    ROUND(k.returnOnEquityTTM * 100, 1) AS roe_pct,
    ROUND(k.marketCap / 1e9, 2) AS mktcap_b
FROM key_metrics_ttm k
JOIN profile p ON k.symbol = p.symbol
WHERE k.priceToBookRatioTTM > 0
  AND k.priceToBookRatioTTM < 1.5
  AND k.returnOnEquityTTM > 0.08
  AND k.marketCap > 1000000000
  AND p.exchange = 'TSX'
ORDER BY k.priceToBookRatioTTM ASC
LIMIT 30

ROE > 8% is the quality gate. A company trading at 0.8x book with 14% ROE is genuinely cheap. One trading at 0.8x book with 2% ROE may be pricing in a slow decline. The ROE filter doesn't eliminate all value traps, but it removes the worst ones.

Backtest Results

Summary metrics:

Annual returns:

When It Works

Down markets. The 8.02% down capture is the defining feature of this backtest. When the S&P 500 had a negative year, the Canada P/B portfolio nearly always held its ground or gained. 2000 (+12.86% vs -10.5%), 2001 (+22.9% vs -9.17%), 2002 (+0.05% vs -19.92%). The early 2000s dot-com bust barely touched this portfolio because Canadian banks and resource companies had no exposure to US tech valuations.

Commodity up-cycles. 2003–2006 and 2016 were strong years driven by resource prices. When oil, mining, and agriculture are in a bull market, the TSX's low-P/B names ride the wave. The portfolio captured 96.6% of the S&P 500's up years. Solid participation on the upside.

Value rotations. 2022 is the clearest demonstration. Energy prices spiked. Canadian oil and gas companies, which typically show up in the low-P/B screen after years of undervaluation, produced exceptional returns. Meanwhile, the rate-sensitive US growth stocks that had dominated 2019–2021 sold off hard. The TSX P/B portfolio was positioned in exactly the wrong thing for the decade before 2022 and exactly the right thing for 2022 itself.

When It Fails

Commodity down-cycles. 2015 (-15.77% vs -0.12% SPY) and 2008 (-46.34%) are both largely commodity stories. Oil crashed in 2015. The 2008 financial crisis hit Canadian banks and energy simultaneously. The same sector concentration that protects you in good commodity years destroys you in bad ones.

US tech-led bull markets. 2013 (-2.45% vs +27.77%), 2019 (+13.73% vs +32.31%), 2020 (-4.93% vs +15.64%), 2023 (-4.68% vs +26.0%). When US mega-cap tech dominates, the TSX P/B portfolio misses it entirely. Canadian banks and energy companies don't have FAANG exposure. You're structurally absent from the biggest drivers of S&P 500 returns in those years.

The 2008 drawdown. The -46.34% max drawdown exceeds the S&P 500's -34.9%. Oil prices collapsed, banks were under pressure, and mining stocks were crushed. This is the honest counterweight to the defensive narrative. When the global economy falls apart and commodities crash simultaneously, this portfolio falls harder than the index.

Sector Concentration

The TSX low-P/B screen is persistently concentrated in two sectors:

Financials (banks and insurance). Canada's Big Six banks trade at low P/B multiples relative to their US counterparts. They're highly regulated, earn consistently, and maintain strong ROE. They almost always pass the P/B < 1.5 and ROE > 8% filters. In most years, banks represent 30–50% of the portfolio.

Energy and Materials. Oil sands producers, gold miners, diversified miners, and pipeline companies make up the rest. These are capital-intensive businesses where physical assets dominate the balance sheet. Book value is an actual number. When commodity cycles turn, these companies see their P/B compress and then expand dramatically.

Both sectors are cyclical. That explains the volatility (max drawdown of -46.34%) alongside the long-run alpha.

Limitations

Currency. Returns are in CAD. The Canadian dollar traded between roughly C$0.62 and C$1.10 per US dollar over this period. Long-run, the currency didn't drift dramatically. But individual years can look quite different for a USD-based investor.

Sector concentration. This portfolio is effectively a bet on Canadian banks and commodity producers. If you already own those through other positions, the P/B TSX portfolio adds less diversification than it appears.

Book value reliability. For mining and oil companies, asset writedowns are common after commodity crashes. A company with P/B 0.9 before an asset impairment may have P/B 1.3 after. Historical P/B screens may not fully capture this timing issue.

Survivorship bias. The universe uses current company profiles. Companies that delisted or went bankrupt aren't fully captured. Early-period results may be slightly optimistic.

Transaction costs. Returns are gross. Annual rebalancing of 30 stocks generates real costs, particularly for smaller-cap names in the portfolio.

Takeaway

Canada is one of the best markets we found for P/B investing. The structural reasons are clear: banks and commodity companies are the backbone of the TSX, and these are exactly the businesses where book value is a real, tangible anchor.

The 2022 result (+29.17% while the S&P 500 fell -18.99%) is the single largest annual spread in our 18-exchange study. Down capture of 8.02% is extraordinary. It means this portfolio is nearly immune to the S&P 500's bad years, at least historically. The tradeoff is that you miss the US tech-driven rallies of 2013, 2019, 2020, and 2023.

For a BRL-based value investor who wants commodity and financial exposure with strong downside protection, the TSX P/B screen has a credible 25-year track record. Understand the sector concentration, account for 2008, and it's a strategy with real logic behind it.

Part of a Series

This is part of our Price-to-Book global exchange series:

• P/B in the US → (flagship, full methodology)
• P/B in Sweden →
• P/B in Canada → (this post)
• P/B in Brazil →
• Global Comparison →

Run This Screen

Via web: Run the P/B Canada screen on Ceta Research →

Via Python:

# Clone the backtest repo
git clone https://github.com/ceta-research/backtests.git
cd backtests

# Run the screen (requires CR_API_KEY)
export CR_API_KEY="your-api-key"
python3 price-to-book/screen.py --exchange TSX

# Run the backtest
python3 price-to-book/backtest.py --exchange TSX --verbose

Get your API key at cetaresearch.com.

References

• Fama, E. & French, K. (1992). "The Cross-Section of Expected Stock Returns." Journal of Finance, 47(2), 427–465.
• Fama, E. & French, K. (1998). "Value versus Growth: The International Evidence." Journal of Finance, 53(6), 1975–1999.
• Rosenberg, B., Reid, K. & Lanstein, R. (1985). "Persuasive Evidence of Market Inefficiency." Journal of Portfolio Management, 11(3), 9–16.
• Gray, W. & Vogel, J. (2012). "Analyzing Valuation Measures: A Performance Horse-Race over the Past 40 Years." Journal of Portfolio Management, 39(1), 112–121.

Part of a Series: Global | US | Sweden | Brazil

Data: Ceta Research (FMP financial data warehouse). Universe: TSX, 2000–2025. Annual rebalance (January), equal weight, top 30 by P/B ASC. Filters: P/B 0–1.5, ROE > 8%, market cap above exchange threshold. Returns in CAD. Full methodology: METHODOLOGY.md