According to Sol Waksman, head of the data-tracking firm BarclayHedge, six commodity-focused CTAs with three-year track records (the longest meaningful period available) gained an average 28.59% a year through the end of May. They outpaced the S&P and DJ indices by more than 10% annually with volatility that's in between the two indices.

The most compelling feature of five of the six CTAs is that they can go short as well as long, giving investors potential protection if markets change direction. And in this kind of environment, that could be the most attractive skill set of all.
Vienna, Austria-based FTC Capital's Commodity Fund Alpha relies on the systematic (as opposed to discretionary) trading of liquid commodity futures contracts, currently targeting energy (45%), base and precious metals (25%), and grains and soft crops (25%). Having started up in April 2005, FTC's trailing three-year annualized returns through May were 23.4%.

According to Roy Ratliff, an independent registered rep based in Kentucky who focuses on private placements, qualified investors can gain direct ownership rights to oil, natural gas and metals through general and limited partnerships. Ranging in size from $500,000 to $300 million, and available to investors during limited offering periods, partnerships also typically offer attractive tax benefits, where an investment can be entirely deducted after just a few years.

However, Ratliff urges investors to consider partnerships only via an experienced broker or private banking service that is thoroughly familiar with the opportunities and risks of partnerships.

He recommends visiting theIPAonline.org, a Web site maintained on behalf of private placement issuers as a way to promote greater information about partnerships. But Ratliff says there is no industry clearinghouse or data tracking service that compares partnerships and their sponsors the way they compare funds. So due diligence is extremely important.

Ratliff urges investors to initially focus on key issues such as: 1) the level of sponsor participation; 2) the independent verification of geological findings; 3) a copy of the drilling and mining permit; 4) management's track record in all previous ventures; 5) the transparency and quality of investor relations; 6) the existence of a third-party due diligence report; and 7) audited financials.

More traditional and instant commodity exposure can be gained through industry-leading equities such as BHP-Billiton, the world's largest mining company, which is based in Australia and whose shares have almost tripled in U.S. dollar terms over the past five years through July 23. Suncor Energy, a leading Canadian extractor of oil from tar sands, has seen its shares rise more than fivefold. And shares in U.S.-headquartered conglomerate Archer Daniels Midland, a leading global agricultural commodity producer, have more than doubled.

However, since mid-April, ADM has plummeted more than 38%. And since their peaks in the third week in May, Suncor, Freeport-McMoRan and BHP are all now down more than 20%.

A more passive, diversified approach advisors can take is through ETFs and ETNs. The leading names in this area are Invesco's PowerShares, Barclays Global Investors' iShares, UBS' E-TRACS and Merrill Lynch's ELEMENTS. Some of these products track specific commodities, such as timber and forestry, biofuels and platinum. Others offer access to broad-based commodity indices, for which most advisors would likely opt.

But there is a big difference among the various diversified indices. As mentioned earlier, the S&P/GSCI index is production-weighted, with energy contracts representing nearly 78% of the fund. Industrial and precious metals represent 8.11%. Agriculture exposure is 14.16%.