# Thinking of ZEB? Think again...



## peterk (May 16, 2010)

So I was considering ZEB as a way of investing in Canadian banks without having to do any individual research/picking.

What I've come up with though is this:

MER - 0.62
Holdings - 6

First of all, I think a .62 MER on an ETF that merely holds 6 stocks is outrageous. Where's the value added?

Given a questrade trading cost of $4.95 (the lowest), the breakeven point on this etf is only $4800. This would be assuming a complete portfolio churning every 2 years.

But it seems to get worse...

The current yield of all 6 companies is 4.38% (calculated by me). However, ZEB is only yielding 3.62% (calculated by me). The BMO website claims that ZEB yields 4.39%, but the math says otherwise...

Given that, this takes the breakeven number on this ETF down to an abysmal $2150. 


Unless I'm missing something here, like the MER is taken out of the distribution, or the distribution is somehow avoiding being taxed, it doesn't look like ZEB makes sense to buy at any investment scale, except if you are playing with sub $2000 amounts.


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## PMREdmonton (Apr 6, 2009)

There are similar issues with the ETF of REITs where there are very few holdings but a MER of 0.55%. In that one there are 12 listings but the top 3 make up slightly more than half of the holdings in the ishares version (XRE) although the equal weight distribution of the BMO (ZRE) holding does offer a bit more "value".

As far as the distribution value part of it may be higher weights given to the larger banks which may have a slightly lower yield (TD, RY, BNS) than the smaller banks (BMO, NA, CM). The other part may be that MER is not entirely inclusive of all costs as there can be certain other trading expenses involved in the running the ETF but having to only manage 6 holdings would suggest those costs should be very low.

If you want to consider something else you could consider the covered call version of this fund which offers up a bit more yield but possibly at the expense of giving up some upside. I don't know this is such a huge issue for the Cdn banks as there is not much room for them to expand in Canadian financial industry. I think most of their future growth will have to come from overseas. They should still be a decent, stable investment.


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## doctrine (Sep 30, 2011)

I believe there is occasional rebalancing in ZEB that may raise the breakeven point a little bit. There are people with total portfolios below $10-20k that that would possibly make sense for.


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## humble_pie (Jun 7, 2009)

bank stocks should be held directly imho. Preferably in trios. For most if not all of an investor's lifetime.

even a starting investor can begin with 20 or 30 shares of a bank stock. After his first commission, he will never pay another dime in management costs. For the rest of his life.

no need to spend time researching imho. Analyst's opininions abound. No need to have access to the analysts either, imho. All the newspapers cover the banks, including quotes from analysts.

Square Root himself, a former bank executive, has told us that their annual & semi-annual financial statements are incomprehensible even to analysts. I may be mistaken, but i seem to recall SR once mentioning that bank financial statements were even somewhat incomprehensible to himself, at a time when he was professionally involved with writing them.

among the big 5 canadian banks there are always a couple of laggards. Right now roybank & commerce are out of favour.

but not to worry. What inevitably happens - from a lifetime perspective - is that the laggards figure out what they're doing wrong & then they manage to catch up, while perhaps at the same time another begins to slacken off (personally i'm not so hopeful for commerce but that is just a quirky personal view.)

also, no need to bother with ZWB, it's going nowhere imho. Better a beginner investor learn about options himself, so he can write some on his steady bank stocks & pocket those extra $$ himself.


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## Assetologist (Apr 19, 2009)

Excellent reply!


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## PMREdmonton (Apr 6, 2009)

I agree that it is better to own the individual banks and in Canada yesterdays laggards seem to be tomorrow's front runners. I do happen to think BNS and TD are favoured as they have more obvious routes to growth than BMO and CIBC due to their substantial foreign holdings. I think RY is trying to make more inroads into foreign wealth management and they will likely become stronger once business investment is under firmer ground. 

I do like the idea of selling covered calls on the banks but the only problem for lots of individual investors is the option fees are almost predatory.

BTW, I have been investing in some covered calls with Goldcorp and own the American listed shares, GG. Now I know some investors may be in the position that they want to buy the Canadian holding, say BNS-T but would prefer to sell the calls of the American listing, BNS-N. I would assume that if the option looks like it is going to be fulfilled you would then in anticipation ask that your BNS-T get portered over to BNS-N and then relinquish them. The question I have is whether this is done automatically for you or if you actually have to place a call to your brokerage to do the transaction? If so does this service tend to be free or do you have to pay for it? I know many of you have experience with this doing Norbert's gambit but I wasn't sure if any of the brokerages charge for this service.


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## Oldroe (Sep 18, 2009)

Just start looking at the daily price chart of the 5 banks. Amazingly they all look much the same. Then 1 will show a down turn. Do a little investigating and some analysis will give some reason to not invest in this bank. I say thanks.

My last score was RY took only 6-8 weeks and life was good again. Thanks.


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