Easing Pain at the Pump with Gasoline ETF

Jul. 7.09 | About: The United (UGA)

Perhaps while you took that family drive this past weekend, you thought about gas prices and wondered what you could do about it. With ETFs, you’re not powerless against the zigs and zags of gas prices.

Oil and gas prices have been all over the map these days. After reached record highs in 2008, energy prices collapsed, then rose again, but are now sinking under the weight of weaker demand. John Spence for MarketWatch points out that Moody’s says an economic recovery in 2010 is expected to be slow and painful, and crimp demand for energy commodities.

United States Gasoline Fund (NYSEARCA:UGA) is the only ETF tied to gas prices. There are some things investors should know about it:

  • Its 0.60% management fee doesn’t include trading expenses
  • It doesn’t track the spot price of oil; it follows the futures price of unleaded gas
  • It typically invests in the near-month contract
  • Its structure can result in some tax issues, so consult your accountant and be aware of what your implications might be

Take heart – even though gas prices have crept up, they’re nowhere near last summer’s highs of more than $4 a gallon. But if you drive a considerable amount and you’re concerned about rising gas prices, UGA can be a way to hedge. One way is to figure out what you spend per year on gas, then buy a corresponding amount in shares.

When it comes to commodity ETFs, it’s always wise to have a strategy. Use specific signals to determine when you enter a position and when you leave it to protect yourself against volatility. Our trend following report can help you craft a strategy.