This really depends. Something like ZEO is more concentrated yes, but it also has different exposure than a major oil fund like XEG.TO.
ZEO generally sticks to the major producers in terms of oil and natural gas. But on the flip side, it contains exposure to the pipelines. Although the pipelines are certainly impacted by oil and gas prices, they aren't AS impacted as the producers.
For this reason, during an oil bull market, I would expect a more diverse fund like XEG.TO to outperform ZEO. Yes, XEG does contain around double the holdings, but it also is completely exposed to the producers and contains no pipelines, and producers during commodity bull runs tend to benefit more.
I've attached a chart below highlighting ZEO's performance versus XEG on the big commodity run we had in 2021/2022. You'll notice the large amount of outperformance.
On the flip side, if commodities do stay flat or continue to decline, I expect ZEO to outperform XEG, as those pipelines do provide a bit of a buffer and are less susceptible to drawdowns. Over the last year or so, ZEO has outperformed XEG.
But if you are looking solely to benefit from a runup in commodity prices, XEG is likely, but never guaranteed obviously, the better option than ZEO.
