By Daniela Pylypczak
Without gasoline, many of us could not go on with our daily routines. And because of our high level of dependence, gasoline has become one of the most important commodities in the world. Gasoline, more specifically RBOB Gasoline, is a petroleum-derived liquid mixture and its usage in the transportation industry in the U.S. accounts for over 40% of global gasoline demand. The price of gasoline can be affected by a multitude of factors, including the health of the global economy, geopolitical tensions, and even changing tax policies across the globe.
Although gasoline's price movements can be somewhat unpredictable, investors have come to embrace the commodity's volatility and its potential to provide a lucrative return. As investments in gasoline continue to gain popularity, its futures have become one of the most heavily traded contracts on the market. And thanks to the rapidly developing world of ETFs, investors now have access to gasoline futures exposure through a single equity ticker, the United States Gasoline Fund LP (UGA).
Under the Hood of UGA
With its debut in February of 2008, UGA became the first fund to focus exclusively on the commodity. To this day, it remains as the only exchange-traded product available on the market to offer exposure to gasoline. Over the years, UGA has grown in popularity as niche investors continue embrace the efficient ETF structure. And as such, the fund has accumulated more than $59.6 million in total assets and maintains a relatively healthy trading volume of nearly 41,000 shares a day on average.
UGA's investment objective is relatively simple: the fund is designed to track, in percentage terms, the changes of the price of gasoline. To accomplish its goal, UGA invests in near month RBOB gasoline futures contracts traded on the New York Mercantile Exchange. Investors should be aware that this strategy will not be able to deliver returns that are exactly correlated to spot prices. Furthermore, funds like UGA that invest in near-month contracts are more likely to exhibit contango and backwardation, which could have significant impacts on bottom line returns [see also How To Profit From Rising Gasoline Prices].
Below are the quick stats (as of 10/26/2012) to help investors get a better feel for this unique ETF.
- Issuer: US Commodity Funds
- Expense Ratio: 0.60%
- Inception: 02/26/2008
- Total Assets: $59.6 M
- Average Daily Volume: 41,000
Who Should Use UGA
Despite UGA being publicly available to anyone with a tradition account, it is not designed to be used by all investors. UGA should not be used by long-term, buy-and-hold investors since positions in futures-based products, like UGA, can quickly turn against you. Instead, holders of UGA should be able to monitor their positions frequently and should also have a firm understanding on the energy market [see also 25 Ways To Invest In Crude Oil].
Since gasoline is a very trend-dependent commodity, investors must stay on top of the latest developing news and headlines surrounding the industry, as anything from the health of the economy to heightened geopolitical tensions can significantly affect the price of gasoline. Furthermore, holders of UGA should also focus on emerging market demand for gasoline as well as any major tax policies around the globe that could affect consumption. For those of you who meet the aforementioned requirements, UGA will be a great way to take advantage of the market, allowing you to play the commodity in a way that would be relatively expensive and difficult to implement on your own.
Disclosure: No positions at time of writing.