BMO Junior Oil Index ETF has a liquidity issue that needs consideration

May 2nd, 2016 – Comment

Know what you are buying and buy what you know

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Lou Schizas is an equities analyst, investor, entrepreneur, professor and television and radio personality – and a true believer in the happiness-inspiring powers of capitalism.

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Today’s audit of the BMO Junior Oil Index ETF (ZJO TSX) will conclude the comparative analysis of three energy ETF’s requested by Paul.

The undertaking began with a study of the iShares S&P TSX Capped Energy Index ETF ( XEG TSX) and then followed by a probe of the BMO S&P TSX Equal Weight Oil and Gas Index ETF (ZEO TSX).

ZJO has 68.77% of its investments in the United States and 31.23% in Canada. Oil &Gas exploration and production companies make up 54.26% of the portfolio while Oil & Gas equipment and services are 18.37% and Oil & Gas drilling represent 14.81%.

The largest positions include Diamondback Energy Inc. (FANG Nasdaq) 7.03%, Vermillion Energy Inc. (VET NYSE) 4.30%,  and QEP Resources Inc. (QEP NYSE) 3.9%. I always advise investors to examine at all the components of an ETF or mutual fund to see if there are are better performers in the group that could qualify for an targeted investment.

A scan of the charts will help assess this ETF.


The three-year chart indicates that in addition to a similar pattern that was observed with both XEG and ZEO this ETF exhibits a history of thin trading. Over the last three months ZJO has on average traded 6,037 units per day. Liquidity has to be considered with any investment.

The leg up that started in started in late February of 2016 has taken ZJO up and through its downtrend line and the 50 and 200-day moving averages. Similar to the patterns for the previous two ETF’s the advance is meeting resistance, in this case close to $14.50.




The six-month chart depicts the buy signals generated by the MACD and the RSI in mid January when ZJO was oversold and trading near its 52-week low of $9.51. The momentum indicators are pointing to continued selling in the near term with a possible retest of support along the 200-day moving average. The yield on distributions for these units is 2.66%.

The comparison of these three ETF’s is a bit akin to comparing oranges, coconuts, and pears. It really is a matter of your preferences. Are you partial to  investing in a capped index with a couple of large caps leading the charge, or an ETF with equally weighted investments irrespective of market capitalization?  Finally does a portfolio of junior oil companies offer greater appeal?

XEG has the greatest average daily trading volume as well as the highest total assets. ZEO comes in second using these two criteria and ZJO comes in third.

Next time I will investigate the potential offered by Bombardier (BBD.B TSX) for Marian.

Make it a profitable day and happy capitalism!

Categories: Energy
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