Thursday, November 22, 2012

The BMO Industrial ETF (ZIN)

It was not too long ago that North American investors had no way to own any of the ten S&P distinct or primary sectors because they were not investable. In other words you can’t buy an index. The investable problem was addressed by the mutual fund industry and the exchange traded fund manufacturers who manufactured investable clones that replicate most of the major stock indices and their related sector indices.

In North America Standard & Poor's (S&P) has divided the major stock indices into ten distinct (primary) stock groups. They are Energy, Materials, Industrials, Consumer Discretionary, Consumer Staples, Health Care, Financials, Information Technology, Telecom Services and Utilities.

Last summer some of the industry professionals I work with had an investment dilemma with regard to the S&P/TSX Capped Industrials Index. We decided there was investment opportunity in the TSX industrial sector only to discover S&P/TSX Capped Industrials was still ignored by the Canadian ETF manufactures.

Note the TSX sector table below sorted by the number of components in each sector. Note also the TSX Industrials rank fourth in components and index weight and yet as of only a week ago not one Canadian ETF manufacturer covered this important sector. 

I suspected the innovated folks at BMO Asset Management would be first to solve the investable problem. In a press release dated Nov. 20, 2012, BMO introduced a bold new ETF offering; the BMO S&P/TSX Equal Weight Industrials Index ETF (ZIN). I use the term bold because this is not another “me too” product that is so common in the Canadian ETF landscape.

The perceived investment opportunity in the TSX industrial sector was based on the strong performance of the sector relative to its nine (primary) sector peers. We also know that in North America no bull market can operate without the participation from the economy sensitive technology, industrial and the cyclical materials sectors.

Our chart is of the monthly closes of the S&P/TSX Capped Industrials Index plotted above the broader S&P/TSX 60 Index spanning about 6-years. The lower study is the price history upper plot relative to the price history of the lower plot. A technical analyst would rank the TSX Industrials to be a relative out perform vs. the broader TSX 60 large cap index.

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