Pump Profits with This Gasoline ETF - ETF News And Commentary
06 Febbraio 2013 - 2:46PM
Zacks
As the economy is recovering gradually in 2013, economic
activity has started to pick up across the country (read: Three
Surging ETFs with Strong Momentum). Yet, some significant headwinds
could upset the potential recovery before it manages to pick up
steam, specifically, the impact of high gas prices.
This surge in prices has been brought about by a few key
factors. First, the price of crude is climbing as the global equity
indices is hitting the new 52 week high and Euro zone is showing
some signs of improvement.
Additionally, the closure and maintenance of refineries on the
East and West Coasts will likely curtail gasoline supplies. Beyond
that, gasoline demand is also on the rise owing to improving job
markets and recovering economic fundamentals (read: 3 Energy ETFs
for America's Production Boom).
Investors could easily take advantage of this trend by focusing
on broad energy ETFs. While all energy products have been
performing well this year, the real winner has been in the world of
gasoline, as represented by the United States
Gasoline Fund (UGA).
UGA in Focus
UGA allows investors to directly make a play on the commodity of
RBOB gasoline and provides a vehicle to hedge gasoline movements or
to take directional positions on gasoline prices (see more ETFs in
the Zacks ETF Center).
The fund tracks the changes in percentage terms of its units’
net asset value to reflect the changes in percentage terms of the
price of gasoline. This is measured by the changes in the price of
the futures contract on unleaded gasoline traded on the NYMEX that
is the near month to expire, except when the near month is within
two weeks of expiration. When that is the case, the next month’s
contract will be used instead.
The ETF is less liquid with daily trading volume of about
36,000, suggesting a wider bid-ask spread. As such, investors have
to pay extra beyond the annual fee of 60 bps in fees per year. The
fund has managed assets of $70.1 million so far.
The fund easily outperformed the other oil-based ETFs in the
segment, gaining about 9.6% year-to-date compared to 5.9% gain for
both Brent Oil (BNO) and WTI crude, as represented
by (USO). In fact, UGA also outpaced the broad
market fund (SPY) by 340 bps so far in the year
(read: Venezuela: The Next Black Swan for Oil ETFs?).
While generating solid returns, UGA can be susceptible to roll
yield. Roll yield is the positive or negative return that occurs
when a futures index or ETF rolls from the near month’s contract to
the next month’s contract.
The roll yield is positive when the futures market is in
backwardation and negative when the futures market is in contango.
Basically, if the price of the near month contract is higher than
the next month futures contract, then this is backwardation.
State of Backwardation on UGA
UGA is poised to benefit from the prolonged period of
backwardation. Currently, the gasoline market is in backwardation
which is bullish for the commodity and the gasoline ETF UGA.
Hence, the fund rolls over the next month futures contracts at a
lower price, thereby making profits. A market in backwardation
signifies that demand exceeds supply boosting gasoline prices
higher (read: Why the Gasoline ETF Is a Top Performer).
Given that gasoline prices seem to be on the rise with
supply/demand imbalances and the economy appears to be on the mend,
UGA could be an interesting pick for investors looking to make a
concentrated play on the gasoline segment of the energy market.
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US BRENT OIL FD (BNO): ETF Research Reports
US GAS FUND LP (UGA): ETF Research Reports
US-OIL FUND LP (USO): ETF Research Reports
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Grafico Azioni United States Gasoline (AMEX:UGA)
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