In April 2020, young investors rushed to buy the USO (United States Oil) ETF when the price dropped to $ 3. Unfortunately, millennials were confused; the ETF was playing for the futures contract, not for the spot oil. Therefore, experts cautioned that such ETFs should be handled with gloves and should only be kept for a short time. On the other hand, in May 2020, gasoline ETFs saw a comeback as lockdown restrictions were lifted and Americans started making more moves. As a result, gasoline futures soared, as did related ETFs. However, some traders remain cautious about investing in oil and gasoline ETFs, claiming that the energy sector is the hardest hit in the S&P in the long term. Whether current gasoline prices hold up or not, the bottom line is that there are still a few gasoline ETFs you should consider for your portfolio, and they include:
United States Gasoline ETF (UGA)
In 2018, Nasdaq asked investors to take advantage of rising gas prices by investing in UGA ETFs, which would allow them to make direct plays on the gasoline commodity RBOB. In March 2020, another analyst, Seeking alpha, advised investors to buy UGA shares and saw them as a once-in-a-lifetime opportunity. The article explained that while demand would likely decline as refineries cut production, RBOB’s first-month futures were selling at $ 0.50, the lowest level since 1999.
Nasdaq explained how backwardation works; When the prices of the next futures contract are expected to be lower, UGA benefits from the bull market. The fund renews futures contracts at lower prices, which means higher profits. As a result, investors will benefit from increased profits that will be distributed to them in the form of dividends.
SPDR S&P Oil and Gas Exploration and Production ETF (XOP)
StockInvest.us published on October 13, 2020 that the share price has been fluctuating between $ 43 and $ 45, while the volume has increased by 80,000 shares. The signs have also been changing; There was a buy signal on October 1, 2020, which has continued to rise to 7.89%. There have also been “sell” signals and “hold” signals. However, the article explains that the chances of the stock experiencing a trend reversal make it the right candidate to hold or accumulate, which was an improvement on the previous “sell” recommendation. The system classified the cumulative hold signal at 0.005 and added that the risk was medium.
One of its main holdings is Chevron, with 6.61%. Although traders are still wary of risk exposure, one said it would consider buying Chevron’s stock if it went above $ 110 again. XOP’s expense ratio is 0.35%, which is quite favorable. Also, the fact that the issuer felt it was best to do a reverse split in March 2020 should speak to how dedicated it is to ensuring that the price per share remains favorable. As a result, the investor’s experience is also well cared for, encouraging them to participate in the ETF earnings. Dividend payments have been trending upward from $ 0.06 in September 2018 to $ 0.38 in September 2020.
How do gasoline ETFs work?
If you’re unsure whether investing in a gasoline ETF should be on your mind primarily because you don’t know how they work, How to Trade Stocks provides a detailed explanation. Due to the fluctuating nature of gasoline and oil prices, an ETF makes it easy to track prices, unlike when you buy gas-related stocks. The article clarifies that ETFs have a variety of gas stocks that allow you to spread risk.
When you invest in an ETF, you are investing directly in a portfolio that comprises stocks of companies that deal with the processing, production, and transportation of oil and gas. ETFs will track gasoline prices through futures contracts, which can have higher (Contango) or lower (backwardation) prices. You can buy and sell your shares just like you would any other stock, and some ETFs even allow you to make money when prices drop through a short sale. A short sale allows an investor to sell securities when they anticipate a decline in price.
Why Should You Invest in Gasoline ETFs?
Raw materials make it clear to us that raw materials such as gasoline have …