ETF Analysis: United States Gasoline Fund

The United States Gasoline Fund (NYSEARCA: UGA) is an exchange-traded fund (ETF)
tracks the daily percentage fluctuations in the price of gasoline, also known as reformulated
gasoline blend stock for oxygen blending. The fund provides investors, traders and
speculators an opportunity to gain exposure to RBOB gasoline.
The fund's benchmark is the RBOB Gasoline PR USD, which is measured by the daily
fluctuations in the price of the futures contracts on RBOB gasoline for delivery to the New
York harbor, traded on the New York Mercantile Exchange. If the near month contract is
within two weeks of its expiration date, the benchmark is the RBOB gasoline futures contract
expiring the next month.
UGA tracks the daily price movements and provides exposure to RBOB by holding primarily
front-month futures contracts on RBOB and other gasoline-related futures contracts, and it
may invest in forwards and swap contracts. For example, as of Aug. 3, 2015, the fund holds
1,182 NYMEX RBOB Gasoline futures contracts that expire in September 2015 at $1.6745,
and the total market value of this holding is $83.13 million. The fund also holds various U.S.
Treasury securities, as well as cash in U.S. dollars.

Characteristics
The United States Gasoline Fund is listed on the New York Stock Exchange Arca, and
investors, traders and speculators can trade the ETF on multiple platforms. Like other United
States Commodity Funds, UGA's administrator is Brown Brothers Harriman &; Company, its
general partner is the United States Commodity Funds LLC, and its distributor is ALPS
Distributors Inc.
UGA must change the composition of its holdings as the futures contracts approach the
expiration date. Consequently, UGA rolls its contracts by selling the RBOB gasoline futures
contracts expiring in the near month and buying RBOB gasoline futures contracts expiring
the next month. Since the fund does not select its futures contracts based on the futures curve,
UGA sensitive to the shape of the natural gas futures curves. If the RBOB gasoline futures
are in contango, it can cause a negative roll yield, which may lead to losses.
Given the average expense ratio of the UGA category of commodities energy is 0.57%, the
fund has a moderately high expense ratio of 0.75%. This can be attributed to monthly rolling
of futures contracts. This expense ratio does not include broker fees.

Suitability and Recommendations

Investors should pay attention to the futures prices of RBOB gasoline, EIA Petroleum Status
reports, EIA Short-Term Energy Outlook reports, EIA U.S. Weekly Supply Estimates, and
geopolitical and weather-related news. Investors should pay particularly close attention to the
weekly fluctuations in the supply of RBOB gasoline. The supply of RBOB gasoline affects
the prices of the futures contracts on the commodity, as well as UGA.

As of June 29, 2015, based on trailing three-year data, UGA had an alpha (against the MSCI
ACWI NR USD Index) of 10.82; a beta (against the MSCI ACWI NR USD Index) of 1.65, an
R-squared value of 75.78 and a Sharpe ratio of -0.05. Based on modern portfolio theory
(MPT), UGA's alpha indicates it outperformed the MSCI ACWI NR USD Index by an
annualized 10.82%. The fund's beta indicates that it is theoretically 65% more volatile than
the MSCI ACWI NR USD Index; this may indicate UGA carries more risk. UGA's Sharpe
ratio indicates the fund has not been providing investors with an adequate return given the
amount of risk taken. UGA's R-squared value indicates that 75.78% of its past fluctuations
were explained by fluctuations in the MSCI ACWI NR USD Index.
Although UGA carries a high level of risk, it has the potential to provide high returns. UGA is
not suitable for all investors due to its specialized exposure to RBOB gasoline. According to
modern portfolio theory, UGA is suitable for short-, intermediate- and long-term value
investors who believe RBOB gasoline prices are poised to rebound in the intermediate term
or the long term. Investors who have a value investing approach and believe the supply in
RBOB gasoline will decrease, causing the prices of gasoline to increase, can use UGA as an
investment vehicle. Due to UGA's low average share volume, it may not be suitable for active
day traders.