WHEN INVESTORS CAME BACK

from the recent President's Day break, they were quickly reacquainted with the chaotic stock market they had left behind before the long weekend. Oil traded over $100 a barrel Tuesday an all-time high thanks, in part, to political concerns in Nigeria and Venezuela, a refinery fire in Texas and a possible OPEC production cut next month. When it managed to exceed that level the next day, the escalating price renewed worries about a looming recession in the U.S., persistent inflation and the effect it would have on the country's cash-strapped consumers. So much for a calm trading week.

The impact of triple-digit crude doesn't bode well for many investors, especially those that pull up to the pump every day. Some, though, have found a silver lining in the recent spike. A new breed of investor is buying exchange-traded funds that track crude's price movements or ones that own the firms that actually get it out of the ground and sell it at the corner filling station. These ETFs have been gushers for their owners. The United States Oil ETF, a fund that buys oil futures, is up 63% in the past year.

In the past, the typical investor had little choice but to play a particular commodity by purchasing the shares of a major name in a given niche. Exxon Mobil, for example, would have served as a proxy for the energy business. The ETF industry has taken that idea one step further by launching funds that give shareholders purer exposure to everything from agricultural crops and precious metals to livestock and, of course, oil. Although these funds are relatively new most have been around for less than two years they have quickly garnered a following. Over $30 billion sit in their coffers. (Most of it is in gold funds like StreetTracks Gold Shares.)

One of the reasons these funds have attracted so much cash is that they are what's called an "uncorrelated asset." Commodities tend to do well during inflationary times or when the stock market is tanking. Company share prices may be falling. However, they still need to make products and consumers still need to buy them. So as product prices are rising the smart play is to buy the raw materials that go into making them. Think about it this way: You'll be paying more at the supermarket checkout line but at least your retirement account will be gaining some ground. "This asset class will provide you returns that come at different times than the rest of your portfolio," says Stephen Barnes, of Barnes Investment Advisory in Phoenix.

Adds David Fry, founding editor of the online publication ETF Digest: "Sometimes it's better to own oil instead of oil stocks. When the market goes down the selling can be indiscriminate. Just own the commodity and don't worry about the complexities of having to own the stock."

Another catalyst perhaps a more important one is that the world is in the midst of a commodity bull market. Countries like China and India are using millions of tons of industrial metals to build out their road systems, bridges and skyscrapers. Meanwhile, the biofuel craze and burgeoning middle classes around the globe that can afford better-quality food have reduced inventories of wheat and corn to some of their lowest levels in years. Indeed, wheat recently hit an all-time high and other commodities are trading well above their 2007 levels. As prices have escalated, ETFs have benefited. The PowerShares DB Agriculture ETF, which invests in corn, sugar, wheat and soybeans, is up 53% in the past year.

"It's elementary supply and demand," says Tom Lydon, editor of ETF Trends, an online newsletter that covers the industry. "A lot of it is coming from emerging markets. They have better qualities of life so they can afford to eat better."

Of course, bull markets always come to an end. The problem is that no one expert can predict when that will happen. And commodities are extremely volatile. An accident at a factory, terrorism, geopolitical upheaval and Mother Nature can each wreak their own havoc on the marketplace. You will need to keep a close eye on these investments. "You don't want to get caught up in the buying once it's already run," says Lydon.

Some advisors we talked to are using commodities as a long-term hedge against downturns. Those positions constitute 5% of a well-diversified portfolio. Others, though, were thinking in the short term. They were using small, aggressive bets on narrow parts of the market to get extra returns. Not sure which camp you fit in? Lydon gave us a few tips both types of investors can use. If an ETF decreases 8% or drops below its 200-day moving average, then it's time to re-evaluate. Don't forget you can use stop-loss orders, too.

We think the best way for a mainstream ETF investor to get exposure to commodities is through a broad-based fund. However, since each of the top three options is built differently, especially when it comes to energy, there is considerable debate about which one is the best fit for most investors. The $544 million

iShares S&P GSCI Commodity Indexed Trust

PowerShares DB Commodity Index fund

iPath Dow Jones-AIG Commodity Index Total Return fund

Those differences in makeup have had a profound impact on performance. The iShares and PowerShares products have returned 42% and 45%, respectively, over the past year. Meanwhile, the iPath product managed just a 25% return. A 25% return is still impressive. But obviously the energy exposure was the primary factor influencing those returns. We like the PowerShares product since it provides a nice middle ground with a 55% energy exposure. We would avoid the iPath product for the time being. IPath products are actually exchange-traded notes. ETNs are unsecured debt securities issued by big institutions, in this case, Barclays. When you buy these funds, Barclays agrees to pay you the returns of a given underlying index minus any fees. Investors are gambling that Barclays won't go under while they own the ETN. This structure does expose investors to both market risk and credit risk (although Barclays isn't in dire straits), but it also eliminates index tracking risk, a growing problem with ETFs. The bigger concern, though, is tax treatment. The IRS still hasn't clearly ruled whether these products will receive the same favorable treatment afforded ETFs. (If ETNs do receive that status they will become a powerful tool.)

If you are willing to do the homework and don't mind risking a little spending money you could attempt to build your own commodity index. The PowerShares DB Agriculture fund will give you broad exposure to crops without taking on the risk of the energy business. PowerShares, State Street and Barclays have individual products that specialize in gold, silver, livestock, natural gas, copper and grains.

"If you are looking to complement your portfolio, why not cherry pick from different commodities?" says Lydon. "There are so many options."

Oil is one. The goal of the United States Oil ETF is to match changes in percentage terms of its net asset value with the changes in percentage of the spot price of West Texas Intermediate crude. In the past this fund has had problems with what's called "contango." This ETF constantly rolls over futures contracts when they expire. Last year oil futures were more expensive than the spot price. So investors were essentially losing money every time the rollover happened. The industry has tried to find solutions to this problem but the possibility still exists.

If you can't get your head around that concept then it's probably best that you stick with our first option. Or, use a convenient back-door method. Van Eck has ETFs that track coal companies, gold miners, steel manufacturers and agribusiness. Claymore has a timber ETF. Another option is to purchase a country-specific ETF where the top holdings are commodity-sensitive firms. The Claymore BRIC ETF the "BRIC" name stands for Brazil, Russia, India and China has a 45% stake in energy and materials. If you go this route, keep a close eye on costs and trading volume. You don't want to overpay for a fund you can't sell if things get heated.

A final option is to go old school. This week our Common Sense columnist, James Stewart, highlighted several agriculture stocks including Monsanto, Syngenta and Deere. Click here to see his take on this sector.