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The ETF business started out as a granola-and-Birkenstocks kind of thing.

The early funds aimed for comfort and wholesomeness in letting investors buy into everyday benchmark stock and bond indexes at minimal cost. Money poured into these funds over the decades, but it wasn’t enough. To attract a racier type of client, companies in the exchange-traded-fund world began offering products to exploit sectors and subsectors.

Flash ahead several years, and you come to BMO Asset Management’s announcement that it wants to close down three ETFs, the BMO Junior Gas Index ETF (ZJN), the BMO Junior Oil Index ETF (ZJO) and the BMO MSCI EAFE Value Index ETF (ZVI), on Dec. 15.

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ZVI has suffered from a long period of investor indifference to the venerable school of value investing, which means buying undervalued stocks and patiently holding them. It’s ZJN and ZJO that highlight the five-alarm risk level of investing in sectors and subsectors instead of more broadly diversified funds.

Part one of this cautionary story is ZJN, with a minuscule $2.9-million in investments as of mid-October. This fund tracks the Dow Jones North America Select Junior Gas Index, containing the shares of 20 companies involved in oil-and-gas production or providing services to the sector. ZJN lost just under 30 per cent in the 12 months to Sept. 30 and lost an average annual 9.4 per cent over the past 10 years.

Part two of the story is ZJO, with $7.2-million in assets. It tracks the Dow Jones North America Select Junior Oil Index and holds 39 stocks. Returns are brutal – there’s no other word. The fund lost almost 58 per cent for the year to Sept. 30 and an annualized 15.3 per cent over the past decade.

Both ZJO and ZJN were launched in May, 2010, when energy prices seemed to be recovering from the lows of the 2008-09 recession. Both funds produced some darn fine returns in the early years and then fell into a trend that has mostly been downhill since then.

There’s a plentiful selection of sector and subsector ETFs available today, many of them in a technology sector that led the markets back from the March crash. Don’t buy these or any other sector ETFs without remembering the lessons of ZJN and ZJO.

The investing trends that lead to the creation of funds like this are often transitory. Money will very likely be made in these sectors, but there may well be a decisive turning point that renders them almost toxic.

Best ETF-investing practices say you shouldn’t buy these funds at all and, if you do, be ready to flee once you’ve made some money. Hang around too long, and you could end up with shockingly bad results.

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