By Andrew Leckey,

       Rising crop prices, a weak dollar, gut-wrenching oil prices and global pressure on supplies have captured headlines and sent investment firms back to the drawing boards.
       To capitalize on the dramatic worldwide emergence of commodities, they've been rolling out new funds designed to hedge against the problems that turned traditional investments ice-cold.
       There are 80 commodity-focused funds, most launched in the past year, according to ETFguide.com, an independent data and reporting source. They're being marketed to average investors, for whom nothing else seems to be working.
       The new arrivals consist of commodity-linked exchange-traded funds, or ETFs, which hold baskets of stocks, and exchange-traded notes, or ETNs, which are bank-issued promissory notes. Both generally base their holdings on indexes and trade throughout the day on an exchange like individual stocks.
       The ETF PowerShares DB Agriculture (DBA), which includes wheat, corn, soybeans and cocoa, is up 20 percent this year. CurrencyShares Euro Trust (FXE), a play on that European currency, is up 11 percent this year.
       Meanwhile, iPath Dow Jones-AIG Commodity Index (DJP), a broad-based commodities ETN, is up 26 percent.
       "Agriculture, currency and commodity-based ETFs are being launched into what is still a receptive marketing environment," said Jim Lowell, editor-in-chief of The Forbes ETF Advisor in Watertown, Mass. "The danger is in confusing that marketing environment with a market environment, since they are suited only to sophisticated, aggressive, growth-oriented investors."
       For a time, only professional traders, big companies and hedge funds had access to commodities markets.
       Investors now considering these should first examine their portfolios to see how they would fit in. Because of high volatility, the commitment should be modest. As with technology and Internet stocks, these are breathtaking when rising but can come down hard.
       "Commodity and currency ETFs have worked as a great hedge in this market, opening up diversification in asset classes that investors didn't have before," said Matthew McCall, editor of The ETF Bulletin and president of Penn Financial Group in Ridgewood, N.J. "But because investors may not be educated enough on how to use them in their portfolios, we could run into trouble in years to come."
       While corn or rice can make several significant price moves in a month, McCall said, many individual investors can't handle such stress and tend to panic. They buy at the top and sell at the bottom.
       "Currency ETFs provide a great way to hedge against the falling U.S. dollar," said McCall. "Though I think the dollar will have some further weakness, that particular trade is getting long in the tooth and you must be careful about the currencies that you select now."
       He recommends playing the Australian dollar through CurrencyShares Australian Dollar Trust (FXA) and the Chinese yuan through WisdomTree Dreyfus Chinese Yuan (CYB). The Australian currency has done better than the euro against the U.S. dollar, he explained, while the Chinese currency has low volatility.
       "For the individual, it is easy to do a little homework and become nonchalant about risk," said Joe Clark, chief investment officer and founder of Financial Enhancement Group in Anderson, Ind., whose $220 million under management has two-thirds of assets in ETFs and ETNs. "For example, you could invest in several different overseas commodity sectors and not realize that all of them are really basically plays against the U.S. dollar."
       PowerShares DB Agriculture, which trades in significant volume and has been around longer than its peers, is recommended by Clark, Lowell and McCall.
       To get in position for the potential rise of the U.S. dollar, PowerShares Deutsche Bank U.S. Dollar Index Bullish (UUP) is suggested by Clark, Lowell and McCall. Powershares Deutsche Bank G10 Currency Harvest (DBV), a diverse basket of currencies from the G10 industrial countries, is another Lowell selection.
       "Commodities have been a hot corner of the investment universe, but they aren't anything like investing in stocks and bonds," cautioned Ronald DeLegge, publisher and editor of ETFguide.com in San Diego. "They are affected by a range of factors, including geopolitical issues, supply and demand imbalances, weather patterns and war."
       DeLegge recommends that prospective investors:
       • Stick with broadly diversified commodities funds, such as iShares S&P GSCI Commodity-Indexed Trust (GSG) and PowerShares DB Commodity Index Tracking Fund (DBC).
       • Always keep commodities exposure limited to their target allocation, making reductions after any price run-ups.
       • Only "mess" with products linked to a single commodity if it involves what you consider to be "play money."
       For investors anxious to jump into two of the hottest sectors, DeLegge recommends Energy Select Sector SPDR (XLE) and Materials Select Sector (XLB).
       "Long-term trends of a growing global economy suggest that demand pressures will continue to be placed on tight supplies in hard commodities like crude oil and steel and also in soft commodities from corn to cocoa," said Lowell, who is also editor of MarketWatch's ETF Trader. "The only way any investor ought to venture into those two trajectories should be a diversified basket that some ETFs provide."
       Lowell owns United States Oil (USO), an ETF that is a pure play on Texas sweet crude oil and "carries with it all the volatility of the oil patch."
       In small doses, commodity ETFs and ETNs give investors a real shot at profiting from inflation. Just so long as they don't let the hype consume their entire portfolio.
       Editor's Note: Andrew Leckey's column appears regularly in The Bull & Bear publications, both in print and online.