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Gasoline ETF Rallies as Pump Prices Surge
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Markets Producer, CNBC
As prices at the pump keep rising, some exchange-traded funds offer investors ways to make money.
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United States Gasoline Fund — the only ETF offering exposure to gasoline — is up almost 23 percent in the last three months.
The fund, which has $95 million under management, tracks the prices of futures contracts on unleaded gasoline on the New York Mercantile Exchange. Its net asset value isn't tied to spot prices but rather the change in near-month futures contract prices.
“The simplest reason to own UGA is that you believe unleaded gasoline prices are going up,” says Abraham Bailin, ETF analyst at Morningstar.
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The national average price for a gallon of regular gas is $3.61, according to AAA, up 23 cents from a month ago. In some parts of the country, pump prices have already surpassed $4.
Recent tensions with Iran, and to a lesser extent the sense that the U.S. economy is improving are to blame for the run-up at the pump. Some analysts say gas prices have only just begun to rise and predict $5.00 a gallon by this summer.
Bailin cautions that UGA [UGA
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] is not suitable for a long-term holding. “It is best used as a speculative vehicle over short periods,” he says.
“We would only recommend using this fund, if ever, as a small satellite holding, perhaps representing no more than 2 percent of investable assets,” Bailin wrote in his latest research note.
Another alternative is to invest in crude oil related funds. Here the product offerings are broader and correlation to gasoline prices is high.
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