United States Gasoline Fund, Tracking The Gasoline Benchmark

As all eyes are on the latest crude oil price, the United States Gasoline Fund (UGA) is well placed as it tracks the price movement of gasoline, an energy commodity in very high demand in the US.

Managed by United States Commodity Funds, LLC (formerly Victoria Bay Asset Management, LLC), the UGA is a gasoline ETF (exchange traded fund), launched in February 2008, offering investors exposure to the price of gasoline.

United States Commodity Funds, LLC is registered with the Commodities Futures Trading Commission as a commodity pool operator and had $1.9 billion assets under management in June 2008.

So how does this fund does work and how might you consider using it as a means of gaining exposure to the gasoline price?

What does the fund consist of?

UGA is a US commodity based exchange traded security set up as a Delaware limited partnership which creates units that can be bought and sold on the American Stock Exchange.

Minimum trade size is 1 unit and trades move in increments of $0.01.

It tracks the price movements of the near month Nymex unleaded gasoline (RBOB) futures contract, a very actively traded contract and the main US gasoline price benchmark.

This reflects the price of unleaded gasoline for physical delivery to New York Harbor.

Like crude oil, gasoline is a very important commodity in the global economy and key for transportation, and likely to remain so until such time as there is a major global shift in fuel used to power vehicles.

Within two weeks of expiry of the near month contract, the gasoline benchmark will then be the futures contract for the next month.

The average percentage daily change in the Net Asset Value (NAV) of the UGA is designed to closely track (+/- 10%) the average daily percentage change over a 30 day period in the price of a specified unleaded gasoline (RBOB) futures contract on Nymex, less the fund’s expenses (management expense ratio, 0.6%).

United States Gasoline Fund will be made up of exchange listed gasoline futures contracts and other gasoline related futures (such as crude oil, natural gas, heating oil) forwards, and swap contracts traded on Nymex and other exchanges such as ICE.

The fund will also hold US government bonds of two years or less maturity as well as cash funds to meet collateral requirements.

What are the benefits of investing in the UGA exchange traded fund?

• As a gasoline ETF it is a convenient way of gaining exposure to this important market
• An investor or trader can hedge against movements in gasoline prices or use the fund with a view to make a capital gain over a period of time
• The fund offers certain flexibility such as stop limits, stops and good until cancelled orders
• Makes available daily values for market price, net asset value (NAV)

What should you look at, as a potential trader, tracker investor or hedger, in the United States Gasoline Fund, LP?

Essential requirements:

• Consult your professional financial adviser before committing any funds to these investment vehicles, so that your overall financial aims can be achieved.
• You should consult your tax adviser with regard to the effect of US Federal income tax on an investment in UGA.
• You are strongly advised to get a copy of the Prospectus and study the contents carefully, and ultimately only decide to invest based on the information in this document.
• Please note this investment vehicle is only available to US investors.

What are the risk factors involved investing in this exchange traded funds?

• Past performance is no guide to future results
• This fund is not designed to distribute income or dividends
• UGA aims for its NAV to track closely the gasoline futures contract price. It does not set out to use leveraged positions (with significantly higher risks) to achieve greater gains
• United States Gasoline Fund is not a registered investment company so as an US investor you would not be protected by the Investment Company Act 1940
• As a general observation, by their very nature commodities and futures contracts are volatile, so as an investor or trader you could lose substantial amounts of your capital.

So if your professional adviser thinks a gasoline ETF is a good vehicle for your investment goals and you have understood the prospectus and tax issues, then the United States Gasoline Fund seems like an appropriate way of tracking the gasoline price on Nymex.

The broad view is that gasoline prices will remain strong not least with growing automobile ownership in China and India.

Global energy demand will continue to grow for the foreseeable future and as oil reserves dwindle, a search for alternative fuels to gasoline and other hydrocarbons will intensify.

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