UGA: The Way To Play Gasoline

One of the most critical commodities in the world is gasoline. Even though politicians continue to push for clean energy and alternatives, the demand for gasoline won’t go away and, if anything, will likely increase long-term. That makes the argument for gasoline strong from a potential performance perspective. And there’s a way to get access to its performance without actually buying it up physically through the United States Gasoline Fund, LP ETF (NYSEARCA:UGA). This ETF allows you to directly own and benefit from the highs and lows of the world’s most important liquid through various futures.

A Look At The Holdings

As is this case with commodity tracking funds, this does NOT get you spot price performance in gasoline. Crucial to the makeup of UGA’s portfolio is a futures contract on RBOB (Reformulated Gasoline Blendstock for Oxygenate Blending). RBOB contracts are the premier benchmark for pricing of gasoline in the US. On the NYMEX, RBOB futures represent the future delivery of RBOB gasoline to the New York Harbor. The New York Harbor remains one of the busiest and most essential distribution points for the East Coast. The near-month contract will give UGA exposure to the day-to-day volatility in gasoline prices.

In addition to its main holdings, UGA can invest in a broad list of gasoline-related futures contracts. These may include conventional natural gas, crude oil and other energy commodities’ futures.

Some things to note here on the fund. The first is that the total expense ratio is a bit under 1% at 0.97%. Relatively high, but not unusual given the active rolling of contracts that expire, which needs a more hands-on approach. The fund is also marginable, which means if you’re extra bullish on the fund, or perhaps bears and want to short it, you can do so. The fund also has pretty good tracking error, with a slight discount to NAV as of writing.

It’s important to note that there aren’t any other gasoline ETFs out there. While there are other funds that track natural gas and oil itself through futures contracts, nothing other than UGA provides accesses to the gasoline side of the markets, making UGA in a league of its own in the world of exchange traded products.

Pros and Cons

There are several positives here. For one, it gives investors direct exposure to the gasoline market, a liquid fuel of immense importance to global economic activity and transportation infrastructure. An investment in UGA wagers on the fluctuations and fortunes of petrol markets, capitalizing on optimistic trends or protecting against higher price inflation. Gasoline is often a big driver of inflation expectations, so this can be an interesting hedge in that sense to changing inflation perceptions as a result.

One chief concern though is that the underlying commodity gasoline is highly volatile. And the long-term argument might be challenged should electric vehicle adoption persist in a way that reduces the overall demand for gasoline in transportation. In addition, the investment objective of UGA is simply to match the daily price changes in gasoline, as measured by RBOB futures. This means that the fund may not always track longer underlying price trends, or capture market volatility over longer periods of time, when it comes to the actual spot price of gasoline.

Conclusion

Of the mindset that gasoline prices will rise? Then United States Gasoline Fund, LP ETF is the way to take advantage, and the only way as of right now. The price of the fund has been in a large sideways pattern since 2022, and I have no real opinion on what comes next. This is more a question to me of whether this is a good vehicle to express a bullish or bearish trade. To that end, I think it’s a good way to make a bet on gasoline prices and worth considering.

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