ZEB, Bank of Montreal’s equal weighted bank ETF.

ZEB 2011

This is a relatively new ETF comprised of the 6 banks, equally weighted. This is just the last leg of a much longer retracement from the lows from March 2009. We have already expressed our view that both the Commerce and the Royal should drop soon and this ETF could confirm that. It is a clean 5-waves up from the low, with a very nice triangle in the 4th. As this is either a 5th or C the downturn should retrace the entire move from the lows on this chart and perhaps more.

This ETF recently got a cousin by way of ZWB . It is the same thing except a “covered call writing” programme is layered on top of this. As a consequence the return is running at about 8%, much higher than for ZEB. If I understand it correctly, an almost mechanical writing of calls allows the fund to collect the call premiums on a consistent basis. If you still believe in the efficient market theory you would know that this is not possible, after all the premium is set with regard to the risk and therefore this approach cannot be profitable. On the other hand if you assume that the managers of the ETF selectively chose the right moment to write calls, have a chat with the Mulvihill Pro-Ams guys. They tried it before without success.