Buy ZJO to gain junior oil stock exposure: National Bank | Financial …

North American junior oil stocks are on the rise and could provide double-digit gains from current levels, says a new report from National Bank Financial.

Pat Chiefalo, the bank’s exchange-traded fund strategist, said the Dow Jones North America Select Junior Oil index recently breached 4,600 after several attempts, setting up a potential upside for the benchmark of 10% to 15%.

“The index has been in a strong rising trend and after consolidating has finally broken out,” he said in a note to clients Thursday.

To gain exposure to the index, Mr. Chiefalo has a buy recommendation on BMO’s Junior Oil Index ETF (ZJO/TSX).

ZJO has $15-million in assets under management, trades 1,900 shares on average per day and has an annual expense ratio of 62 basis points.

The ETF holds 85 junior oil companies from across North America, with 68% exposure to the U.S. and 32% to Canada, Mr. Chiefalo noted. Top holdings include World Fuel Services Corp. (3.4%), Kodiak Oil & Gas Corp. (3.2%), Atwood Oceanics Inc. (3.1%) and Tidewater Inc. (2.9%).

“We highlight that investors should consider this a higher risk trade idea before taking on,” he added. “The one-year volatility for ZJO is 20% compared with the Canada S&P/TSX composite at 10% and U.S. total stock market at 11.5%.

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Buy ZJO to gain junior oil stock exposure: National Bank | Financial …

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